On Wednesday, HP (NYSE:HPQ) discussed third-quarter financial results during its earnings call. The full transcript is provided below.
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View the webcast at https://events.q4inc.com/attendee/199708051
Summary
HP Inc. reported record third-quarter revenue of $15.7 billion, a 13% increase year-over-year, with strong performance in the Personal Systems segment, which grew 18%.
The company is focusing on AI advancements, with AI PCs expected to constitute 50% of its shipment mix by the end of the fiscal year, and is developing edge AI capabilities to reduce cloud dependency.
HP continues to make strategic investments in innovation and efficiency, such as AI-enabled print and edge AI platforms, and is confident in managing cost pressures with mitigation plans and long-term growth prospects.
Print revenue declined by 2% year-over-year, but the company remains focused on profitable unit placements and expanding in high-value segments like Big Tank and industrial printing.
HP increased its fiscal year EPS guidance to $3.19-$3.29, reflecting strong performance and effective cost management, while also projecting free cash flow to be in the range of $3 to $3.2 billion.
Full Transcript
Lisa, Operator
Well, good day everyone and welcome to the third quarter 2026 HP Inc. Earnings Conference Call. My name is Lisa and I'll be your conference moderator for today's call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session toward 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 Mr. Alok Joseph, Global Treasurer and Head of Investor Relations. Please go ahead.
Alok Joseph, Global Treasurer and Head of Investor Relations
Good afternoon everyone and welcome to HP's third 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 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 10-K. 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. References to HP's channel inventory refer to the tier 1 channel inventory, and market share references are based on calendar quarter information.
In addition, 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.
Karen, CFO
Thank you, Bruce, and good afternoon, everyone. We are pleased with our third quarter results, which reflect solid execution and continued progress against the priorities we outlined at the start of the year. For the third consecutive quarter, we delivered better-than-expected top-line growth and EPS at the top or above our guidance range. Underscoring the discipline of our teams in a dynamic operating environment, we drove yet another quarter of robust revenue growth with continued momentum in Personal Systems and key growth areas.
Double-digit sequential growth in Personal Systems also supported strong free cash flow in the quarter and, at the same time, as Bruce mentioned, we are continuing to drive our four-pillar plan to mitigate rising input costs. These ongoing efforts to secure supply, shape demand, implement targeted cost reduction, and take disciplined pricing action all continue to ramp and have enabled us to deliver OP rates in line with our guidance, even after excluding the favorable impact of tariff refunds received in the quarter.
Now let me walk you through more details on our third quarter performance. We delivered 13% revenue growth, or 11% in constant currency, with growth across all regions by geography. Strong Personal Systems performance drove constant-currency revenue up 22% in APJ, 10% in EMEA, and 5% in the Americas as customers continued to upgrade their devices to manage more demanding workloads. Our gross margin at 18.8% was down year over year as expected, driven by higher commodity costs and increased mix from Personal Systems.
Pricing, strong growth from our key growth areas, and tariff refunds partially offset these headwinds. Strong revenue growth, along with our focus on disciplined cost management, helped to drive operating expenses down as a percent of revenue while still enabling important investments in innovation, product, product promotion, and our people. Our operating margin was 6.5%, and when excluding the benefit of tariff refunds, this was in line with our expectations.
Below operating profit, higher cash balances contributed to lower financing costs in the quarter and led to better-than-expected other income and expense. Our net earnings per share at $0.83 grew 11% and includes $0.11 related to tariff refunds. Importantly, without the tariff benefit, we still delivered EPS above the top end of our guidance range. Now let's turn to segment performance. In Personal Systems, we delivered record third quarter revenue of $11.8 billion, up 18% in a stronger-than-expected market.
While volume was down as expected, our continued prioritization of higher-value unit placements, repricing for higher commodity costs, and services expansion more than offset the volume headwind, and consistent with our strategy, we gained share in the premium PC categories and delivered strong performance from our key growth areas with double-digit revenue growth in AI PCs, advanced compute solutions, hybrid systems, and workforce solutions. From a segment perspective, we also delivered double-digit revenue growth in both commercial, up 22%, and consumer, up 10%, driven by disciplined pricing actions and favorable mix aligned with our focus on higher-value segments. Commercial represented over 70% of our Personal Systems revenue in the quarter. PS operating margin of 4.6% was below our long-term range as expected and down year over year from higher commodity costs and variable compensation, which we worked to partially offset with repricing actions and other cost reductions. Turning to Print, as expected, revenue was down 2% or 4% in constant currency on lower supplies and hardware volumes in what remained a competitive pricing environment.
