HP (NYSE:HPQ) reported second-quarter financial results on Wednesday. The transcript from the company's second-quarter earnings call has been provided below.
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Access the full call at https://events.q4inc.com/attendee/184642825
Summary
HP reported a 9% year-over-year revenue growth for Q2 2026, driven by strong personal systems performance, marking the eighth consecutive quarter of top-line growth.
The company is focusing on AI-driven innovation, particularly in personal systems, with AI PCs making up 44% of the shipment mix, and expects this to reach 60-70% by next fiscal year.
HP has secured memory and storage supplies through strong supplier relationships and is confident in managing future cost pressures, despite anticipating rising input costs in the second half of 2026.
Print revenue was flat year-over-year, with continued momentum in consumer subscriptions and industrial print, while supplies revenue was steady, aided by pricing strategies.
Financial guidance for FY26 has improved, with EPS expected to be in the range of $2.90 to $3.10, and HP is committed to returning approximately 100% of free cash flow to shareholders.
Full Transcript
OPERATOR
Good day everyone and welcome to the second quarter 2026 HP. Earnings Conference Call. My name is Krista and I will be your conference moderator for today's call. At this time, all participants will be in a listen only mode. We will be facilitating a question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Alok Juyal, Global Treasurer and Head of Investor Relationship. Please go ahead
Alok Juyal (Global Treasurer and Head of Investor Relations)
Good afternoon everyone and welcome to HP's second quarter 2026 earnings conference call. With me today are Bruce Broussard, HP's interim chief executive officer and Karen Parkhill, HP's chief financial officer. Before handing the call over to Bruce, let me remind you that this call is a webcast and a replay will be available on our website shortly after the call for approximately one year. We posted the earnings release and accompanying slide presentation on our investor relations webpage at investor.hp.com. As always, elements of this presentation are forward looking and are based on our best view of the world and our business as we see them today. For more detailed information, please see disclaimers in the earnings materials relating to forward looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these risks, uncertainties and assumptions, please refer to HP's SEC reports including our most recent Form 10K. HP assumes no obligation and does not intend to update any such forward looking statements. We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in HP's SEC filings during this webcast. Unless otherwise specifically noted, all comparisons are year over year comparisons with the corresponding year ago period. In addition, unless otherwise noted, references to HP's channel inventory refer to tier 1 channel inventory and market share references are based on calendar quarter information. Unless otherwise specified, all financial measures discussed today are non GAAP and EPS refers to non GAAP diluted net earnings per share. Please refer to the tables in today's earnings release and the accompanying slide presentation on our website for reconciliations of these non GAAP measures to the most directly comparable GAAP measures. With that, I will now turn the call over to Bruce.
Bruce Broussard (Interim Chief Executive Officer)
Thank you Alok and thanks everyone for joining us today. I want to start by saying how much I appreciate the opportunity to lead HP's during this important time for the company. Through the efforts of our team around the world, we continue to advance our Future of Work strategy and help our customers navigate one of the most significant technology shifts ever due to AI. I want to recognize and thank the entire HP's team for the focus, discipline and agility they demonstrate every day. As interim CEO, I have spent significant time with customers, partners and employees. What I've seen is an organization that's moving with speed, focus and urgency to strengthen our market position and accelerate innovation that benefits our customers. This is translating into strong results in a complex operating environment. Our second quarter performance underscores both the resilience of the business today and the opportunities we see ahead today. I'll share the innovations we're bringing to market across our portfolio, the results we delivered this quarter, as well as how we're planning for the environment ahead. But first, let me address one topic I know is top of mind the CEO search. As a reminder, the Board established a search committee and engaged an external search firm. We're looking for a leader with the following attributes. First, a proven track record of creating long term value for customers and shareholders. Second, the ability to operate effectively in a complex and rapidly changing environment like many companies are navigating today. Lastly, global and multi segment business experience. We are engaged in a comprehensive process to select the best leader for hp. While we're not in a position to provide a timeline, the Board is actively evaluating candidates who align with HP's's need. Turning to Innovation Let me share how we're bringing our strategy to life across the company as work evolves, organizations face critical decisions about their IT infrastructure and employees are adapting to new ways of working, especially in the age of AI. AI innovation is accelerating adoption growing rapidly across enterprises. Customers are becoming more thoughtful about where AI workloads run. AI is transforming computing from passive devices to context aware intelligent systems companies like HP's that own the trusted edge, the workflow context and the orchestration layer between local and cloud intelligence will be positioned to thrive in this environment. Rising cloud costs