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Hello, everyone, and welcome to the HP Fireside Chat at the Goldman Sachs Communacopia and Technology Conference. I have the privilege of hosting Karen Parkhill, CFO of HP here today. My name is Kat Murphy. I cover HP and IT hardware here at Goldman Sachs. We have about 35 minutes for today's session, inclusive of audience Q&A at the end. So with that, Karen, thank you very much for being here.

To start off, you reported earnings last or 2 weeks ago with very strong results in the Personal Systems segment on portfolio mix and pricing benefits, more in-line results on print. Is there anything you can share to help contextualize those results for this audience or anything that you want to highlight for the purposes of this presentation?

Yes. Thank you, Kat, and thank you for having us here. I would say we had a really, really strong third quarter. We were pleased with the results because we did deliver record revenue in our PS segment, 18%. And we continue to execute on our 4-pillar mitigation plan during this commodity cost cycle. And we -- print expectations were definitely in line, but we had some really great things going on in print, particularly in our key growth areas, where we drove share gains in Big Tank aligned with our strategy. We drove really strong growth in industrial printing and 3D printing, continued to drive subscribers to our all-in plan. So I'd say really strong results that ultimately enabled us to increase our annual guidance. And we obviously had the benefit of some IEEPA tariff refunds in the quarter, and we expect some more in the fourth quarter, but we increased our guidance even without the benefit of tariffs. So we were really pleased with our execution and with our remaining outlook for the year.

Starting on the Personal Systems segment, I want to talk more about the portfolio mix benefits that you saw and that you're enacting through some strategic focuses on key verticals. Can you talk about what's a key PC customer for you and why you think you're well positioned to go after those certain subsectors of the market?

Yes. So we're really excited with the strength of what we've got and what we're offering to our customers. We're seeing increased focus from us, in particular, on premium PCs, in the commercial space, in particular, with AI PCs, with workstations, with greater attach of both peripherals and service offerings, including our WXP platform, which is our workforce experience platform. And we are purposely driving those to increase market share and to drive our revenue growth and drive ultimately a greater mix to our margins, too.

And when you think about the mix by region, is there any particular strength or any region that you think aligns well with those AI PC categories, workstations where you may be prioritizing growth?

We are driving growth across all of our regions around the world. So pleased with the performance worldwide. But in particular, this past quarter, we did regain our market leadership, particularly in the Americas and North America. So really pleased to see that because that is clearly in line with our strategy as well.

So AI PC is approaching 50% of your overall mix. Can you talk about what's driving this AI PC purchase decision for your customers? Is it futureproofing or are there some tangible agentic AI or cost considerations that your customers are making that's driving this decision to upgrade to a premium AI PC?

I'd say early on last year, it was a little bit more futureproofing. Now it's not. Now it is truly our customers, particularly our enterprise customers really wanting a solution and an alternative to conducting AI in the cloud. Tokenomics is one compelling reason with this significant rise of token costs, but also having something that is faster, more secure, enables better focus on privacy is what customers are seeking right now. And so the AI being run locally in addition to in the cloud, we call it running AI hybrid. We believe that is the future, and we're beginning to see the pull of wanting solutions locally.

Can you talk about what in HP's portfolio, in particular, positions you well for this trend of hybrid compute or even AI at the edge?

Yes. I'd say we've got really strong product offerings right now, many that are award-winning. But we also have a software solution, our workforce experience platform that I mentioned, that is also a compelling offering, enabling greater digital experience for employees out there because what it does is it enables CIOs to really manage the devices that they have out there, and it's not just PCs, but it's also workstations and printers and now our collaboration devices that we recently put on this platform just last quarter.

It enables CIOs and the IT managers to see problems and issues before they happen. to fix them before they happen to ensure that employees have the right memory that they need to enable the work that they need to drive. And so this workforce experience platform was recently put into the Magic Quadrant for Gartner, and it's a really compelling offering that we've got right now.

Maybe sticking on the WXP platform. Can you talk more about the operational insights that both you and your customers get from deploying WXP across their fleet? You mentioned memory usage, but anything that you can share as to how that platform may help you, help your customers navigate input costs?

Yes, it definitely helps that. We've got telemetry data that enables us, particularly when our customers are purchasing equipment that enables us to share with them and have them see the memory needed by various employees or employee groups. And so it enables them, particularly in this rising cost environment to purchase exactly what they need rather than more than what they need. And it also enables us to help them configure the equipment for the various uses that they need to.