These headwinds were offset in part by key growth area contributions, including continued momentum in industrial print fueled by increased usage, double-digit growth in 3D, and a continued ramp of subscribers to our all-in plan. By customer segment, Consumer revenue declined 2% with lower traditional printer volume, offset in part by higher ASPs. Aligned with our strategy, we continued to increase our penetration of the tank printer market, delivering 42% unit growth in this important profit-upfront category and gaining share both year over year and sequentially.
In Commercial, revenue was down 1%, driven by lower volume and unfavorable mix. We saw particular softness in the office market in North America and China, and our results reflect our focus on placing profitable units in an aggressive pricing environment. And in line with expectations, Supplies revenue was down 4% in constant currency, impacted in part by headwinds in the Middle East. All in, Print operating margin was 18.1%, up roughly 1 point year over year, reflecting the favorable impact of tariff refunds and pricing actions.
Excluding the benefit of tariff refunds, Print operating margin was in line with our guidance at the low end of our long-term range. Now let me move to cash flow and capital allocation. We generated over $1.7 billion in cash from operations and roughly $1.6 billion in free cash flow in Q3 on the strength of Personal Systems performance, and as planned, we paid down slightly more than $500 million in debt maturities due in the quarter. Through disciplined working capital management and robust Personal Systems growth, we have driven year-to-date free cash flow of more than $2.5 billion, well ahead of our typical seasonality.
Through both dividends and share repurchase, we returned nearly $600 million to shareholders in the quarter and over $1.5 billion year to date, and we ended the quarter within our target leverage range. As always, we remain committed to returning approximately 100% of our free cash flow to shareholders over time as long as our gross leverage remains under 2x and there aren't better return opportunities. Looking ahead to the remainder of our fiscal year, we continue to expect input costs to rise, putting near-term pressure on our operating margins, particularly in Personal Systems.
We are factoring that into our Q4 outlook along with the traction we are making on our cost mitigation plans. By segment, in Personal Systems, we remain aligned with industry experts projecting the PC unit TAM to decline high teens year over year for the second half of the calendar year. Given the impact of commodity-driven price increases, we expect below seasonal revenue performance in Q4. That said, we do expect year-over-year revenue growth in the quarter driven by pricing actions, share gains in premium categories, attach of higher-margin offerings, and increased penetration of AI PCs as more AI workloads move to edge devices.
We continue to expect memory and storage costs to increase further as a percentage of the bill of materials, and as we signaled last quarter, we expect our Q4 margin to be below Q3 levels and then to sequentially improve as we look ahead into FY27. In Print, our outlook is aligned with industry expectations for a mid-single-digit decline in the hardware market in the second half of the calendar year. We will continue building on our share gain progress in tank printers through portfolio extensions and targeted promotions while completing the rollout of our latest AI-enabled laser portfolio in Office by the end of the fiscal year.
For Q4, we expect Print revenue to be in line with historical seasonality, and excluding the impact of any tariff refunds in the quarter, we expect operating margins in the lower half of our long-term range, reflecting our focus on incremental hardware unit placement and near-term input cost pressures, which we are actively working to mitigate. Beyond the segments, we expect Q4 OIE and Corporate to be similar to Q3 levels. All in, based on our strong performance in the quarter, we are increasing our outlook for the fiscal year.
We now expect diluted net earnings per share to be in the range of $3.19 to $3.29, up from our previous range of $2.90 to $3.10 and including a $0.19 favorable impact from estimated tariff refunds. For Q4 specifically, we expect diluted net earnings per share to be in the range of $0.69 to $0.79, including an $0.08 favorable impact from estimated tariff refunds. And given our improved earnings performance and strong free cash flow in Q3, we are also increasing our outlook for free cash flow to be in the range of $3 to $3.2 billion for the fiscal year.
