Hi, good morning, everyone. Thank you for being here. I have the pleasure of hosting Dave McQuarrie, who's Chief Commercial Officer of HP Inc. or HPQ, as you would refer to it. What we'll do is, we definitely wanna talk about some of the announcements, some questions about the businesses. Before I do that, I've been asked to read out a disclosure here, which reads as, "Today's discussion includes forward-looking statements that involve risks and uncertainties and assumptions which are further described in HP's SEC filings, including Form 10-K and 10-Q. HP assumes no obligation and does not intend to update any such forward-looking statements. For more information, please visit HP's investor relations webpage." Joe. All right. Let me hand it over to you, Dave. Thank you for being here.
We generally just want to start with most companies talking about sort of the announcements you're making around CES, obviously a big sort of industry conference and quite a few media investors. Just take us through. I saw some of those around gaming, et cetera. Maybe talk us through that and then we'll be able to take some questions.
Yeah. Thank you, and thank you for having me. It is an exciting year for us and an exciting show. We have. Obviously, there is an underlying theme that we're all experiencing of hybrid work, which runs through a lot of the announcements we made.
Yeah.
From the commercial PC side, we have new Dragonfly products, both piece Windows and Chrome, that acknowledge that need for working wherever we are. With improved microphones, the ability to have multiple cameras, and then a very high resolution Chromebook that gives people who have moved to Chrome. We know Chrome became a big part of everybody of a lot of people's lives through the pandemic. We have big announcements on the PC side. In print, we have expansions on the business, the subscription business that we've been moving toward consistently, HP+, the expansion of Instant Ink to other, and Instant Toner to other offerings. In our peripherals and services side, there are with the HyperX and Poly businesses that we now have integrated significant launches of new products that are...
If you take HyperX or Poly around, gaming headphones and,
Mm-hmm.
the ability to 3D customize keycaps on keyboards in HyperX, because we know that hyper customization, if I may...
Yeah.
feel the term, is so important. Again, in Poly, that deal which is going well, and we'll talk about perhaps, has a number of products coming out that are again aimed to the hybrid worker, whether it's the fact that you're in an office and you need quality in the room, and so room solutions and services, or on the go with new headsets, new earbuds that all acknowledge the type of work we're now doing. Yeah, there. Of course, a bunch of other peripherals displays and other. It's a significant amount of product that is now out, that is being announced, that are already available or coming out shortly, that we think acknowledges very much the zeitgeist of where we are right now with as an industry and as, you know, users of technology.
We had the pleasure of recently visiting your Palo Alto offices.
Right.
clearly all of that equipment would look great in any living room.
Indeed. Indeed.
Let's get into some of the sort of questions here, and particularly related to sort of your new role here as Chief Commercial Officer, which is pretty recent.
Mm-hmm.
Talk through the sort of priorities for you for 2023 and sort of in the backdrop that we are in relation to the macro as well, like how are you thinking about 2023 and what you need to focus on?
It is new. I've been in the role since the beginning of November. For us, the three big priorities for the year... For me, the three big priorities. As a company, we have, of course, a list that Enrique has talked about. For me, the three big ones are, refocus and intensify the focus on our customers, and I'll speak about that in a second. The second is, regain profitable market share.
Mm-hmm.
We have, as we know, we have significant pockets of our business that are very profitable. We wanna continue to gain share there. And the third is to keep growing our growth businesses and, you know, we'll get to them, I'm sure. On the first, during the pandemic, the focus of all of the HP organization went to serving the extremely high levels of demand.
Mm-hmm.
Finding, sourcing, reconfiguring, re-qualifying. It became a very, an organization very oriented around serving the demand that was there. As that demand has softened, the need for our teams, particularly my team, to get back out there with customers, with partners, go grow the business, go win business, has become the higher priority. That focus of where does the sales organization spend its time? How does it spend its time? Priority number one. Priority number two, profitable share. There are so many pockets of our business. If you take the print business, we know it's been the jewel in our crown for a long time. We need to keep growing there. We've had good growth there, so I say regained, it can be gain more.
