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# HP Inc. (HPQ) — Business, Risks and Management's Discussion HP's fiscal year ends October 31. "Fiscal 2025" is the year ended October 31, 2025; the current period is the third quarter of fiscal 2026 (three months ended July 31, 2026). ## Business *From the fiscal 2025 Form 10-K (year ended October 31, 2025), accession 0000047217-25-000071, with segment updates from the Q3 fiscal 2026 Form 10-Q, accession 0000047217-26-000051.* HP sells personal computers and printers, plus the ink, toner and services that go with them, to consumers, small and medium-sized businesses, large enterprises and the public sector in more than 170 countries. Fiscal 2025 net revenue was $55.3 billion. About 70% of it ($38.5 billion) came from PCs and related devices, and about 30% ($16.7 billion) came from printing. Printing is the profit engine. Its fiscal 2025 segment earnings from operations were $3.12 billion, an 18.7% margin, against $2.05 billion and a 5.3% margin for the larger PC business. Roughly 65% of revenue comes from outside the United States, and most sales go through channel resellers, retailers and distributors rather than direct. HP reports three segments: - **Personal Systems** sells desktops, notebooks and workstations, including AI PCs and the Z workstation line, plus thin clients, retail point-of-sale systems, displays, hybrid-work systems, endpoint-security software and lifecycle services. It is reported as two units. Commercial PS covered enterprise, public sector and SMB customers, with the Pro, Elite, Dragonfly and Chromebook lines, and had fiscal 2025 revenue of $27.4 billion. Consumer PS covered the Omni, Omen and Victus gaming lines, Spectre, Envy and Pavilion, and had $11.1 billion. HP runs a multi-operating-system strategy (Windows and Chrome) on processors from Intel, AMD and, per the latest 10-Q, Qualcomm, with NVIDIA GPUs for graphics and compute. - **Printing** sells consumer and office printer hardware, large-format and industrial graphics presses, 3D printing, and the recurring Supplies business: ink and laser cartridges, media, and industrial and 3D supplies. Supplies was the largest piece in fiscal 2025 at $10.9 billion, ahead of Commercial Printing hardware at $4.6 billion and Consumer Printing hardware at $1.2 billion. Subscription offerings include Instant Ink, the HP All-In Plan and Managed Print Services. - **Corporate Investments** holds business incubation projects and digital-enablement investments. It had $62 million of fiscal 2025 revenue as originally reported, and none on the recast fiscal 2026 basis described below. It runs at a small operating loss. From the start of fiscal 2026, HP moved the Print-as-a-Service business from Corporate Investments into Printing (Supplies and Consumer Printing). It reallocated $197 million of goodwill accordingly and recast prior periods. As a result, fiscal 2026 quarterly segment comparisons are on the new basis, while the fiscal 2025 annual segment figures above are as originally reported. On strategy, HP is pushing AI PCs and workstations, Device-as-a-Service and other subscriptions, hybrid-work systems, industrial graphics and 3D printing. It has consolidated its software teams in a Technology and Innovation Organization to move away from transactional hardware sales. In PCs it competes with Lenovo, Dell, Apple, Acer, ASUS, Microsoft, Samsung and others. In printing it competes with Canon, Epson, Brother, Ricoh, Xerox and Pantum, and with lower-priced non-original (refill, remanufactured and imitation) supplies. HP relies heavily on outsourced manufacturers, with notebooks largely built in Taiwan. At fiscal 2025 year-end it had about 55,000 employees and more than 16,000 patents. HP Inc. is the former Hewlett-Packard Company. It separated from Hewlett Packard Enterprise on November 1, 2015, and the two companies still share legacy branding and cross-indemnify certain liabilities, including litigation. ## Risk factors *From the fiscal 2025 Form 10-K, accession 0000047217-25-000071. The Q3 fiscal 2026 10-Q reports no material changes to these risk factors.* - **Printing's secular decline.** HP cites lower printing demand from digitization and hybrid work, competition from generic supplies, and customers moving from cartridge printers to refillable "big tank" printers. Big-tank printers earn more upfront but do not generate follow-on high-margin cartridge sales, so lifetime profit per device can be lower. Moving to subscriptions can also mean giving up upfront revenue. - **Component costs and supply.