Looking beyond this fiscal year, as Bruce said, we see meaningful opportunity as workloads continue shifting to the edge, and we are well positioned to lead this transition through our trusted devices, software, and services in Personal Systems. We plan to continue to invest in innovation across AI PCs, workstations, and high-value solutions with a disciplined focus on gaining share in premium categories. We expect input costs to continue to rise, but at a slower rate than we have experienced in fiscal 26.
And of course, we remain focused on mitigating the impact of this dynamic commodities environment and expect to bring our PS OP rate back into our long-term range as quickly as possible in FY27. In Print, we will remain focused on protecting operating profit through share gains in profit-upfront tank printers, expansion in consumer subscriptions, strengthening our position in Office through AI-enabled innovation, sustaining momentum in industrial graphics, and maintaining cost discipline.
I will share more on our fiscal 27 outlook in our Q4 earnings call. In closing, we are pleased with the performance in the quarter and the progress we are making against our strategic and financial priorities. We have a strong track record of execution and remain confident in our ability to drive continued growth and value ahead. Turning to Q&A, given the continued dynamic PC environment, we have invited Katen Patel, Head of Personal Systems, to join us.
So with that, I would like to hand it back to the operator and open the call for your questions.
Lisa, Operator
Thank you, and we will now begin the question-and-answer session. To ask a question, you may press Star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press Star then 1 again. We also ask that you please limit yourself to one question and a single follow-up. And our first questioner today will be Amit Dharyanani from Evercore ISI.
Amit Dharyanani, Analyst at Evercore ISI
Thanks a lot. Good afternoon, everyone. I guess I have a question and a follow-up, but maybe just to start with, Karen, could you spend a little bit of time on the Personal Systems assumptions for Q4? I think you're sort of implying PS revenues will be sub-seasonal but you should still see year-over-year growth in the model. I think it's a fair way to think about it, but I'd love to understand: Do you see that fiscal Q4 trend line of units being down high-teens but revenue still growing by a few points persisting through fiscal 27, or is that more in Q4?
Karen, CFO
Thanks for the question, Amit. You know, on Q4 our outlook reflects the industry's view that PC units will decline high teens in the second half as pricing actions pressure demand. As we said, though, we do still expect to drive year-over-year revenue growth. We expect it to be down quarter over quarter but growing year over year with a richer mix of higher-value categories including premium and commercial and consumer PCs, AI PCs, workstations, and attach offerings, along with pricing, and all of that to more than offset the lower units.
I would also note that we're maintaining our discipline too, prioritizing profitable growth and edge AI–driven demand rather than chasing low-margin share. You know our comments on revenue growth relate to Q4. It's too early for us to be giving FY27 guidance. We'll be doing that on our Q4 call.
UNKNOWN Analyst
Fair enough. I figured I can try. Nonetheless. On memory, in your prepared in the press release you folks talked about meaningful improvements in memory supply, higher fulfillment rate. Can you talk about is that just you getting better allocations or there's more spot availability? Just what do those things mean for HP? And from your perspective, where do you think PS margins would trough as you go forward? Thank you.
Karen, CFO
Yeah, thanks for the question. You know, on supply, we are getting the supply that we need to fill our customer demands. So that has not been an issue. And as we look ahead in Q4 at our margins, you know I would say that we said that we expected Q4 margins to be a low point last quarterly call. We continue to believe that, but we have high confidence that it will improve from there. You know, as we work through this volatile environment, I would say we've not only been transparent, but we've also shown that we can deliver what we say we will do.
And we signaled at the beginning of the year that margins would be increasingly impacted as we move through the fiscal year. You know, costs have continued to rise and we are working through the benefit of the lower cost of inventory on our balance sheets that we had more in the first half. And now you're seeing inventory that is carrying higher costs working through our P&L in the back half. But at the same time we've been successfully implementing our mitigation plan.
You know, we've secured supply, we've qualified new suppliers, we've reshaped demand and configuration and we've taken targeted cost actions and repriced with discipline and as we said before, some of those actions move quickly while others like product redesign and platform optimization on the cost reduction side and long-term contract revisions on the pricing side take some lead time. We also expect margin benefit from the areas where we're prioritizing growth in the premium categories in AI PCs and higher value attach and edge AI workloads and all of that contributes to improved overall margins.