We need to go and recover where we've not held, and we need to keep growing in the parts that we have strong market share. If you look on the PC side, we've had good growth in some places. Gaming, we'll talk about, a few others that we've done well. Others where frankly, we know we lost share and where we make good margins and our customers wanna buy from us and for various reasons they weren't able to. Now our job is to go back and win them back. In all the conversations I'm having, the good news is they want that. They want HP back in there.
If they had us 100% and they took that down a little, they want us back at the 100, and if they didn't have us, then they want us. There's great opportunity for us to regain those profitable customers and segments. Then third, as we talked about in the most recent earnings call, the growth businesses for us, they were, you know, a high growth over $10 billion, in fact, over $11 billion of revenue, of the company's revenue for the year. We need to keep growing them, right? The Poly business, the services business. I've talked with, you know, we perhaps talk about some of the subscription and other services businesses we have, plus gaming. These are all growing even in a softer market, and they are more profitable than our average.
We've got an opportunity and an expectation on ourselves to go grow them. Those are the three for the commercial organization.
Yeah. Go ahead. Go ahead. Yeah, we'll get into some of these subscriptions and others in a bit.
Mm-hmm.
Let's start with PCs and the pull forward of demand around the pandemic is not solely on PCs. We're seeing it in different end markets.
Right
like e-commerce, et cetera. We're seeing the signs of that. Agreed also, a lot of that was Chromebooks, which are lower margin. Maybe just walk us through how you're thinking about, firstly, near-term demand, and once you go through that sort of effect of the pull forward on the near term, how do you think about long-term demand here? And what I'm also interested to learn is how you're thinking about mix or sort of where is the consumer preference rotating into when they look at these devices and using them now.
Well, while it is true that what the demand we experienced through the pandemic was at a peak and that it has come off that peak, it is also true that the market for PC is structurally larger than it was than when we came into the pandemic. The value of the devices is higher, the need for them from the customer, the demands are higher, and therefore, inevitably, so are the prices that they pay and the features that they expect. We leave the pandemic with two dynamics occurring. Yes, a softening versus the peaks of 2022, but a market that was larger than when we came in with higher prices. To your point about mix, with a mix towards more premium devices than we were experiencing before.
The other part of the other dynamic that's at play is this move to hybrid work has made not only the need higher for the device to be always on, always high performing, but the specs and performance of the device to be much higher than it was. The customer has gotten a lot more demanding around what they want, how they get it, how it works. That gives us confidence that there is a refresh cycle coming. Because if you think today, beginning of 2023, most of the devices that are three or four years old were bought in 2019 or 2020. The devices that were built for that period were built for pre-pandemic. They were not built for hybrid work in the way that we're now experiencing hybrid work.
There is opportunity, we think, in the commercial space over the next years as those devices get refreshed. In PC, there's a significant correction as you talked about. We think that we come out of that as we come into the second half. In any case, structurally larger market, hybrid work is a big driver of the move towards the higher end. If you look, that's the commercial dynamic. If you look at the consumer dynamic, gaming is clearly the space where growth continues regardless of the more broad macro conditions. Gamers have a higher propensity to use the device to turn it over, and we may get to that. In any case, the PC market, we come out stronger than we went in, albeit off of a higher 2022.
Yeah. Just to follow up on that, any quantification that you've done in terms of obviously you get data from all the deployed PCs that are out there. Like anything in terms of how much has the install base increased during the pandemic? How much of a bigger replacement opportunity does that result in?
Yeah, we have some of that data. We don't normally publish it, but the way I would describe the install base is there is a significant percentage of the install base that is either older than the four years that I mentioned, which means not only are the devices not 2019, 2020 level, they're older than that, making them really not fit for the purpose that we today have. Or there are corporations who are declaring, regardless of the age of the fleet, that they want to upgrade and they want to move. Some of our largest customers are making those declarations to us, and we're working with them right now. Yes, we have a lot of the IB data, and we work on where that opportunity is being presented.