associated with agency AI, along with latency, privacy and security considerations are driving demand for AI workloads at the edge. As a result, customers are building AI at the edge using smaller open source and proprietary models. With more capable hardware and secure software layers, HP's is enabling the future of work by providing the essential tools and technology necessary for this transformation. Our devices and software stack support this shift. With strong architectural capabilities for edge inferencing and new AI workloads, we are becoming the trusted intelligent edge provider, connecting devices, workflows, context and physical environment. We continue to believe the future of AI is hybrid with Edge playing an increasingly important role over time. Building on this opportunity, we recently unveiled a wave of innovation at our HP's Imagine event, our annual global technology showcase of new products and solutions in personal systems. We introduced the next generation AI PCs and expanded local AI capabilities with an ecosystem of more than 150 software companies of all sizes. Previously, we highlighted our collaboration with partners like Zoom and CrowdStrike. Today I want to showcase other software partners. GoodNotes, for example, is leveraging the NPU for local audio transcription and summarization, while AI Producer is transforming our AI PCs into professional production studios. These are just a few examples of how we are enhancing productivity, output and workflow experience for our customers to bring data center capabilities directly to the desktop in order to support the most demanding AI and compute workloads, we introduced new Z workstations and AI stations. These purpose built devices enable customers to develop, run inference and scale AI workloads, providing greater control over token costs, latency and enterprise data security. In print, we launched a new laserjet series with AI enabled document workflows, quantum resistant security and up to 50% faster document handling, making work easier and more secure. We're also extending innovation into areas like construction and design, connecting physical and digital workflows to help teams stay aligned from the office to the job site. Also this quarter we introduced the HP's Multi Jet Fusion 1200, bringing industrial 3D printing capabilities into a more compact, accessible system designed to help customers move from prototyping to production closer to where work happens. We're also creating better together experiences across our portfolio with the introduction of HPiQ. This is a groundbreaking intelligence layer that coordinates seamless integrated experiences across all our products. A key feature is HP's Nearsense, a new spatial intelligence that helps devices easily discover and connect to each other. The goal is to make tasks like file sharing, joining meetings and moving between environments feel more intuitive and effortless as work becomes more connected. Yet distributed IT teams need simpler ways to manage, secure and optimize environments. That's why we've enhanced our Workforce Experience platform, known as wxp with AI driven tools for proactive management of personal endpoints and shared spaces. WXP actively manages over 5.2 million devices across 180 countries. These innovations represent our commitment to creating more connected experiences across devices, software, services and security. They reflect our 1hp approach in action, which we believe positions us well to create more value for our customers and partners. We're seeing strong customer interest in these new innovations, which underscores our approach and the growing customer demand for our solutions. Let me turn to our quarterly results In February, I said our focus would be on prudent execution, taking the right cost action and and continuing to advance our future of work strategy. I'm pleased to report we delivered against those commitments in Q2, revenue grew 9% year over year, marking the eighth consecutive quarter of top line growth led by strong personal systems performance while print results were in line with expectations. Importantly, the quarter reflected not just growth but disciplined execution. We continued to grow in high value categories and accelerate our mitigation strategy to manage commodity cost pressures which allowed us to deliver EPS above our guidance. Let me turn to segment performance in personal Systems. Revenue grew 13% year over year with strong growth in both commercial and consumer. This includes continued momentum in AI PCs which increased from more than 35% to 44% of our shipment mix in the quarter, as well as continued strength in advanced compute solutions and workforce solutions. And print revenue was flat year over year in a competitive market. As expected, we remain focused on pricing discipline and placement of profitable units and gained share in big tank printers. In line with our strategy, Industrial graphics delivered its 11th straight quarter of revenue growth with momentum in hardware supplies and services. Turning to the external environment, we continue to navigate a challenging supply and cost environment while remaining focused on disciplined execution in Q2. As anticipated, memory and storage costs increased sequentially. We expect this trend to continue in the second half of 2026 with cost increasing in fiscal Q3 and Q4. Our strong execution of the mitigation strategies we outlined in February has strengthened our ability to navigate future headwinds. Let me walk through the strong progress we have made in our four pillar plan. First, through our strong supplier relationships and long term agreements, we are confident we have the memory and storage that we need for this fiscal year. Second, we fully operationalized a planning model that tightly aligns supply, demand and product configuration decisions. This gives us greater flexibility to respond in real time and better positions, the right products, the right markets to meet customer demand. Third, our