** HP is heavily dependent on third-party suppliers and contract manufacturers. The 10-K singles out sharply rising memory and storage costs and possible supply constraints in Personal Systems. It also names single-source dependencies: Canon for certain laser printer engines and toner cartridges, ASIC suppliers, and Intel, AMD and NVIDIA for processors. Buying ahead to secure supply, or committing to long-term prices, can tie up working capital or leave HP paying above market. - **Tariffs and trade restrictions.** Tariffs imposed from April 2025 raised fiscal 2025 commodity and tariff costs, which pricing did not fully offset. Manufacturing is concentrated in Asia, including notebook production in Taiwan, with industrial-graphics operations in Israel, which exposes HP to tensions in the Taiwan Strait, the South China Sea and the Middle East. - **AI execution.** HP is investing heavily in AI PCs and AI features. It warns that it may not recoup that spending, that faster component innovation could raise defect and warranty costs, and that AI products may cannibalize its traditional products. AI regulation, flawed models and export controls add legal and reputational exposure. - **Price competition and currency.** HP faces aggressive price competition. A weak Japanese yen helps Japanese printer competitors in particular, and most revenue is earned outside the US, so a stronger dollar hurts both revenue and margins. - **Channel and inventory management.** HP relies on multi-tier distribution, which limits its visibility into channel inventory. Sales tend to bunch at quarter-end, its fourth fiscal quarter is usually the largest, and channel partners have at times resold outside their authorized territories. - **Cybersecurity and IT outages.** HP has had past data-security incidents, none material to date. Remote work and AI-enabled attacks widen its exposure. - **Restructuring execution.** The Fiscal 2026 Plan, which relies on AI-driven productivity and headcount reduction, may not deliver its savings on schedule and could disrupt operations or cost key staff. - **Intellectual property and litigation.** HP faces aggressive patent-assertion campaigns, including on Wi-Fi and video standards and in courts that allow injunctions. Copyright levies on PCs and printers in Europe could be substantial. HP also relies on Hewlett Packard Enterprise to meet its separation indemnities. - **Tax.** HP is subject to tax audits in the US and about 60 other countries, the OECD Pillar Two global minimum tax, and the possible loss of reduced tax rates on manufacturing income in certain jurisdictions, which run through fiscal 2029. - **Credit rating and debt.** A ratings downgrade would raise borrowing costs, limit commercial paper capacity, require more derivative collateral and could hurt the subscription businesses. Dividends and buybacks are discretionary and may change. ## Management's discussion: fiscal 2025 *From the fiscal 2025 Form 10-K, accession 0000047217-25-000071. Per-share and free-cash-flow figures are from the fiscal 2025 results release, Form 8-K accession 0000047217-25-000068.* In fiscal 2025, revenue grew but margins narrowed. Net revenue rose 3.2% (3.7% in constant currency) to $55.3 billion, driven by Personal Systems unit growth from the Windows PC refresh. Gross margin fell 1.5 points to 20.6% because of higher commodity and tariff costs, mix shift toward PCs and adverse currency, partly offset by pricing and Future Ready savings. Earnings from operations fell to $3.17 billion (5.7% of revenue) from $3.82 billion (7.1%). Net earnings were $2.53 billion, down from $2.78 billion. They fell less than operating earnings because the effective tax rate was only 5.2%, which reflects $415 million of net non-recurring tax benefits, $273 million of them from changes in uncertain tax positions. GAAP diluted EPS was $2.65, versus $2.81, and non-GAAP diluted EPS was $3.12, versus $3.43. - **Personal Systems** revenue rose 6.5% to $38.5 billion, on 4.3% higher units and 3.1% higher average selling prices. Commercial PS grew 7.7% and Consumer PS 3.6%. Operating margin fell 0.9 points to 5.3% as commodity and tariff costs outran pricing. - **Printing** revenue fell 3.7% (2.7% in constant currency) to $16.7 billion. Supplies fell 3.4% on a shrinking installed base and lower usage, and printer units fell 4.2%. Operating margin eased to 18.7% from 19.0%, mainly because of tariffs. - **Operating expenses.** R&D fell 2.3%. SG&A rose 2.9% on higher litigation costs. Restructuring charges were $405 million, mostly under the Fiscal 2023 "Future Ready" plan. That plan ended with fiscal 2025, beat its savings target and cut about 9,500 jobs. Intangible amortization included impairments of $65 million in Printing and $27 million in Corporate Investments. - **Cash and capital returns.