Overwhelmingly, the message we take from that is there's opportunity there. Now, there are customers here in this next couple of quarters who are, you know, going through the same macro headwinds as everybody else. If we look long term, we think there's a huge untapped opportunity to unlock in the install base.
Okay. Okay. The second follow-up I have to that is the two segments of the PC market, consumer and commercial.
Mm-hmm.
One of the things that's been very typical of the consumer side has been the promotions through the channel that you then have to sort of use to support the buying behavior of consumers.
Yeah.
Any thoughts around does that structurally change? What we're seeing now in terms of promotions, is that just a near-term headwind and structurally there's some different way of doing that business in the long run? Because that obviously is another driver of sort of how the mix erodes to some extent. Extending that question, how do you think about differentiation? Because that can really drive the promotions to be not as severe as they have to be, right?
Yeah, I mean, there are two parts to the question. If we just start with the channel part of your question, we are seeing a period right now where the channel and the promotions in the channel are higher. That's a combination of supply versus the current demand and the fact that we've seen some macro headwinds. Either of those two correcting, we should expect that to normalize itself through the year of 2023. I think the activity or the dynamic you're seeing in the channel right now is temporary. It is not a structural change to a higher promotional need in and with the channel. I don't see that as a dynamic that will stick for longer than it takes to clear through those two realities.
As far as how customers buy, what they wanna buy, and how we do that through and with the channel, which is a significant part of our business. Look, we capture a significant amount of customer data already. Some of that we capture directly from customers, through, for example, our Instant Ink programs and other direct engagements we have. Others, we work with our partners through our Amplify program to collect significant amounts of data that we and they use to go and serve customers together. We will continue to expand that data collection for the purpose of serving the customer and serving them better products, better services at the time they need them. As a way of us driving more revenue, either through the channel or directly from the customer.
For us, the channel continues to be a critical partner, a critical path to the customer. What is really obvious is that our relationship with the user of our devices needs to continue to increase, and you see that in a lot of the offerings we have, whether it's Instant Ink or MPS, or even some of the subscription and services that we provide on PC. That will continue. The relationship with the customer, the insight we get from their behavior, from their needs, and our opportunity to drive upsell or drive services to them if they need, we've continued to expand that while acknowledging that the channel is a strong partner and will remain one.
Okay. The last one on sort of the PC near-term headwinds that I had was, how are you thinking about when do you get past these sort of inventory digesters that you're seeing?
Mm-hmm.
Particularly as we're looking globally, obviously, there's a big concern around sort of how the China reopening goes, et cetera. Maybe sort of help us frame that in terms of which geographies matter the most in clearing some of that inventory that you have and getting to a more right size between supply and demand so that we can sort of look past this inventory digestion.
Well, I mean, China is a unique situation, as we know. Our business there remains strong. The China business continues to perform for us, albeit with a, you know, incredibly difficult environment for, you know, for the local population there, for our employees there. We do think that China gets through this, and it is not, it is not now, and it has never been an area where inventory has been a problem for us. We run a very lean business in China, deliberately so. The inventory situations in North America and Europe are higher, and they. I do expect them to come down. As that comes down, and one of the ways it will come down is I talked about our relationship with the channel.
That relationship of sharing data, of having a more granular view of what's happening where, us being more country by country in the way that we engage, how much inventory exists. Some of the supply chain changes that we have made already that allow us to be a lot more surgical about where product goes, when it goes, rather than in the past, where it was, we moved as much as we could because there was such spike in demand through the pandemic. There's, there are or have been a number of actions already taken to get that channel, motion, more efficient, and we will continue to drive that efficiency in. To your question about when, I think through the course of 2023, we should see it correct.
All of the things that I talked about from our own ERP transformation to supply chain transformation and the planning we do with our partners, that's a lot more detailed and needs to be, and we'll continue to get more and more detailed, combined with the data that we share, allows us to feel confident that we get through it and we get to a point where we're able to manage the business with the channel effectively.
Let's take a step back from PCs then.
Mm-hmm.