strategic inventory helped us remain cost competitive and maintain supply and continuity. We continue enrolling new suppliers, taking strategic inventory positions, strengthening our operational muscle through demand steering activities and expanding our attached businesses. Lastly, we remain disciplined on both pricing and cost. Executed a differentiated repricing strategy prioritizing strategic customers, distributors and countries. We also executed across multiple cost levers including sourcing optimization, platform cost reduction and company wide productivity actions to help offset ongoing pressures while continuing to invest in the business. Looking ahead, we expect the memory and storage environment to remain constrained. In addition, we also anticipate broader inflationary pressures beyond memory and storage, including oil prices and their downstream effects. To help mitigate these headwinds, we will continue to leverage the operational capabilities and discipline we strengthened in Q2. We remain focused on driving long term growth by leveraging our strong portfolio go to market reach, supplier relationships and innovation pipeline. In closing, we're confident in our future of work strategy and the significant opportunity ahead as AI continues moving to the edge. We believe our continued focus on innovation and discipline execution positions us well to drive sustainable growth and long term shareholder value. With that, I'll turn it over to
Karen Parkhill
Karen thank you Bruce and good afternoon everyone. We are pleased with our second quarter results and the progress we've made against our financial commitments for the year. We delivered solid top line growth driven by continued strength in personal systems and momentum in our key growth areas and through disciplined execution and an emphasis on what we can control. We also delivered EPS above our guidance range. Our results reflect the progress we have made on executing to the playbook we laid out at the beginning of the year. To mitigate higher input costs, we took deliberate actions to lower our memory cost by accelerating product reconfiguration and qualifying lower cost components. We optimized the use of lower cost inventory on hand while shaping demand to higher margin units and lastly we took action to reprice for commodity increases. Together these actions had a meaningful impact on our operating profit in the quarter, enabling us to deliver results above expectations. Now let me walk you through more details on our second quarter performance. We delivered 9% revenue growth year over year or 6% in constant currency by geography. The continued Windows 11 refresh cycle in Asia and Europe helped to drive strong performance as expected, with constant currency revenue in APJ up 18%, EMEA up 6% and Americas flat gross margin was 20.9% up year over year driven by favorable pricing and contributions from key growth areas partly offset by higher commodity costs and increased mix from personal systems. Operating expenses as a percent of revenue remained flat year over year with continued investment in innovation, product promotion and people offset in part by disciplined cost management all in. Our operating margin was 7.5% up 20 basis points year over year below operating profit. Lower financing costs contributed to better than expected other income and expense in the quarter and with a diluted share count of approximately 925 million shares, our net earnings per share was $0.86 up over 20% year over year. Now let's turn to segment performance. We delivered 13% top line growth in personal systems reflecting prioritization of higher value unit placements, continued services expansion and disciplined pricing partly offset by lower volumes. Consistent with our strategy, we gained share in the premium PC categories. We also drove strong performance in key growth areas with double digit year over year revenue growth in AIPCs, advanced compute solutions and Workforce Solutions. We also delivered double digit revenue growth year over year in both consumer up 10% and commercial up 14% driven by repricing actions to cover commodity headwinds and favorable mix. As expected, commercial showed above seasonal sequential performance which we attribute in part to some demand pull in ahead of rising commodity prices. All in we drove personal systems operating profit growth of 30% year over year with operating margins at 5.2% above expectations and due to the accelerated mitigation actions we took to offset higher input costs. Print revenue was flat year over year as expected with hardware volume declines offset by favorable pricing and currency. Momentum in key growth areas continued with double digit revenue growth in consumer subscriptions including an increase in subscribers to our all in plan and industrial print delivered another solid quarter with year over year revenue growth across all regions. We also drove double digit growth in 3D printing for the fifth straight quarter by customer segment. Consumer revenue declined 10% year over year due to lower traditional printer volume. In what continues to be a competitive pricing environment aligned with our strategy, we delivered double digit unit growth in tank printers gaining share both year over year and sequentially. Commercial revenue was flat year over year with higher ASPs helping to offset lower volumes. We saw continued improvement in the office market and drove share gains sequentially across all A4 office categories. Supplies was flat year over year in constant currency with pricing and share gains offsetting headwinds from installed base and usage. We delivered an operating margin of 18.3% down year over year as expected with higher trade related costs and promotional investment particularly in big tanks partly offset by pricing. Across hp. We continue to advance our AI enabled transformation including modernizing our software development and delivery capabilities. We are consolidating platforms, simplifying applications