Newly separated HP Inc. (HPQ) and Hewlett Packard Enterprise (HPE) have reported a messy final quarter together on this past Tuesday. However, it was one growing risk jumped out to investors.
For the entire already-split enterprise, HP reported slightly less revenue than Wall Street expected at $25.7 billion. This is a 9% drop marking the 16th out of the past 17 quarters when sales declined.
Now the shares of HP Inc., the PC and printer arm, have tanked on Wednesday, dropping 14% to $12.61 in midday trading.
This is not happening over a few tweaks, its the messy alterations to the timing of job slashing or cost cutting or even the weakness in PC and printer markets. Rather, HP let slip that there’s a problem with its cash machine, responsible for over 90% of its operating income: ink.
You see printers and PCs are a low- to no-margin business. It’s the supplies that provide almost all the profits for HP because people use them every single day and some businesses may even replace ink as much as every 2 days depending on how much they need to print daily.
That’s what made analysts and investors sit up straight in their chairs when they hear new HP Inc. CEO Dion Weisler explain that the weak dollar coupled with a growing price war from Asian suppliers is leading consumers to buy higher-end printers once favored by corporate shoppers. But is that really true?
It’s further explained with this: because consumers use a lot less ink than companies, HP isn’t getting the same reach in ink sales it previously did from sales of those high-end models.
So it seems as if they have a big problem on their hands and the remedy is not one that will come quickly.