Obviously, in your role, you're looking and talking to customers on a regular basis, and one of the big concerns is given sort of how estimates for GDP or macro have shaped up.
Yeah
... what is sort of enterprise spending going to look like on IT infrastructure, or even IT devices? Maybe just share what your latest discussions are coming up with on that front. Like, the big question obviously everyone has is IT spending up next year? Is it down? Is it flat?
Yeah.
Where are the priorities going to be? Is print going to be a priority for a customer? Is sort of devices going to be a priority? What are you hearing on that front?
Yeah. If we start with print, obviously, with offices being used much less during the pandemic, the baseline for growth for print is there. We do think that MPS, so the office printing space and specifically the managed print space, will come back. We think it will come back to about 80% of our pre-pandemic assumptions for 2023 and beyond. We are seeing that trend. We are beginning to see the increased business in the office space for printing. While these macro trends that you're describing are real, off of the baseline of 2022, we are seeing a long-term trend being positive for us. If you think of the long term for print overall, that's a low single-digit growing market over the long term. As the market leader, we think that we can grow at that rate.
Even though we do expect in 2023 there to be a correction down, long term, we think the print market still has good growth in it for us, and given our strength there, that we can grow with it. Specifically in the consumer part of that market, obviously, our Instant Ink business got a shot in the arm during the pandemic, and it will continue to be the direction we take our business. We will continue to transform the print business to a more profit upfront space in that consumer. Whether it's the tank printing business or the subscription or the HP+ models, all of these are examples of us moving that business over time to a services subscription and a more balance between the hardware and the profitability of the print business consumer, particularly.
On PC, yes, the market, as I said, is correcting down, and we serve the majority of the Fortune 500, and they are all going through some version of, and, you know, it's in the headlines, what is happening in the large enterprise space. That said, as I mentioned before, they are all moving to hybrid work. All of them. Therefore, the need remains. Regardless of the macro situation, regardless of the short term, the need remains for them to have fleets and have offices. We talked at the beginning, right? Offices need to reflect the fact that we come together, but we also have people that are not with us physically.
Whether it's room solution opportunities, there are 90 million rooms around the world, of which only about a tenth have fit for purpose audiovisual equipment, or it's the equipment that we carry around with us. That set of customers is going to go through an upgrade cycle that we think is positive for us. SMB, the most profitable segment for many companies, certainly for us, good opportunities there in both Hybrid Work and in some of the very smaller businesses in the S of the SMB as freelancers in other industries or other types of work scale. They are well suited to the product or we are a good fit for the services and product needs they have. Look, short term, there are headwinds.
The long term, whether it's print or PC, whether it's enterprise or SMB, or consumer, we think there's good opportunity for growth.
Okay. Okay, great. The one thing that I sort of heard you say, which is you think print is a low single-digit growth business, long term, and that's often an area where there's a lot of push back from investors. The perception there most investors carry is that it's a secular decline business, because when you think about how our print business outside of Managed Print has really tracked. In addition to that, you sort of see the change in printing behavior or use of digital copies, et cetera, during the pandemic, that some of the secular decline drivers have probably accelerated rather than sort of moved back. How do you really sort of then think about those drivers and why print is still a low single-digit growth business, and not a secular decline as such?
Obviously, recognizing that Managed Print is a different sort of, in a different growth trajectory overall.
Yeah. I mean, well, I mean, for start, yes, MPS is, and therefore, that contributes to the growth of the industry. Taking it aside, the growth opportunity for us, regardless of whether, you know, your view on single-digit growth or secular decline, the growth opportunity for us is we are a strong player in many of those industries, and we are moving rapidly towards a different business model in that industry. Growing into that different model is our priority. Because trying to project whether indeed it will be one of those, you know, flat up, down, is not as valuable to us as making sure that we are moving customers from the unprofitable model.
There is a small subset of customers who are in that model that we wanna move to a more profitable way of buying, whether it's a tank model that is profitable up front, or whether it is a subscription where we can guarantee that they have HP supplies and therefore that they are buying and using our equipment to for their printing needs in consumer. Then the expansion of that into Instant Toner or instant paper areas that we're moving into. For us, the growth opportunities are significant and therefore, our growth opportunity within it is what we focus on.