and using AI to boost developer productivity, speed innovation and deliver better customer experiences faster. And we are also scaling similar initiatives across the company including in our supply chain, go to market and customer support organizations. We remain on track to generate approximately 1 billion in gross annualized run rate savings by the end of fiscal year 2028. As part of our efforts we announced a voluntary early retirement plan in the quarter and the expenses associated with that plan are included in our Q2 restructuring charges. Our cost saving efforts remain an important lever to help offset macroeconomic headwinds while continuing to fuel investment in key strategic and go to market initiatives. Now let me move to Cash Flow and Capital Allocation we generated over $900 million in cash from operations and roughly $800 million in free cash flow in the quarter above our expectations on the strength of personal systems performance and we returned nearly 400 million to shareholders through dividends and share repurchase and finished the quarter within our target leverage ratio. We remain committed to returning approximately 100% of our free cash flow to shareholders over time as long as our gross leverage remains under two times and there aren't better return opportunities Looking ahead to the second half of the year, we expect to continue to drive revenue growth and as Bruce mentioned, we also expect rising input costs to put increasing pressure on our operating margins, particularly in personal systems, so we are taking a prudent approach to our outlook. That said, we have a strong track record of navigating near term headwinds and will remain focused on building on our Q2 momentum by segment. In personal systems, we remain aligned with industry experts projecting the PC unit TAM to decline at a rate in the high teens for the second half of the calendar year. Against this market backdrop, we continue to expect revenue growth in our fiscal year driven by pricing actions, share gains in premium categories and increased attach of higher margin offerings. For Q3 we expect below seasonal revenue performance given first half demand pull forward ahead of commodity price increases and as signaled, we expect input costs to continue to increase through the back half. Given that along with a decreasing benefit from the lower cost inventory on hand, we continue to expect personal systems OP rate to be below our long term range for the remainder of the year. In print, we are aligned with industry experts anticipating a low single digit decline in the hardware market in the second half of the calendar year. We are executing our plans to gain additional share both in tank printers through portfolio extensions and targeted promotion and in office as we fully roll out our latest AI enabled laser portfolio. We also expect sustained momentum in key growth areas by expanding subscribers to our all in plan and driving growth in industrial and while we continue to project supplies, revenue will be down low single digit for the year in constant currency, we expect to drive both pricing and share gains. For Q3 we expect print revenue generally in line with normal seasonality and we expect operating margins near the lower end of our long term range reflecting typical seasonality, incremental hardware unit placement and near term input cost pressures which we are actively working to mitigate. That said, for the full year we expect operating margins solidly in the range beyond the segments. We continue to expect OIE to be approximately $500 million for the year and Corporate other expense to be slightly under $1 billion. In summary, with two solid quarters behind us, we are strengthening our outlook for the fiscal year. As you recall, last quarter we signaled that earnings per share could be closer to the lower end of our guidance range. However, with the meaningful progress we have made against our mitigation playbook, we are now more confident in our ability to deliver higher EPS this fiscal year. As such, we now expect diluted net earnings per share to be in the range of $2.90 to $3.10. For Q3, we expect diluted net earnings per share to be in the range of $0.61 to $0.71. Lastly, given our expectations for improved earnings performance, we expect our annual free cash flow to be solidly in the range of 2.8 to $3 billion. In closing, we are pleased with our first half performance and progress we are making against our strategic and financial priorities. While we expect the external environment to remain dynamic in the back half of the year, we are focused on disciplined execution, accelerating our mitigation actions and continued investment in innovation and growth to drive long term value. As we turn to Q and A given the current dynamics in our PC business, we've invited Katen Patel, who leads Personal Systems to join us similar to last quarter. So with that I would like to hand it back to the operator and
OPERATOR
open the call for your questions. Thank you and we will now begin the question and answer session. To ask a question, you may press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then one again. We also ask that you please limit yourself to one question and a single follow up. And our first questioner today will be Samek Chatterjee with JP Morgan. Please go ahead.
Samek Chatterjee (Equity Analyst)
Hi, thanks for taking my question. Maybe for the first one, pretty strong margin performance in the PS segment. I know you're talking about that moderating as you go into the back half with memory costs continue to go up. Maybe if you could talk about the offsets in the back half you've talked about cost decreases or moderation of cost that you worked on as well as price increases. As you look to offset some of the memory cost increase in the back half, do you have more room to go on the cost reduction or is the back half more dictated by price increases that you potentially need to take and have a follow up as well? Thank you.