So on input costs, we said we still expect them to rise in FY27 and in Q4, but at a slower rate than we've seen to date. So our focus, as I said, is just going to be to recover PS margins back to the long-term range as quickly as possible while also continuing to drive profitable growth.
Lisa, Operator
The next question comes from Mark Newman, Bernstein.
Mark Newman, Analyst at Bernstein
Hi, thanks for my question. Following up on the PS margin on the timing of memory cost increases, is the inventory the lower cost memory, lower cost memory inventory benefit done or in the, in the Q3 that you just printed, is there still some cost benefit? I'm just trying to figure out on the cost line, are there more headwinds for you to normalize to the market price of memory or is the upcoming cost increase just based on the market increases of memory and related to that on pricing for PCs?
Obviously these results are implying quite considerable price increases which is leading to the strong revenue growth. But I'm trying to understand, is there because some of your revenue is coming from channel relationships and those channel relationships may be a bit of a lag in terms of how quickly you can increase prices. So are you caught up to where you want to be for pricing or some of those relationships with some of your channel partners still need catching up due to whatever terms?
In other words, I'm trying to figure out is there some more upside to pricing or should we expect you to be pricing in line with the market going forward? Thank you.
Karen, CFO
Sure. Mark, I'll start answering that long question and I'll ask Katen to chime in if he's got anything to add. I would say first on the PS margin, yes, we were benefiting earlier in the year from that lower-costed inventory that was on our balance sheets and flowing through to the P&L. While we still have a mix of lower cost of inventory, I would say that benefit is largely behind us and we now have higher-costed inventory that's working through our P&L as I said.
But on the cost side we have other things that we are doing to help drive costs down, things like product redesign and platform optimization. Those things take some time and we'll begin to start seeing the benefit of some of those things going forward. And that is one of the levers that will be helping us improve our margin as we move forward. On pricing, we have been increasing pricing. We expect to continue to increase pricing as input costs rise.
We use that as a last lever after we have focused on demand shaping and product reconfiguration and taking costs out everywhere that we can. We use pricing as the last lever. So I'll let Katen add anything.
Katen Patel (Head of Personal Systems)
Thank you Karen, you covered it very well on few of the pricing questions. I'd just add one thing that we have several go to market options including we do business with online channels, we do business with our regular channel partners, enterprise customers and we also have contractual end user deals and all of them have different durations for reflecting updated pricing. So the lag can range from immediately to few months before price changes would be fully reflected for all the customers.
And this is all post-mitigations which Karen already spoke about. So definitely we'll continue to work on some of those actions. On top of it, I would say that while pricing is one of the levers, some of the actions which we have taken—let me quote a couple of examples which are helping us navigate the situation. This robust supply informed demand planning and demand shaping muscle which we are leveraging through our WXP Workforce Experience Platform insights to identify key configurations for specific customer workloads is helping customers with the best value with the right cost.
And the second example I would quote is we have aggressive design for cost initiatives which has led to highly optimized cost for specific products for specific countries which gives a structural capability to serve customer needs again at the right value and cost.
Lisa, Operator
The next question is from Krish Venkar, TD Cowen.
Stephen, Analyst at TD Cowen (on behalf of Krish Venkar)
Hi, thanks for taking my questions. This is Stephen calling on behalf of Krish. The first one that I had was for Bruce. Bruce, like previously during third March he talked about a 50% AI PC mix target by year end. I'm just kind of curious, in terms of the configurations of those AI PCs, does that include a lot of AI workstations and what's sort of the attach rate of discrete AI accelerators within that AI PC mix?
Bruce
Well, thank you for the question and really it is oriented to the AI PCs in totality, not the workstation. So just to provide that context relative to the attach rate, the attach rate on the AI PCs are very similar to the attach rate that we see in another parts of the PC business and that's traditionally around 1/3, a 30% margin kind of opportunity for us. On top of that we also see opportunity to continue to add solutions to our AI PCs and where that is oriented to is really things like the HPIQ which will be coming out later this year.