** Operating cash flow was $3.70 billion, versus $3.75 billion the year before, and free cash flow was $2.9 billion. HP returned $1.9 billion to shareholders: $1.1 billion in dividends and $0.8 billion in buybacks, the buybacks down $1.3 billion from fiscal 2024. About $8.4 billion of repurchase authorization remained at year-end. The cash conversion cycle was negative 38 days: receivables 35, inventory 66, payables 139. - **Balance sheet.** At year-end HP had $3.69 billion of cash and $9.67 billion of total debt, including $845 million short-term, and an undrawn $5.0 billion revolving credit facility running to August 2029. Uncertain-tax-position liabilities were about $797 million. - **Controls.** HP said the material weakness in IT general controls it reported for fiscal 2024 had been remediated by October 31, 2025. ## Current quarter: Q3 fiscal 2026 (three months ended July 31, 2026) *From the Q3 fiscal 2026 Form 10-Q, accession 0000047217-26-000051, and the Q3 results release, Form 8-K accession 0000047217-26-000048. Guidance history is from the earlier fiscal 2026 results releases: Form 8-K accessions 0000047217-25-000068, 0001140361-26-003514, 0000047217-26-000009 and 0000047217-26-000027.* **Results.** Memory and storage cost inflation is the main story of the quarter. HP raised prices hard and shipped far fewer PCs, so revenue jumped while gross margin fell. Net revenue rose 12.5% (10.9% in constant currency) to $15.7 billion, which HP called a record third quarter. Gross margin fell 1.7 points to 18.8% because of higher commodity costs and mix shift toward PCs. That was partly offset by pricing, favorable currency and refunds of tariffs struck down by the Supreme Court. Earnings from operations rose to $892 million (5.7% of revenue) from $716 million (5.1%), helped by $84 million less intangible amortization and lower restructuring charges. Net earnings were $661 million, down from $763 million, and diluted EPS was $0.71, down from $0.80. The prior-year quarter had a $139 million tax benefit (a negative 22.3% effective rate), against a 17.2% rate this quarter. Non-GAAP diluted EPS was $0.83, up from $0.75. Both measures included about $0.11 a share from tariff refunds, and both beat HP's outlook of $0.47–$0.63 GAAP and $0.61–$0.71 non-GAAP. - **Personal Systems** revenue rose 18.5% to $11.8 billion. Average selling prices rose 40.8% while PC units fell 15.8%, as HP focused on higher-value units. Commercial PS rose 21.9% to $8.6 billion, with ASPs up 41.1% and units down 13.6%. Consumer PS rose 10.1% to $3.2 billion, with ASPs up 37.1% and units down 19.4%. Operating margin slipped to 4.6% from 5.4%. In the release, Interim CEO Bruce Broussard said the company's strategy for dealing with constraints "led to meaningful improvements in memory supply and higher fulfillment rates." - **Printing** revenue fell 2.2% (3.6% in constant currency) to $3.9 billion. Supplies fell 2.8% to $2.5 billion on a shrinking installed base and lower usage. Printer units fell 6.8%, with weak demand particularly in China, while ASPs rose 5.8%. Operating margin rose to 18.1% from 17.0%, helped by tariff refunds and pricing. - **Nine months.** Revenue rose 9.5% to $44.5 billion. Net earnings were $1.66 billion, versus $1.73 billion, and diluted EPS was $1.79, versus $1.82. Restructuring charges rose to $539 million from $302 million, mainly because of the US early-retirement program. **Tariff refunds.** After the US Supreme Court's February 20, 2026 ruling against tariffs imposed under the International Emergency Economic Powers Act (IEEPA), HP applied to recover about $0.3 billion. It received $127 million in the third quarter and booked it as a reduction of product cost. **Fiscal 2026 Plan.** The plan is HP's AI-driven restructuring through fiscal 2028, with about $650 million of total charges. At its November 2025 announcement, labor costs were put at about $400 million; the 10-Q now puts them at about $500 million within the same total. Costs incurred reached $0.5 billion by July 31, 2026. They include $280 million of non-cash special termination benefits from a voluntary US early-retirement program launched in March 2026, with participants leaving between May 29, 2026 and April 30, 2027. From the second quarter, CEO-transition hiring and retention costs are also charged to the plan. **Cash, balance sheet and capital returns.