Karen Parkhill
Yeah, thanks for the question Samek. You know we talked about the fact that we continue to expect input costs to rise in the back half. And we also have the reducing benefit of lower cost inventory from our strategic inventory positions that we had this current quarter, this past quarter. So we do expect our operating margins to be below our long term range for the balance of the year. But that said we are actively executing our mitigation actions and if those actions prove more effective or the environment improves, there could be some upside. I would note though that based on what we're seeing today, we would expect Q4 to be a low point followed by sequential improvement into next fiscal year. And we are of course continuing to drive cost reduction that will continue to benefit us in the back half and into FY27.
Samek Chatterjee (Equity Analyst)
Got it, got it. Great. And maybe on brand, you mentioned the increasing input cost on that front as well, including raisins. Is the playbook there in terms of margin resilience pretty similar to what you've executed in ps? Or are you thinking about it differently in terms of how to pass some of those costs increase in cost to customers? Thank you.
Karen Parkhill
Yeah, our playbook is very similar to what we executed in Q2 and we're going to continue to drive that in the back half of the year and beyond. Yeah. And just to add, just to remind, on the personal systems, the mitigation strategy where around leveraging our strong supply chain scale and we demonstrated that in Q2 our ability to have the right level of silicon diversity and strong supplier relationships. The other one is about driving cost actions across other commodity baskets as well as the overall design for cost initiative. And lastly is about demand shaping to optimize platforms and conflicts.
OPERATOR
Your next question is going to come from the line of Amit Dharyani with Evercore. Please go ahead.
Amit Dharyani
Good afternoon everyone. Thanks for taking my question. I guess maybe the first one to start with, could you just help us frame or help us think about the size or the extent of which the first half commercial strength that we saw in the personal system side benefit from pull forward dynamics versus what you think is a more durable underlying demand given the fact you do have a Windows refresh and AI PC transition. So I'd love to just understand on the commercial PC side how much of the strength you saw was versus underlying trends.
Karen Parkhill
Yeah, thanks for the question Amit. We were pleased with the double digit growth we delivered in both consumer and commercial ps and that was supported by disciplined pricing along with a richer mix and continued services expansion. There was some pull forward in commercial PS as we mentioned and we estimate that that added roughly 2 to 3% of revenue.
Amit Dharyani
I hope that helps Yep, that's super helpful. Just as a follow up. Right. If I think about the back half guide, the EPS run rate I think is around 65 to 70 cents a quarter. Is that the right baseline for us to think about as we think about fiscal 27 such that we actually imply EPS in the 270, 275 range, perhaps fiscal 27? Or are there vectors or things that you can execute on to ensure that there's EPS growth in fiscal 27 versus the 26 guide? And it's getting a little bit ahead but would appreciate any insights on that.
Karen Parkhill
Yeah, thanks Amit. You know we are still in our planning process so it's too early to give guidance for next fiscal year. But I would note that, you know, with this increasing cost of memory in Q3 and Q4, we do expect our Q4PS margins to reach a trough or a low point in Q4 and we do expect sequential improvement in those margins as we move ahead from there.
OPERATOR
Your next question comes from the line of Eric Woodring with Morgan Stanley. Please go ahead.
Eric Woodring (Equity Analyst)
Thank you so much for taking my questions. Karen, can you just maybe just building on Amit's first question there, can you maybe just build a bit on how you're thinking about demand elasticity in the second half of the year and then into 2027 just kind of given the higher pricing environment and then kind of the evolution of the Windows 11 upgrades. And maybe my question it really is, you know, as you guys sit here today, how do you think about visibility into, you know, 2, 3, 4/4 out as you just kind of alluded to some of those statements with Ahmed, I would just love to of understand how you kind of take that view today, how much visibility you actually have and how you think that impacts demand elasticity. And then a quick follow up please. Thank you.
Karen Parkhill
Yeah, thanks Eric. Appreciate it. You know we did say that we are aligned with industry experts out there that we expect unit TAM to be down high teens in the second half. And that's really given the fact that we see this rising price environment along with, you know, for us the slight pull forward that we had in Q2. So we do expect unit demand to be down but that to be offset in revenue with exactly what we've been driving. Increased prices, increased mix to premium, higher attached businesses, et cetera. So Katen, I'll let you add anything here.
Katen Patel
Yeah, on top of it we believe there is an intrinsic strength and strength in the demand in both commercial and consumer businesses and driven by two factors. One still Windows 11 30% of the install base is still to be refreshed. So that's one tailwind which we see as an opportunity in short run. But in both short run and long run, as a lot of customers are moving workloads to the edge with rising cost of excess AI, that's a great opportunity, we believe, which is structurally available to us for AI at the edge, which will help us drive better mix and share gains, particularly in premium categories. And that's where we will see commercial demand remain strong on account of these two factors.