Like I said, if we can move customers and move that business as we have been so far over the last years continually towards these more profit balanced models, we think there's, you know, there's reason for promise and continued strength in that business.
Okay, great. Maybe let's talk about the transformation on that side and sort of give us an update on how far along you are.
Mm.
Just as I'm thinking about it, like it's a great way to sort of grow profit in terms of moving more profit up front.
Mm.
At the same time, if I'm a customer, it probably, to me up front looks like a higher price that I'm paying for a printer. Driving that change in 2023...
Mm
... in a year with a tough macro backdrop seems a bit more challenging.
Yeah.
Can we talk about sort of the progress and do you envision sort of making a similar progress in 2023 or 2023 is going to be a slower year for progress for those reasons?
Do you mean on transformation or do you mean on?
Transformation.
Okay.
Yeah.
Let me just touch on the point you made about, you know, value versus price. Clearly, if all we did was to lift price then the dynamic that you described would be true. Our plan is to continue to increase value for customers. If you think of HP+, the value of that offering is significant for customers. They get an extra year of warranty. They get a guarantee of HP supplies for quality. They get a longer, rather a better app experience and more insight about what they're printing and how to print well, and more capabilities, digital capabilities for their printing.
We think that it's not a question of whether the customer pays more, it's a question of how do we make sure they get more value as we move them to that model and as we make that transition in our business. As far as transformation, I mean, the transformation that we've just completed, and we overachieved our goals in that, but one of the things that was a very positive outcome from it was that it showed us that we have opportunity further to transform and make change. If I just deal with the commercial organization part of that, there are a few areas.
The way that we sell, I talked about we need to spend a lot more time out with customers, but there's so much digital capability that we can leverage as a part of this transformation. I talked about our ERP transformation. We have a significant movement towards bots and automation that's going to allow us to get more efficient with our sales organization, more time with customers, lesser people, but more customer contact, more partner contact. We have a significant improvement in operational excellence that we expect from moving more of that work that's low value, that's not about the, you know, the customer and the outcome and make, you know, taking the order and making the business towards just those things. For...
within commercial, there's an operational element, there's a digital transformation element that we rely on for us to be able to contribute to the overall company goal. We think we can. We know that there is significant opportunity still, having seen what the first program uncovered. For us, you know, I feel confident that we'll continue to contribute and continue to get more efficient. That we will do that during this time is important because indeed, it will allow us to make more profit and direct our resources to these priorities I mentioned at the start for the year.
Okay. Any, I mean, I know you mentioned HP+ . Any updates on what sort of those take rates are for the subscriptions from the consumer side?
I don't have the figures to give you, but the feedback is very positive. Like I said, we've expanded, we're expanding the services that we offer. We're expanding the countries that we offer Instant Ink, and we're expanding the offer from Instant Ink to Toner and doing some pilots and expanding paper, and expanding services. The business, those subscriptions continue to grow both in number of subscribers and in the services that we offer, and we're gonna continue down that path. That's the future for our printing business in the long term.
Okay. Let's talk about Poly a bit. We met with Andy Rhodes, who's your head of hybrid solutions.
Yeah.
-in Perth recently. he talked about the go-to-market strategy with, Poly, which now includes scaling Poly's presence in the channel-
Mm-hmm.
-and cross-selling opportunities as well. Maybe you can sort of dive into that a bit because it plays into the hybrid work sort of.
Mm.
priority that you have or strategy that you have, right?