Device security is another area where we look at and even in our areas of print, where we have AI-enabled print, which complements our AI PCs. And so I would say as you look at the AI PCs, they are, as Katen and Karen have talked about, they are premium pricing and are at significant value to our customers that are complemented by the attach rate that we normally—on top of that we have a number of solutions that we're able to add to the AI PCs that offer it to be more valuable to the customer and frankly more valuable to us.
Katen Patel (Head of Personal Systems)
I just add on top of what Bruce mentioned, AI PC is a strong performance. Also for us this quarter contributed 46% of our mix in line with our 40 to 50% forecast for FY26 and we are expecting it to get up to 60 to 70% in 2027 and more than 70% in 2028. Also the work which we have accelerated with ISV partners, the software companies with more than 150 of them to leverage the capabilities of these PCs. And as Bruce mentioned in his comments, with a growing AI workload being pushed to the edge of driven by cost, latency and privacy considerations, the role of these PCs in customer fleets will continue to expand.
So this will be margin accretive to us and that's what we continue to focus in terms of AI PC mix as well as workstations which are critical categories for growth.
Stephen, Analyst at TD Cowen (on behalf of Krish Venkar)
Gotcha. Thank you for that color, Katen. And for my follow-up I had a question on the strong double digit growth that you guys are seeing in both the EMEA and APGA markets. If I recall correctly, the Windows 11 refresh was a big driver of that in the near term. Kind of curious, in the current quarter and maybe the quarter after as well, is Windows 11 refresh still a big driver there or is that going to play out in the near term? And any other thoughts on demand drivers there would be helpful.
Thank you.
Bruce
Yeah, thanks for the question Stephen. We now see roughly 70% of the Windows 11 refresh complete. That's been a good catalyst for the last couple of years and we are seeing it still drive small and medium business demand I would say. That said, the Windows 11 catalyst is really being increasingly augmented by a rising demand for AI PCs. Edge AI and agentic workloads requiring more capable. We honestly see these tailwinds to shape the market in the coming years and we're proud to have an increased penetration of AI PCs today as part of our shipments, as Katen just mentioned, and a growing part as we look ahead.
Lisa, Operator
Your next question today comes from Wamsi Mohan, Bank of America.
Wamsi Mohan, Analyst at Bank of America
Yes, thank you so much. I was wondering if you could talk about channel inventory levels in both PC and print and how they're shaking out maybe relative to where you would ideally like them and I will follow up.
Karen, CFO
Thanks, Wamsi. You know, I would say that we are definitely disciplined in how we manage inventory across our channels and in an inflationary cost environment we would expect inventory to be higher than normal and that's exactly what we see in PS right now. But that said, the inventory levels in the channel remain well controlled, they're within our demand outlook and they continue to support the supply continuity that we really want. In a constrained memory environment and in print, our channel inventory remains at healthy levels and within the range that we would consider normal.
Wamsi Mohan, Analyst at Bank of America
Okay, thanks Karen. As a follow up we heard a lot about AI and AI PCs as part of the mix and I'm just wondering are you seeing these customers already quantifying ROI from local inference deployments and what kind of use cases are driving that or is it more so that customers are selecting AI PCs because that's becoming the default specification in refresh cycle? It's just how much utility is being provided today towards ROI from AI PCs versus future proofing?
Katen Patel (Head of Personal Systems)
I guess I'll take that. So Wamsi, thank you for the question. Clearly the AI PCs are now providing more value than what it was last year. Clearly as the workloads are coming from cloud to the device, it's adding to significant value for customers, especially on token economics which is a big topic right now as you start deploying workloads in a customer environment. So that's a significant value which customers are seeing. On top of it, they also see advantage of keeping sensitive data closer to where it is generated, reduce dependency on network connectivity, improve response times and manage AI cost, as I said earlier, more effectively.
So this we see as adoption developing in stages. It right now is helping us on high value use cases where the return on investment of the customer is clear, such as employee productivity, engineering and design workflows or customer service, predictive maintenance kind of use cases. As customers gain confidence in some of those use cases, these capabilities will expand across fleet of devices and also to broader enterprise workflows, so that's how we see the current trend.
Lisa, Operator
Up next you'll have a question from Asea Merchant from Citi.