Eric Woodring (Equity Analyst)
Okay, super. Thank you for that, for that color. And then just a quick follow up. At least in the quarter. I know you guys are in the midst of a multi, multi year cost savings program. OPEX was up 9% year over year in the quarter. Just can you provide a little bit more detail? What drove that? How sustainable is that? Just as we look into the second half. Thanks so much.
Karen Parkhill
Yep, thanks for the question. So our OPEX was flat as a percentage of revenue year over year as we expected. We do continue to invest in innovation and product promotion, particularly in our big tank units and also in our people, while we're still maintaining cost discipline. And just as we look ahead, we would continue to expect OPEX to be roughly flat as a percentage of revenue. We're obviously still driving cost savings that are important levers to enable us to continue to invest in AI and innovation and also help offset some of the macro headwinds. But we expect OPEX to be roughly flat as a percent of revenue ahead.
OPERATOR
Your next question comes from the line of David Vogt with ubs. Please go ahead.
Brian
Hey, thanks for taking the question. This is Brian on for David. So regarding my first one, it's on memory sources allocation. Can you just speak to the ability to access new or incremental sources to offset the pricing pressures you're seeing? And then I have a quick follow up. Thank you.
Katen Patel
Thanks for the question. I'll take this. We have secured the memory and storage we need for the fiscal year through strong supplier relationship and long term agreements. And on top of it, we have fully operationalized our supply and from planning model that aligns demand, supply and configuration details decisions in real time. And our strategic inventory position helped us to remain cost competitive while we remain disciplined on pricing and cost executing a differentiated repricing and multiple cost actions across sourcing platforms and productivity. And the speed of recovery differs by customer segment, by geography, by channel type. But balancing this mix to maximize meeting the customer expectations and cost recovery will continue to remain our focus.
Brian
Got it. That's helpful. So my second one is going to be on print. Are you seeing any demand spill across from PCs into print hardware and supplies? Are you seeing like a correlation between higher PC pricing, customers maybe spending less on other hardware related products? Thank you.
Karen Parkhill
Yeah, thanks for the question on print. Right now we continue to see a competitive environment and mainly enterprises prioritizing PC right now ahead of print. But over time we do expect that to improve and in fact we're seeing less decline in office over the last three quarters, which is a good sign. And we continue to see print usage trends remain pretty strong.
OPERATOR
Your next question comes from the line of Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan (Equity Analyst)
Yes, thank you. The supplies revenue flat constant currency, it's a lot higher than your long term expectations. Would you say like there was some impact also from a channel inventory step up or is this purely related to maybe the mix of like higher hardware in the quarter or something like that? Can you just help us think through what drove that sort of much better supply trajectory and as you think through the course of the year, how that might play out? And I do have a follow up.
Karen Parkhill
Yeah, thanks for the question, Wamsey. I would start with our channel inventories remain in line and healthy to what we would expect. But our supplies revenue was flat year over year in constant currency, a little bit better than our expectations this year to decline low single digit in constant currency. And that was really driven by pricing that we've implemented to help offset the trade related headwinds as well as share gains. And all of that is helping to offset the headwinds from a lower installed base. That said, we aren't changing our expectations for supplies revenue to decline low single digit and constant currency this fiscal year. And then we do expect them to continue to decline low to mid single digits over the long term. But of course we're focused on managing this trend by continuing to drive market share, also deliver growth in subscriptions and industrial and 3D which are our key growth areas and our focus on maintaining strong margins.
Wamsi Mohan (Equity Analyst)
Okay, thanks Karen. And on print margins you called out different factors that are impacting the third quarter to be at the low end of the print margin range. Should we expect the usual bounce back in Q4 or will the commodity price increases, whether it be resin or other other areas, will that create sort of a different dynamic going into Q4? And in your guidance are you expecting any tariff refunds and if so, could you quantify those please? Thank you.
Karen Parkhill
Yep, thank you. So as we look at the back half of the year with our print margins. We did say that we expect our Q3 op margins to be near the lower end of our long term range and that's reflecting not just typical seasonality but also a focus that we have on placing incremental hardware units. And we do also see some pressure from increased oil related commodities and transportation costs. But that said, we do see improvement in Q4 in those margins. And as we said, we expect print margins to be solidly in the range for the full fiscal year. And on tariffs, we're monitoring the government refund process which continues to evolve, but currently the government is not processing refunds for complex multinational companies like us. So of course when we're able we will apply for refunds, but at this stage it doesn't apply to us.