** Third-quarter operating cash flow was $1.74 billion and free cash flow $1.57 billion. Nine-month operating cash flow was $3.04 billion, up from $2.07 billion, on favorable working capital. The cash conversion cycle was negative 37 days, the same as a year earlier. Receivable days rose to 41 from 33 because HP sold fewer receivables, and inventory days rose to 73 from 68 on higher commodity costs. At July 31, 2026, HP held $4.17 billion of cash. Total debt was $9.16 billion, down from $9.67 billion: $1.29 billion short-term and $7.87 billion long-term, at a 4.8% weighted-average rate. The June 2026 notes, $522 million outstanding at October 31, 2025, have been repaid. No commercial paper was outstanding, and the $5.0 billion revolver was undrawn. Purchase commitments roughly doubled to $2.1 billion from $1.1 billion, mainly processor purchases at variable prices. In the quarter HP paid a $0.30 dividend and bought back 12.2 million shares for $0.3 billion at about $24–25 a share. Repurchase authorization of about $7.7 billion remains. **Outlook and leadership.** The year's trajectory turned from caution to upgrades. After Q1, HP said it expected to land near the low end of its original fiscal 2026 range because of rising memory costs. After Q2, it lowered the GAAP diluted EPS range to $2.15–$2.45 and updated the non-GAAP diluted EPS range to $2.90–$3.10, a revision its chief financial officer described as strengthening its outlook for the fiscal year. With the Q3 results, it raised its fiscal 2026 outlook to GAAP diluted EPS of $2.52–$2.62, non-GAAP diluted EPS of $3.19–$3.29 and free cash flow of $3.0–$3.2 billion; the EPS ranges include about $0.19 a share from estimated tariff refunds. The company is being run by an interim chief executive: director Bruce Broussard has held the role since Enrique Lores left on February 2, 2026, while the Board searches for a permanent CEO. He was still Interim CEO at the August 26, 2026 results release. **Legal matters (from the 10-Q litigation note):** - **Autonomy.** On March 24, 2026, the UK High Court entered judgment awarding the Autonomy claimants damages plus interest totaling $1.24 billion against the estate of Michael Lynch. HP and Hewlett Packard Enterprise will share any recovery equally. Nothing has been recorded, and any recovery will be booked when received. - **India customs case.** On June 29, 2026, India's Customs Tribunal ruled on the long-running customs-duty case against HP India. The original 2012 orders were for about $386 million plus interest on products and about $17 million on parts. The Tribunal overturned several duty, interest, penalty and confiscation findings and removed all individual penalties. The revised amounts await a separate damages ruling. - **Dynamic Security, Netherlands.** On June 5, 2026, the Dutch Supreme Court rejected competition claims against HP's "Dynamic Security" printer-cartridge authentication and held that its use is not unlawful. - **Derivative suit.** A settlement of the consolidated shareholder derivative action received preliminary court approval on May 29, 2026. ## Subsequent events *From the Q3 fiscal 2026 Form 10-Q, accession 0000047217-26-000051, and Form 8-K accessions 0000047217-26-000048 (August 26, 2026) and 0001140361-26-037170 (September 21, 2026).* The 10-Q has no separate subsequent-events note. The developments below, all after July 31, 2026, are disclosed in its litigation note and MD&A and in later current reports. None of these filings discloses an acquisition, divestiture or new borrowing after the quarter ended. - **More tariff refunds.** HP received another $91 million of IEEPA tariff refunds after July 31, 2026. It will book them as a reduction of product cost in the fourth quarter. HP is still assessing whether more of the tariffs it paid can be recovered. - **Autonomy appeal largely denied (August 25, 2026).** The English Court of Appeal refused the Lynch estate permission to appeal most issues in the $1.24 billion judgment. An appeal may go ahead on a limited number of issues, mainly about damages. HP and Hewlett Packard Enterprise will share any recovery equally. Nothing has been recorded, and HP says there is no assurance of a recovery. - **India customs case appeal.** HP said it intends to appeal the Customs Tribunal's 2026 orders to the Supreme Court of India by August 28, 2026. The Directorate of Revenue Intelligence may also appeal. The damages ruling that will set revised amounts is expected no earlier than September 2026. Hewlett Packard Enterprise will indemnify HP in part. - **Pending court dates.** The final settlement hearing in the shareholder derivative action was scheduled for September 2026. A hearing on HP's motion to dismiss the amended Illinois class action over Dynamic Security firmware was set for August 2026. The 10-Q does not report the outcome of either. - **Fiscal 2027 planning assumption (September 21, 2026).** HP gave no fiscal 2027 guidance. Its preliminary planning assumption is that industry-wide PC unit volumes will fall roughly mid-single digits in calendar 2027.