Commercial PC sector shows signs of recovery, but rising memory costs cannot be ignored! HP Inc. (HPQ.US) lowers profit forecast for fiscal year, fears front-loaded demand may lead to overextended growth in Q4.

PC manufacturer HP Inc. (HPQ.US) has given profit forecasts for the current quarter, indicating that the company is still struggling to cope with the challenges posed by the sharp increase in memory chip prices. HP Inc. expects earnings per share, excluding restructuring costs and other items, to be between 61 cents and 71 cents for the quarter ending in July. While the midpoint of this range, 66 cents, exceeds the average expectation, data shows that some analysts' forecasts go as high as 73 cents. In the second quarter, HP Inc. reported earnings per share of 86 cents, surpassing market expectations; revenue was $14.4 billion, a 9.2% year-on-year increase. Analysts had forecasted adjusted earnings per share of 71 cents and revenue of $14 billion on average. The company reported an adjusted operating profit margin of 7.5%, whereas the average expectation was 6.6%. HP Inc.'s computer business segment - Personal Systems business - saw revenue growth of 13%, reaching $10.2 billion. The growth of this segment was mainly driven by a 14% increase in commercial PC sales. Benefiting from customers replacing devices and investing in new systems to keep up with the artificial intelligence trend, HP Inc. is profiting. However, the demand for artificial intelligence has also led to a shortage of memory chips, causing costs to rise rapidly. To tackle this situation, HP Inc. has raised product prices, introduced more suppliers, and adjusted some products to reduce reliance on memory. Interim CEO Bruce Brossard stated that this quarter saw an increase in memory and storage costs, and the company expects these prices to continue rising in the second half of the year. He said in a post-earnings conference call that while HP Inc. is executing a plan to keep supply, demand, and product configuration decisions aligned, the company expects the memory and storage environment to remain tight. HP Inc. has lowered the upper limit of its adjusted profit forecast for the fiscal year by 10 cents. The current earnings per share range is expected to be $2.90 to $3.10. This forecast range was previously $2.90 to $3.20 in February of this year. In after-hours trading, the stock initially surged by 15%, then gave back almost all gains. The stock closed at $25.49 in New York, up 14% year-to-date. Analyst Woo Jin Ho stated, "Double-digit growth in PC pricing will help improve the performance and profit of this segment, but the slight narrowing of the full-year earnings per share (EPS) guidance suggests that some PC sales have been brought forward. This may be one of the reasons why fourth-quarter earnings per share expectations are weak." Company executives stated in the conference call that some customers purchased more products than usual to avoid future price hikes, contributing an additional 2% to 3% of revenue for the quarter. After PayPal appointed former HP Inc. CEO Enrique Lores as its CEO, HP Inc. is currently also searching for a new CEO. Board member Bruce Brossard is serving as interim leader while HP Inc. looks for a replacement.