HP's PC Shipment Decline Overshadows Strong Revenue Growth

HP's third-quarter results painted a mixed picture on Wednesday, as robust revenue growth was overshadowed by a sharp decline in PC unit shipments and shrinking margins. The company's shares dropped 9% in extended trading after it revealed that price increases failed to fully offset rising memory chip costs.

Revenue climbed 12.5% to $15.7 billion, beating analyst expectations of $14.38 billion, driven by strong demand for AI-optimized PCs. However, PC unit shipments fell 16% during the quarter ended July 31, even as unit revenue rose 18%, reflecting a strategic shift toward selling more expensive, higher-margin products.

The operating margin for the PC segment narrowed to 4.6% from 5.2% in the prior quarter, as commodity and memory costs outpaced price increases. HP warned that rising commodity prices and diminishing benefits from lower-cost inventory would continue to pressure Personal Systems margins in the fourth quarter, with a recovery expected only in fiscal 2027.

"Given the impact of commodity-driven price increases, we expect below seasonal revenue performance in the fourth quarter," said CFO Karen Parkhill on a post-earnings call. She added that year-over-year revenue growth is still expected, driven by pricing actions, share gains in premium categories, and increased AI PC penetration.

HP, like rivals Dell Technologies, Apple, and Lenovo, is navigating a global memory chip squeeze fueled by massive AI data center buildouts that are absorbing capacity. Printing revenue slipped 2% to $3.9 billion in the quarter.

Despite the margin pressure, HP raised its full-year adjusted earnings forecast to $3.19 to $3.29 per share, up from a prior range of $2.90 to $3.10. The updated outlook includes a 19-cent favorable impact from estimated tariff refunds. For the fourth quarter, HP expects adjusted earnings between 69 cents and 79 cents per share, above the average analyst estimate of 67 cents, with an 8-cent boost from tariff refunds.

Third-quarter adjusted profit came in at 83 cents per share, including an 11-cent benefit from tariff refunds, surpassing the 69-cent consensus estimate. The refunds stem from the U.S. Supreme Court's decision to strike down certain tariffs, with the administration refunding approximately $100 billion collected before the ruling.