Hewlett Packard 3Q15 Earnings Call Notes

Two months until separation

“With only two months left until our separation, I’m pleased with the progress we’ve made along many fronts.”

Revenues hit harder as hedges roll off

“Revenue of $25.3 billion was down 8% year over year or 2% in constant currency, with declines in all regions and particular weakness in EMEA. The six point gap between as-reported and constant currency revenue performance is wider than prior quarters, as the financial hedges are rolling off.”

Outlook includes inventory destocking, currency headwinds, competitive pricing environment and softness in PCs

“the outlook definitely reflects the change in inventory levels. We are going to bring channel inventory levels back down. It reflects the currency headwinds that we’re getting both because of hedges that are coming off and just the currency headwind, the indirect currency headwind of a very competitive pricing environment in IPG as our Japanese competitors take the weak yen against both the euro and the dollar and really price aggressively. And then it also takes into consideration the softness that we’re seeing in the PC market.”

Finally rounding the corner where growing businesses are larger than the declining businesses

“I think you’ve all heard us talk about that we have businesses where the declining businesses have been bigger than the growing businesses. We’re now rounding the corner where the growing businesses are bigger than the declining businesses, which is actually going to lead to growth. And boy, that has taken a while to get here, but we’re here. And I think that sets Hewlett-Packard Enterprise up pretty well as we think about growth going forward’

Windows 10 was a challenging transition because it was a free upgrade and short transition time. It led to excess windows 8 inventory in the channel.

“We did anticipate a challenging operating system transition to Windows 10 on two dimensions. One was a free upgrade that was of course offered. And the second was the very short transition time, which is normally about three months, which was compressed to under one month. And what that drove was fairly high Windows 8 channel inventory levels, and that will take a little bit of time to flush.

Good news is that Windows 10 has strong feedback. Commercial was tough compares.

“I guess the good news is that the Windows 10 feedback is pretty good, and a great operating system is important for the ecosystem in the industry. So once Windows 8 flushes, which may take a little time here in the industry, we should see some stimulation from Windows 10. Commercial, of course, is a little simpler to understand. The compares are tough. This was the peak last year of the Windows XP transition. But that drives higher profitable units for us and we are clearly focused on that.”

This was an interesting moment, reads a little like VP of personal systems is giving a stiff arm to Whitman?

“Margaret C. Whitman – Chairman, President & Chief Executive Officer
Let me clarify that it’s not our Windows 8 inventory that has to flush through. We’re running nice inventories on Windows 8.

Dion Weisler – Executive VP-Printing & Personal Systems
Look, I think in general that’s an industry statement. If you were to look across, by all reports Windows 8 channel inventory levels are higher, and they’re on the higher side for us as well. But we are as an industry looking at having to flush through Windows 8 before Windows 10 really takes hold.”

Outlook for PC business: down high single digits, notebooks stronger than desktop

“Broadly speaking, our view is not dissimilar to the industry analysts. We think it will be challenging for the next several quarters. We’re generally aligned with the industry on that. We see it being down high single digits versus only negative to last year, driven by the XP refresh. We see notebooks being stronger than desktops. We see opportunity in commercial mobility, in accessories, in services.”

PC market is similar to 2013

“And the market to me at the moment reminds me a little bit of the market in 2013. And it really requires a highly disciplined approach to market segmentation, cost optimization, leveraging the 160,000 channel partners that we have around the globe that do an amazing job of adding value to our customer set and continuing to drive our innovation agenda. We remain disciplined about not chasing share for share’s sake, playing where we choose to play and winning in those segments. ”

“the next couple of quarters are probably going to be reasonably tough. The next several quarters we think are going to be pretty tough.”