Factors affecting the decline of HPQ’s Supplies
The Supplies segment of Hewlett-Packard’s (HPQ), or HP Inc, is one of the major components of revenue for the company. It accounted for 67% of revenues of the Printing segment. In fiscal 1Q16, revenue from Supplies fell by 20% YoY (year-over-year), driven by installed base erosion from declining hardware sales and channel inventory adjustments.
HPQ CEO Dion Weisler stated that “The factors that varied from our plan were pricing and aftermarket share. Supplies pricing was up, given adjustments we made to offset some of the unfavorable currency, but not as much as planned given necessary discounting in the quarter to combat aftermarket alternatives,” specifying that the company’s “aftermarket share was more pressured than expected for toner.”
Building back hardware installed base
HPQ is aware of the inventory levels that need to be maintained to drive stability for a profitable supply revenue stream. It will look to build back the hardware installed base with a shift to high-value units. The firm will also look to regain aftermarket share by executing actions to support an aggressive share improvement plan, which includes online programs and increased sales coverage. This will help to promote the value of original supplies.
HPQ continues to strategically monitor pricing in the Supplies segment, ensuring that currency adjustments don’t result in increased aftermarket alternatives pressure. Despite currency headwinds, HPQ is confident in its outlook for Supplies revenue that it will stabilize by 2017 driven by its mitigation plans. Weisler further stated that he remains “confident in the future,” specifying that the company has “a strong product lineup, a powerful innovation roadmap, and a proven ability to take costs out of the business.”
HPQ constitutes 0.5% of the Technology Select Sector SPDR Fund (XLK). The other top holdings of this ETF include Apple (AAPL), Microsoft (MSFT), and Facebook (FB), which constitute 15.8%, 10%, and 5.6%, respectively, of the fund.
Continue to the next part for a closer look at HPQ’s particular market focus going forward.