Mike Cadiz, Analyst at Citi
Hi, good afternoon, it's Mike Cadiz for Asiya Merchant with Citi. Let me just go ahead and ask both my questions at once. So the first would be, could you please give more color on the upside to the free cash flow guide? Could it be more than just tariff refund-related, or are there more levers than that? So that's question one. And the second one would be additional color, please, on the proportion of enterprise customers deploying AI PCs in various pilot versus at-scale kind of deployments.
Karen, CFO
Thanks, Mike, for the question. I'll answer the free cash flow and then I'll ask Katen to take the second one. In terms of free cash flow, we are pleased with our performance year to date. It is above the seasonal performance and enabled us to increase our guide for the full year. That performance is really driven by strong personal systems growth along with continued focus on working capital. Our cash conversion cycle is negative 37 days and we continue to have a strong, strong focus on that.
So it was driven by, yes, more than the tariffs. Tariffs helped a little bit, but clearly driven by underlying performance. Katen, you want to take the second question?
Katen Patel (Head of Personal Systems)
Yeah. On top of the comments which I had on the AI PC and the workloads, I would say that there are clearly unique needs which we are addressing right now through our PCs, printers, peripherals, services, and meeting room solutions for modern work. Simultaneously, our solutions like WXP are allowing great control for IT and administrative admins to monitor, support the end user, which is becoming a big need in the world where you will have humans and agents operating together.
And currently our AI PCs are most capable for running AI models locally. And as Bruce mentioned, we have embedded all of this in our first local-first AI model through HP IQ, and also Wolf Security solution which HP is implementing is unique in protecting at a BIOS level intrusions. So some of these are coming together as customers are deploying, as I said earlier, on high-value use cases and expanding this at a broader level. But one thing which we are seeing as a trend for HP, which is a great advantage for our positioning, is our ability uniquely to connect the endpoint, the user experiences, enterprise manageability, security, and the broader IT environment is something which is becoming a good value equation which we are able to deliver.
Bruce
Maybe I'll just add a little bit there. I would say that we are seeing better ROI in a number of different areas, and I think a large one we're seeing, as Katen mentioned, was developer, customer service. We're also seeing it in manufacturing, where our workstations are able to be incorporated in the manufacturing line, where our quality control — they can use it for quality control and other AI-related manufacturing. And so we do see it there. We also see it in the retail area and, in addition, we're beginning to start to see it in the healthcare area. We're seeing a significant amount of interest and demand as a result of some very powerful use cases, both in these subsectors that we're focused on, but in addition in the broader areas like Katen has talked about.
Lisa, Operator
Your next question comes from Eric Woodring from Morgan Stanley.
Eric Woodring, Analyst at Morgan Stanley
Hey guys, thank you very much for taking my questions and I apologize I hopped on late. But Karen, you sound very optimistic about fiscal 27 personal systems operating margins and even the October quarter being the trough. But if we think about, you know, unit declines accelerating, component inflation is continuing, you're working through higher-cost inventory, and it's fair to probably imagine demand elasticity likely increases due to these factors.
It's not totally clear to me what the factors are that allow personal systems operating margins to improve. Even Nvidia tonight is guiding to margin pressure next year from memory costs. So can you maybe just help me please better understand the offsets to some of these pressures that we're thinking about? And then I have a quick follow-up. Thanks so much.
Karen, CFO
Yeah, sure, sure, Eric, happy to help. So obviously we talked about the fact that we expect costs to continue to increase, but at a slower rate. So I'll start there. And at the same time, the mitigation actions that we've been taking are really starting to kick in. So things like long-term contract revisions on the pricing side, which take some lead time, and other cost actions that we've been working through, like product redesign and platform optimization, that can also take some time, are starting to kick in.
And I would say importantly, we're also going to continue to focus on what we've been driving so far, which is an increased mix of premium products with AI PCs and workstations, and also a greater mix of attach offerings where we've got plenty of opportunity to drive even more. And that's inclusive of peripherals and services, things like our WXP platform, et cetera. So it's all of these things combined that give us high confidence that we can drive improvement from here.
Eric Woodring, Analyst at Morgan Stanley
Okay, all right, I appreciate that. And as a quick follow-up, I know obviously, myself included, there’s been a focus on PS margins on this call — what about print operating margins? Just as you think about them into next year, how do you expect them to trend and what are some of the puts and takes to consider? Thanks so much.