OPERATOR
Our next question comes from the line of ASEA Merchant with Citi. Please go ahead.
Mike Cadiz (Equity Analyst)
Hey, good afternoon, this is Mike Cadiz for ASEA Merchant at Citi. So my one question is are you able to give any color on the performance by geography and why it's perhaps more disparate. It seems that all the acceleration was mainly from APJ and just wanted to know if there was any elasticity there and why or any other factors that we should consider.
Karen Parkhill
Thank you. Yeah, thanks for the question, Mike. You know, we did see good growth in both EMEA and APJ this quarter and some of that was driven driven by the expected tailwinds from win 11. And I would say at this point we have roughly 30% of the installed base still on Windows 10, so we still have some more to go. But the growth that we saw in EMEA and APJ reflected that. And I would say the win 11 refresh that we've driven now in EMEA and APJ is now on par with North America.
Katen Patel
Excellent. Thank you Geographies. I'll just add that Karen covered it in terms of Europe and APGA growth mainly because of Windows 11. Americas went earlier in the 2025 back half of 2025. So you see that difference between the geographies. But across the three geographies you see structural demand coming on AI PCs and premium PCs largely because of the AI at the edge opportunity which I called out before and that remains strong even for Q3 and Q4.
OPERATOR
Your next question is going to come from the line of Ananda Baruha with Loop Capital. Please go ahead.
Ananda Baruha (Equity Analyst)
Yeah, thanks guys for taking the question. I really appreciate it. Hey, was wondering Ketan, had you you mentioned memory available procured through fiscal 26, what's a useful way to think about how you're feeling about fiscal 27 since it begins not so long from now. And then I have a quick follow up.
Katen Patel
Thanks. Yeah, the way you saw our approach in 2026 of securing memory and storage and even CPUs throughout the fiscal year through our strong supplier relationship and long term agreements, the same process we will continue to make sure is ahead for 27 and beyond. On top of it, we need to qualify new suppliers as we see further opportunities as we already qualified a lot of suppliers this year and also accelerating a process of qualifying those components with the right level of quality checks into our entire portfolio. So that effort we will continue to drive in terms of securing supply for next year.
Ananda Baruha (Equity Analyst)
It sounds like you feel pretty good at this point with being able to procure what you need.
Katen Patel
Yeah, it's always a moving piece but yeah, we have been confident as you see in our 26 situation and that same playbook will apply moving forward.
OPERATOR
Your next question comes from the line of Catherine Murphy with Goldman Sachs. Please go ahead.
Catherine Murphy (Equity Analyst)
Thank you for the question. I was wondering if you could help frame how big resin may be in the bill of materials for printing hardware and if there's any consideration for supplies across ink and toner. And then just as a quick follow up, is there any consideration for higher resin prices across the PC and peripheral category as well? Thank you.
Karen Parkhill
Thanks for the question Katherine. You know we are seeing rising costs for resin based on the oil situation right now. But that said it's not too significant for us and it is built into our outlook. We're not going to quantify what it is as a percent of the bom, but we believe it's manageable.
OPERATOR
Your next question comes from the line of Krish Sankar with TD Cowan. Please go ahead.
Steven
Hi, thanks for taking my questions. This is Steven calling on behalf of Krish. I had two as well. First one is actually on components applied as it pertains to processors. Just kind of curious, just with the strength in Data Center Server CPUs, any potential ripple effects on the CPU supply for your procurement in the second half of the year, especially across the different SKUs that you guys are focusing on.
Katen Patel
Thanks for the question. We have required supply we need on CPUs. We have known about small core specifically having constraints since the beginning of the year and we have been working to secure the supply supply we need and with our process of moving towards higher end mix, that supply mitigation is already part of our plans in terms of execution in Q2 and beyond. We are also managing price increases as we typically do across our entire commodities basket on CPU pricing too. And finally, our silicon diversity helps us to work across multiple CPU suppliers and is beneficial to us in being able to secure both supply and pricing.
Steven
Got it. Thank you so much for that. And as my quick follow up was kind of curious if you could provide some more commentary or anecdotes related to agentic AI for the client and edge compute space. I know that we're still in early days of agentic AI in the enterprise, but some of the comments earlier was that specifically focused on companies or customers that have large software developer bases? Or was it a common, I guess anecdote from customers that are kind of debating between purchasing hardware that can run all it open source agents versus more of a subscription model to whether it's Copilot or other frontier models? Thank you so much.