Well, I mean, I would start with saying the integration's going very well. It's on track. What we expect from it is delivering. You will recall that we expect to add $500 million of revenue and 600 basis points of OP or operating margin. We expect to be on track over the long term to do that. In terms of go-to-market, right now, the two teams are collaborating extremely well. The Poly team as it came in and the HP team as it was, collaborating well, working together, uncovering opportunities for each other. This is one of the most encouraging parts of it, is as the teams get out there in the market.
the former Poly team who have had relationships with a particular set of customers are connecting them with HP reps in that same territory and vice versa. The coming together has started as two teams. The opportunity is the consolidation and the removal of overhead and the coming together of those teams as one rather than two teams that are collaborating very nicely. Short term, the collaboration continues. It's unlocking lots of revenue and margin opportunities for us. Long term, the cost improvements that come from the synergy that comes from bringing the two teams together, eliminating any of the administrative or other overhead and having a single go-to-market, with specialists, but with a single go-to-market is very powerful. We think we've...
That acquisition is happening at exactly the right moment because of this incredible shift to hybrid work. My part of that and my team's part of that is to make sure that the two teams are collaborating well first and then integrating and we get savings from it. Like I said, those are on track.
Okay. I have a couple more, but let me check if anyone in the audience has a question. Yeah, please go ahead.
What do you think the secular growth rate on the printing business will be, you know, in the next 1 to 2, 3 years, are there processes?
In the next year, it's down. Over the next many years, we think low single digits, like I said.
Just how do you get there? What's the algorithm for.
Oh, I don't have the algorithm for you.
I mean, like, is it units? Is it pricing? Is it coming from 3D printing? Is it, you know, what's the, how do you get there?
It's, when I make that comment, it includes the. It does not include the 3D printing part. It includes the industrial and the office and the home printing businesses, so we expect them to keep growing, and it's the combination of those three that will serve at that rate.
Let me move to the most exciting part, which is gaming.
Mm.
maybe again, sort of hit on what you're seeing more from a near-term perspective in terms of headwinds.
Sure.
We can move to sort of the product roadmap there and, how you're thinking about the replacement of the install base as well.
Yeah, well, gaming is a bright spot. I mean, of course, like many other parts of the market, it's going through what's happening at a macro level, but it is bucking the trend. We, in the most recent quarter, grew quarter-over-quarter and year-over-year in our gaming business.
Mm.
For us, that business continues to be a great opportunity. We're growing share in that space. As a business, as a marketplace, it is different from what we see at the macro in the other trends. It is different because the users or the gamers are different. They tend to turn their systems over more often. They tend to spend more time on their systems and demand more from them. They tend to spend more on their systems. All of those things play to our strengths. The accessories businesses that we have, the HyperX and the OMEN and Victus product businesses are working very well together.
We think of gaming, which is a high growth business for us and is a growing market in a, or growing business in a market that's at the moment in decline, for PC. We think of that as a very strong contributor to the other... We have five plus one growth businesses, including 3D. It's a strong contributor to that, and it will continue to be strong. Our portfolio, I mentioned at the beginning some of the innovation that we're coming out with there. There's a bunch more I didn't talk about in the OMEN families that are being announced here at CES. You know, we think it's a very strong opportunity for us all around the world. From China through North America, through Europe, through Asia, the opportunity and the demand is very strong.
Our portfolio is strong. While there are headwinds in our industry, gaming is an opportunity for growth for us.
Okay. Just the last one. I'm surprised you don't really... When you refer to gaming, you don't talk about sort of the AR/VR headset that you have-
Mm.
in the context of that. Do you see that as more of a synergy with the gaming sort of end market? Do you see it as more of a business, sort of, business to business sale, more than a direct to consumer sale? Like, how do you think about the use cases for the VR headset and whether it'll be more synergy for your gaming business to the consumer or is it more of a business product?
I don't exclude them from each other. I think opportunity exists in both. It is still, that market is still evolving-
Evolving.
Pretty, aggressively, and you see lots of players in there, and we all read the same headlines. For us, it's important that we're in it, that the opportunity to game with that equipment is there, that to the extent that it's used by businesses or commercial enterprises, that we have product for it there. I wouldn't say it's more one than the other or it's only one, not the other. It's also evolving so rapidly that I'm probably not gonna make predictions for it. It's a good business and one we think is, you know, has got some future.
Yeah. Great. We are up on time, but thank you for taking the time to participate at the conference, and thank you to the audience as well.
Thank you.
Thank you.
Thank you.