Karen, CFO
Yeah, I would say on the print margins in FY27, I'll start by just confirming that we remain comfortable with our long-term operating profit range of 16% to 19% for print and that still holds for our fiscal 27. You know, where we land in that range can really vary quarter to quarter and is influenced by seasonality along with the magnitude of long-term profitable units that we're able to place in a competitive environment. But as we look more broadly to FY27, we will remain focused on protecting operating profits through share gains and profit-up-front tank printers, through expansion in consumer subscriptions, and by strengthening our position in office through some AI-enabled innovation that we've been bringing to market, along with sustaining momentum in industrial graphics and, of course, always maintaining cost discipline. Hopefully that helps.
Lisa, Operator
Our next question today comes from Kathryn Murphy, Goldman Sachs. Thank you for the question.
Kathryn Murphy, Analyst at Goldman Sachs
It was impressive to see the 18% revenue growth in the personal systems segment though units were down 16%, and I was wondering if you could help quantify or otherwise rank how like-for-like price increases, portfolio mix shift benefits, and then the increased attach of related services benefited that implied ASP increase in the quarter, and if one-third of gross profit in this segment coming from those attached businesses is still the right way to think about the mix.
And then I have a quick follow-up. Thank you.
Karen, CFO
Thanks, Kathryn. I'll take that question, and Katen, feel free to add if you want. I would say, you know, all of the things that we are doing really drove our revenue growth, and we're not going to quantify how much was related to each, but clearly mix played a role as we drive more premium share, more AI PCs, more hybrid, more Workforce Experience Platform. All of those things played a role along with pricing. We've been continuing to increase pricing given our higher input costs and that also played a role too.
Katen, anything you would add?
Katen Patel (Head of Personal Systems)
Yeah, just to give some color to the mix thing — how mix is helping us in the overall margin performance — is our sequential gains on premium categories has been pretty strong. We grew 2.6 points of share on premium and 1.8 points of share on workstations. Those are categories which are growing and something which we are pleased that we continue to take share. And to your other comment around non-hardware business contribution, yes, the attached businesses, which is a combination of our peripherals, collaboration solutions, services such as WXP and others, have contributed one-third of the overall PS gross profit.
And that's in line with what we have been forecasting — that those are the businesses which we will continue to focus.
Kathryn Murphy, Analyst at Goldman Sachs
Great, thank you. And then I'll attempt to ask if there's any preliminary thoughts on industry PC volumes as we think about fiscal 2027. Thank you very much.
Karen, CFO
Yeah, I would say on FY27, obviously we're still in our planning period. It's premature to give you specifics on our outlook for the fiscal year and on unit volumes — that continues to move around. So premature for us to talk about that at this point.
Katen Patel (Head of Personal Systems)
I would just only add that there are two demand vectors as you look at 2027, as Karen mentioned previously — growth catalysts being the shift towards AI workloads and hence some of those categories around AI PCs and premium PCs and workstations. So that's going to be a tailwind. At the same time, there has been demand delay as some of the customers deferred product refresh given the price increases this year, and as costs start stabilizing over the next period, you will start seeing some of those refreshes coming over a period of time.
So that's how we look at two different demand signals coming through.
Lisa, Operator
Your next question comes from David Vogt from UBS.
David Vogt, Analyst at UBS
Great. Thanks, guys, for squeezing me in here. So Karen, I just want to maybe ask a clarifying question about 27 profitability and margins. Can you help us walk through your comment in greater detail about protecting print margins? Does that exclude the benefit of the tariff contra account in 26? Is that how we should be thinking about your comment in 27? Or is that inclusive of the benefit that you're seeing this year from the tariff refund? And if you could help us understand — I jumped on later and I apologize — was the tariff refund largely in print?
I would imagine there's a big chunk in PC also, but I didn't quite hear that in the prepared remarks.
Karen, CFO
Yeah, so just on your question on print margins for next year, when we talk about our long-term 16% to 19% range, that is without or excluding any one-time benefit that we might get from tariff refunds. We did have some benefit from tariff refunds this quarter and have signaled more next quarter. It does largely benefit print. There is a smaller portion that benefited PS, but it is largely benefiting print. And so you saw our print margins in Q3 be higher than expectations driven by that benefit.