Katen Patel
Thank you. There is a real shift happening towards AI at the edge with workloads moving for reasons stated by Bruce earlier fundamentally benefits like latency, privacy, sovereign AI and the cost associated. And with this shift the PC is becoming strategically relevant and HP has the right capabilities and proof points to shape how AI shows up at the edge. And in order to make sure that we are capitalizing on this, we are innovating on AI execution platforms starting from how systems are designed around and for AI workloads where you see AI pieces and workstations are capable for running AI models locally. And we demonstrated this through some amazing product innovations earlier at hp. Imagine including hpiq and Wolf Security Solution which is unique in protecting at bias level instruction. So yeah, this is a great opportunity and our partnership with 150 software partners who are also working on different use cases like productivity developer needs and creative needs for building and bringing in local workloads is also helping.
Karen Parkhill
And Krish, I would also add that our AIPC mix that we shipped this quarter increased pretty substantially from 35% last quarter to 44% this quarter as Bruce noted. And we continue to expect AIPCs to be a greater part of our shipments going forward, reaching 60 to 70% next fiscal year and then above 70% by FY28.
Bruce Broussard (Interim Chief Executive Officer)
Maybe I'll just add a few things to both. What Karen and Keaton talked about is we are seeing use of agency with our technology. We're seeing it both on the governmental side and on the enterprise side and the applications are both using cloud but more importantly really utilizing the edge computing. What we're seeing over time and we're hearing it from our customer that they're really moving from a centralized cloud intelligence where models were formed to being able to create real time intelligence closer to the employee, the consumer and the workflow.
OPERATOR
Your next question comes from the line of Tim Long with Barclays. Please go ahead.
Tim Long (Equity Analyst)
Thank you. Two for me, if I could, I wanted to ask a little bit on the move towards subscriptions in both print and PC. Just curious if anything's changing there. We've heard in other pockets of the industry where inflation or component availability might push enterprises or consumers more towards those type of models. I'm wondering if that's something you're seeing or expecting to start to see. And then second, I just did want to dig in on the consumer side. I think you talked about a little bit about price elasticity in units versus ASPs. I'm just curious if that dynamic would be different in your view in the consumer side of the PCM print businesses as far as looking out into the second half of the year and next year. Thank you.
Karen Parkhill
Sure. I'll start Tim and I'll ask Kate and to add on but on subscriptions we are focused on driving more and more recurring revenue where we can across our businesses. We're seeing great traction, particularly in print in our all in plan which continues to ramp and we expect to expand it outside of the US next year. Really that subscription provides a simple frictionless experience for customers and an ability to attach additional services like paper that make these customers more profitable over the long term versus a regular traditional print customer.
Katen Patel
Kate and I'll let you add on top of it on PC, especially on the consumer side we are working on things like Flex PC which has a simplified financing model for customers to choose from and that makes their procurement much more simpler than buying upfront.
Karen Parkhill
And on price elasticity and consumer we'll clearly see how this plays out. But we do anticipate obviously lower unit demand going forward given the price increases. And that includes in consumer.
Bruce Broussard (Interim Chief Executive Officer)
Yeah. And I think just to add on the price elasticity, even where the price increases are, we see demand going down on the low end of the units. While you will see strength in the mainstream and premium price bands as we see price increases happening because the overall relative percentage on the mainstream and premium is lower than what you see on the low end side of the pricing.
OPERATOR
Your next question comes from the line of Mark Newman with Bernstein. Please go ahead.
Mark Newman
Yeah, hi. Thanks for taking my question. You mentioned earlier that supply was locked in, I think I heard correctly for memory and ACD for the rest of the year. I think I heard that. Have you also locked in prices too? I'm just curious if you could talk more about how your long term agreements work and I have a follow on. Thanks.
Karen Parkhill
Yes, we are confident in our supply position for the rest of the year and as Keaton already noted, are working on on our supply for next fiscal year but feeling very confident and comfortable there. In terms of prices, we lock in prices a little bit ahead. We don't lock them in for the very long term because we want to make sure that as prices stabilize and go down, we have an ability to benefit from that.
OPERATOR
Anything you would add, Katen. Thank you. That concludes our question and answer session. I will now turn it back over to Bruce Broussard for closing comments.
Bruce Broussard (Interim Chief Executive Officer)
Thank you all for joining us today. I'm proud of how HP executed this past quarter in a complex market. We delivered with resilience and discipline while continuing to innovate and position the company for significant opportunity ahead as AI moves to the edge. And of course, thank you to our employees around the world for their hard work and commitment and to our investors for the continued confidence you place in hp. I look forward to keeping you updated on our progress. Have a good afternoon. Thank you.
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