HP CEO Lores: Commercial PC Growth Taking A Hit From Component Shortages

‘Demand is very strong’ for commercial PCs as offices re-open, HP CEO Enrique Lores says. But supply constraints led a drop in commercial personal systems revenue during the company’s latest quarter.

HP Inc. continued to see major demand from businesses for commercial PCs during its latest quarter as workers returned to the office, but component shortages held back growth in the segment, HP CEO Enrique Lores said.

While HP’s commercial PC business had resumed growth in its previous quarter—for the first time during the pandemic—revenue for the business fell 1 percent during the company’s third fiscal quarter, ended July 31, HP reported Thursday.

[Related: IDC Trims PC Forecast Amid Component Shortages]

The reversal is due to the shortages on a wide range of components used in PCs, and the commercial PC business would “absolutely” have seen significant growth if not for the constraints, Lores said Thursday.

“When we look at our backlog, commercial now represents more than 60 percent of the backlog and was the category that grew the fastest,” Lores said during a call with reporters and analysts Thursday, in response to a question from CRN. “And in that commercial number, I’m not including Chromebooks. So I’m really talking about demand from SMBs, demand from enterprise, demand from commercial customers. Really, the market is behaving as we were expecting.”

HP has begun to see an increase of demand from commercial customers as offices reopen, and the demand is at the level that HP had been expecting previously, he said.

“Companies are investing to improve the productivity of their employees and the experience of their employees. And this is really driving a significant increase of demand on the commercial side,” Lores said.

Ultimately, in the commercial PC segment, “demand is very strong,” he said. “And this will continue to be an opportunity not only for us but also for all of our channel partners that are seeing the same needs from their customers.”

While commercial net revenue in personal systems slipped by 1 percent during HP’s fiscal third quarter, consumer personal systems revenue grew by 3 percent from the year before, HP reported.

Overall HP personal systems revenue during the quarter was $10.41 billion, up slightly from the same period a year earlier, when revenue was $10.36 billion. Sales of notebook units rose 2 percent, while desktop units dropped by 7 percent, year-over-year.

The shortages that are constraining PC supplies are not only on processors, Lores noted. Other components such as WiFi controllers and codecs—which “have never been an issue” in the past—are now also seeing constraints, he said.

Shortages are expected to remain an issue into 2022, but HP is also taking several steps to improve its access to components, Lores said. “We clearly have some areas where we need to improve operationally” in that regard, he said during the company’s quarterly call with analysts on Thursday.

With HP’s outsource model on PCs, the ODMs (original device manufacturers) have been managing relationships with components suppliers in addition to managing production, Lores said. But now, HP has begun signing agreements with components suppliers to manage access to components directly, he said.

HP is also beginning to design its products so that more devices use the same components—optimizing the efficiency of components usage—rather than having so many devices that use unique components, Lores said.

Additionally, HP has deployed a new ERP system to optimize its ordering for components, which should also help improve components access, he said.

Disruptions to supply chains and surging demand for devices during the pandemic has constrained components supplies throughout the industry.

The PC market will still see significant growth for 2021 as a whole, but the growth will be slower than previously expected due to component shortages, research firm IDC reported this week.

IDC revised its worldwide PC forecast for 2021 down to growth of 14.2 percent, year over year. That’s compared to the prior forecast of 18.1 percent growth for the market this year, which the research firm had issued in May

Overall for HP’s fiscal third quarter, revenue climbed 7 percent to $15.29 billion, from $14.29 billion during the same period a year ago.

The return to the office boosted HP’s printing business during the quarter, with commercial print hardware revenue jumping 46 percent, year over year, to $1.07 billion. Supplies revenue rose 20 percent to $3.09 billion. Overall print revenue for HP during the quarter was up 24 percent to $4.88 billion.

In terms of services in the print space, managed print services revenue increased during the quarter while Instant Ink subscriptions surpassed 10 million, HP said.

HP’s net income during the quarter grew to $1.12 billion, or 92 cents per diluted share, up from $702 million, or 52 cents per diluted share, during the same period a year earlier.

HP’s stock price declined 1.7 percent, to $28.60 a share, in after-hours trading Thursday.