Printing accounts for 70% of HP’s operating profits
Tech (QQQ) firm HP Inc.’s (HPQ) Printing business posted revenues of $4.5 billion in fiscal 1Q17, with operating profits of $716 million. By comparison, HP’s Personal Systems segment reported revenue of $8.2 billion with operating profits of $313 million. While the Printing segment accounts for 35% of total revenues, it accounts for almost 70% of the firm’s operating profits.
During the Morgan Stanley (MS) tech event earlier this month, HP CEO (chief executive officer) Dion Weisler stated that if a printing unit is installed in home markets, it will yield supplies for an average duration of three years, whereas if a unit is installed at a commercial market, it will yield supplies for seven years (on average).
Notably, an MPS (managed print service) contract is also beneficial for HP because it ensures repeat orders as well as a 100% share of aftermarket supplies.
Graphics: a key market?
Graphics is another major market that HP is targeting for long-term revenue growth. HP estimates that the total graphics market will be valued at $51 billion, with $35 billion of the market currently addressable. This business provides HP with better hardware margins and high supplies consumption. Revenues from HP’s Graphics business vertical continued to rise for the 14th consecutive quarter in fiscal 1Q17.
Supplies stabilizing, as predicted
HPQ’s Printing business group reported revenues of $4.5 billion in fiscal 1Q17, which fell 3% YoY (year-over-year) and 2% YoY on a constant currency basis. Supplies constituted 67% of revenues in the Printing segment, whereas Commercial Hardware and Consumer Hardware accounted for 20% and 13% of revenue, respectively.
HP expects the trajectory of the revenue from its supplies subsegment to stabilize by 2017. Printing revenues fell 14% YoY in 2016, but this revenue was limited to a 2% YoY fall in fiscal 1Q17. Now, with the supplies business stabilizing and HP’s investments in 3D printing, this business might drive revenue over the long-term.
We’ll discuss 3D printing in greater detail in the next part.