But once you exclude those benefits, they were largely in line with expectations.
David Vogt, Analyst at UBS
Perfect, that's what we thought. And then maybe just as a quick follow-up. In terms of mix, I think we were — well, we were worried about mix to hardware in the quarter. Obviously supplies are, you know, subseason — well, hardware is seasonally stronger relative to supplies. How do we think about the input cost on the hardware side relative to the business? Because I know we've talked about in the past the impact of currencies, the impact of commodities like oil.
How are you thinking about that in context of when we're thinking about fiscal 27? I know you don't want to give a guide, but like when I think about those moving parts that are a little bit out of your control, how should we think about those contributions to the outlook?
Karen, CFO
Yeah, I would just say in general in print we are going to continue to focus on momentum in our key growth areas and introducing new products in our more traditional print business. That includes expanding our tank portfolio and driving further traction from our recent rollout of our AI-enabled laser portfolio in office. And then in terms of just supplies, we have said for a long term that we expect supplies revenue to decline low- to mid-single digits in constant currency.
This year, in particular in FY26, we see it declining low single digit in constant currency. But our long-term view of supplies hasn't changed.
David Vogt, Analyst at UBS
Perfect, thank you very much.
Lisa, Operator
And the next question is Ananda Baruha, Loop Capital.
Ananda Baruah, Analyst
Hey. Yeah, good afternoon, guys. Thanks a lot. Appreciate you taking the question here. I guess going back to what sort of the revenue texture can look like as we go through 27. Do you think it's a situation where corporate is refreshing to higher-spec PCs now as a trend, such that it's not you guys are raising—you guys are seeing higher ASPs not only because of memory prices, but because it's actually what customers are increasingly wanting? And I guess what I'm trying to get like an anecdotal sense of: is there increasingly a much more—is there more appetite, natural appetite, for higher pricing as distinct from memory pricing increases as we go through 27 through 28?
Katen Patel (Head of Personal Systems)
Yeah, I'll take that question. Thank you for that. Yes, we definitely see the effect of how customers are choosing those higher-configuration products, largely because of the need to conduct AI at the edge to support increasing AI workloads. Customers in their environment are now, as they are implementing AI in their workflows, seeing this becoming more prevalent than before. Also, increasing use of agents, increasing concern about token costs, cybersecurity, privacy, and a lot of applications which require a different kind of latency needs, leading to a PC refresh with more capable PCs having these capabilities.
And that's why, to your point, yes, we see demand shifting to those higher-end devices too, as part of the natural mix.
Ananda Baruah, Analyst
And this is a tricky one here—just a quick follow-up, but do you guys yet have visibility to enterprise users adopting AI PCs or talking about AI PCs? You sort of quickly touched on it as a way to basically get the model off the Internet, right, so they don't have to absorb token costs, so they can actually run them native and just avoid the token costs. Is that a meaningful part of conversations yet?
Katen Patel (Head of Personal Systems)
Yes, there are two meaningful conversations which are going on right now as customers bring these workloads. One, this increasing cost of token and how bringing models locally on the edge can help them optimize cost as well as take care of employee needs or requirements to use different AI models for their work. So that's definitely one of the conversations. And the second big one is, as they deploy agents more in their environment, how to govern those agents more securely and drive the right level of enterprise manageability.
I think those are the top two use cases which we believe are happening as we speak, apart from the industry vertical workflows which Bruce talked about earlier.
Lisa, Operator
And everyone, that does conclude our question-and-answer session. I would like to hand the conference back to Mr. Bruce Broussard for any additional or closing remarks.
Bruce Broussard (Interim Chief Executive Officer)
Thank you, and thank you all for the thoughtful questions and joining us today. As you can tell from our voices, we are excited about the future, and AI at the edge creates incredible opportunities, and HP is well positioned to lead in this area. As we've talked about, with our strong portfolio, our network reach, trusted brand, we are all equipped to help our customers thrive in the AI era. And thank you, as always, to our customers, partners, and investors for the continued confidence you place in HP, and we look forward to keeping you updated on our progress.
Have a good afternoon. Thank you.
Lisa, Operator
Once again, ladies and gentlemen, this does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
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