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HP’s Profit Margins Are Expanding Across Business Segments

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Personal Systems

The demand for personal systems has been stagnant for a while now. The PC market has matured with the arrival of smartphones and tablets. A longer upgrade cycle and the ongoing chip shortage has also weighed on PC sales.

Though HP (HPQ) is struggling to grow its PC shipments, it has successfully expanded its profit margins in recent quarters. HP’s Personal Systems segment’s operating margin has expanded from 3.8% in the second quarter of fiscal 2018 to 3.9% in the third quarter, 3.8% in the fourth quarter, 4.2% in the first quarter of fiscal 2019, and 4.3% in the second quarter of fiscal 2019.

HP has managed to improve its profit margins due to a higher average selling price as well as lower component prices.

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Printing Systems

HP’s Printing Systems segment experienced solid revenue growth in the second quarter of fiscal 2018 and the third quarter of fiscal 2018, with its sales rising 11.0% in these quarters. Its sales also rose 9.0% in the fourth quarter. However, in the last two quarters, Printing Systems sales for HP have been flat.

HP’s Printing Systems operating margin has also expanded in the last few quarters. The segment’s operating margin has expanded from 16.0% in the second quarter of fiscal 2018 to 16% in the third quarter, 16.1% in the fourth quarter, 16.2% in the first quarter of fiscal 2019, and 16.4% in the second quarter of fiscal 2019.

While HP has managed to expand its bottom line, is it enough for investors? HP can focus on expanding market share in the PC gaming market, but that too is very niche and is not a key revenue driver right now.

HP’s sales increases in Japan and China have helped it regain the top position among PC players. The chip shortage could come to an end by the end of 2019, allowing HP’s sales to accelerate at least in the mid-priced segment. Its lower component costs mean its profit margins should continue to improve.

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