Key Takeaways
- HP shares plunged 9.3% after hours to $27.68, even after surpassing analyst expectations for both earnings and revenue.
- The tech giant delivered EPS of $0.83 against a $0.66 forecast, while revenue reached $15.7B versus the anticipated $14.34B.
- Unit volumes in personal systems declined 16%, while consumer units dropped 19% year-over-year.
- Ongoing memory chip supply constraints, referred to as “RAMageddon,” are hampering PC and laptop production.
- The company increased its full-year EPS forecast to a range of $3.19-$3.29, exceeding the previous projection of $2.90-$3.10.
Shares of HP Inc (HPQ) tumbled 9.3% during after-hours trading Tuesday, sliding to $27.68 following the release of the company’s fiscal third-quarter financial results covering the period through July.
The decline caught many off guard, particularly since HP exceeded expectations on both the top and bottom lines. The technology company posted earnings per share of $0.83, surpassing the Street’s consensus forecast of $0.66 by a substantial $0.17. Total revenue reached $15.7 billion, comfortably outpacing the $14.34 billion that analysts had projected.
Shares had concluded regular trading at $30.52 before the post-market slide began.
The company’s personal systems segment, which primarily encompasses laptop computers, powered the revenue outperformance. This division generated $11.8 billion compared to analyst projections of $10.6 billion.
Meanwhile, printing revenue totaled $3.9 billion, meeting expectations but trailing the $4.0 billion recorded during the comparable quarter last year.
Tariff-related refunds also provided a boost to profitability. HP disclosed that these refunds contributed a favorable 11-cent impact to earnings per share. However, even excluding this one-time benefit, the company’s results still exceeded analyst estimates.
Volume Declines Paint Troubling Picture
While revenue figures appeared robust, underlying unit volume data revealed a more concerning trend. Personal systems unit volumes contracted 16% throughout the quarter. Consumer segment units experienced an even steeper decline, plummeting 19%.
This represents a significant acceleration in deterioration compared to the previous quarter, when overall personal systems units fell just 7% and consumer volumes decreased 8%.
Printing unit volumes dropped 7%, showing marginal improvement from the 8% decline recorded in the preceding quarter.
Industry observers largely attribute this weakness to what’s been coined “RAMageddon.” Artificial intelligence data centers are absorbing memory chip supply at unprecedented rates, creating scarcity for PC manufacturers like HP. Since memory represents a substantial cost component in laptops and desktop computers, constrained availability has driven prices upward.
Given that HP’s PC and laptop operations account for approximately 70% of total company revenue, the memory supply squeeze poses a significant headwind.
Analyst Community Grows Skeptical
Wall Street’s enthusiasm for HPQ has diminished considerably. Just 2 of the 19 analysts monitored by FactSet currently assign the stock a Buy rating. This marks a notable decline from 7 out of 19 Buy ratings issued two years earlier.
CFRA analyst Brooks Idlet had expressed reservations prior to the earnings release, stating the firm anticipated “a worsening decline in FY27 as memory costs increase.” He cautioned that additional PC price increases could render HP’s offerings “harder to justify” for potential customers.
The company has implemented price increases to compensate for elevated memory expenses, while enterprise demand for Windows 11 upgrades and AI-enabled systems has offered some support. However, this favorable trend appears to be losing momentum.
In a positive development, HP elevated its full-year earnings guidance. Management now anticipates fiscal 2026 EPS between $3.19 and $3.29, representing an increase from the prior range of $2.90 to $3.10. The analyst consensus estimate had stood at $3.04.
Year-to-date, HP’s stock has advanced approximately 10%, though it remains roughly 20% below its 2024 high near $38 per share.
Over the past 90 days, HP has received 8 upward EPS revisions and 2 downward adjustments, while maintaining a “good performance” Financial Health rating according to InvestingPro.
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