Let's talk more about margins. You've talked to this 4-pillar mitigation plan, addressing supply, shaping demand, cost reductions and pricing actions. I want to talk to each of the 4. But first on pricing, 40% increase in ASPs for Personal Systems last quarter. Question that's very top of mind for investors is thinking about when we should start to see some demand pullback in light of these major price increases. So maybe just to start, can you talk about the outlook for demand elasticity, how that might change in different parts of your portfolio? And any considerations investors should have when thinking about the magnitude of price increases going forward from here?

Yes. Thanks for the question, Kat, and well done on our mitigation 4 pillars. What I would say just on ASP, we -- yes, you've seen ASP increase, but it's not just driven by price. It's driven by mix. And so what we're seeing is, yes, you've got unit decline going on, which has been well built into our forecast and the industry forecast out there. But the decline is more from the lower end of PCs. So for us, we don't believe it's a unit game anymore. It's really offering solutions that can enable AI locally at the edge is really the game right now.

And so what we're seeing is a greater demand for higher premium products, of which we are very focused on meeting that demand, whether it's AI PCs or our strong workstation offerings and the peripherals and attach that we have to go along with it. And so mix, I'd say, is a really important driver here. And it's the premium mix that's helping ASPs and the decline of lower value products that is honestly helping that impact too on ASPs.

Anything you could share to quantify the relative impacts of mix versus like-for-like price increases that you're passing through as you absorb these higher input costs on the memory side?

Yes. I would say we don't give that for competitive reasons. But I would say we've been very focused on managing this commodity cycle incredibly well. And our 4-pillar mitigation strategy, price is the last piece of that mitigation strategy. So we're focused on doing everything that we can before we need to hit price for our customers. But of course, in this incredibly strong rising cost environment, we are increasing our prices. So that does play a role as well.

Let's talk about securing supply. Can you talk specifically about the levers that you have to secure more memory and storage supply and other constrained components as we look into the next fiscal year? And maybe talk to some opportunities to engage with the Chinese memory suppliers to address some of the constraints.

Yes. So of our 4-pillar plan, the first is securing supply. And we've been very focused on ensuring that we've got the supply that we need this fiscal year, and we're also working on next fiscal year at this point. And we believe that we've got the supply that we need to meet the demands of our customers. In terms of securing that supply, we focus on long-term relationships that we've had with suppliers for many, many years. We also have been focused on qualifying new suppliers at record speed, and we've done that early on in the cycle. And those do include some Chinese suppliers as well. We use those Chinese suppliers to supply our products in China and in some of the other countries around the world.

Anything you can share to quantify how big that opportunity could be the China and rest of world or memory that could be addressed by -- your memory needs that could be addressed by these newly qualified suppliers?

I would say that it's still a smaller part of what we're securing, but it's been important to help us make sure that we've got the supply that we need.

Got you. You've guided for Personal Systems margins to trough in the fiscal fourth quarter and then recover into your long-term framework of 5% to 7% as we move throughout next year. This is really driven by the other 2 levers that we haven't talked about, the non-pricing and the non-supply-related levers. Can you talk to and help us understand what these operational levers are? Maybe any examples as to why you have confidence that 4Q will be the trough for your Personal Systems margins?

Yes. Thanks for the question, Kat. So yes, in this past fiscal quarter, we did say that we expect our Q4 margins to be lower than Q3 in our PS segment, but improved sequentially from Q4 and be back into our long-term range in FY '27 -- at some point in FY '27. So we're -- I would start by saying that -- the margin impact that we've seen during the cycle, we have been very transparent and predicted it the entire year. So in the first half, we said our margins were going to be higher. We said they were going to be lower in the back half. That's indeed what's happening. And what gives us confidence is that we've got many different levers that we've been focused on. Mix is one of them. Price is one of them that we've talked about.

But some of the levers that we've been driving can go -- can work rapidly and others take a little bit of time. So for example, we have long-term customer relationships, and we've got long-term agreements with those customers and repricing those long-term agreements can take a little bit of time. We also have been working to redesign some of our products to require a little less memory and those redesigns can take a little bit of time. So we see those longer-term efforts beginning to kick in, along with mix playing an important role. And we also see the cost next fiscal year continue to rise, but at a lesser slope. So they were a very steep slope this fiscal year, and we see them at a lesser slope next year.

I want to ask more about the long-term agreements or contracts that you have with some of these customers that you're working through repricing. Can you share anything around how big this is as a share of your portfolio? And maybe any characteristics of the types of customers with whom you have these long-term agreements?

So we have long-term agreements with our enterprise customers. And when you think about last quarter, roughly 70% of our business was commercial. So it gives you a little bit of a rough estimate. We don't disclose exactly how much is enterprise, but it gives you a little bit of an estimate.

That's helpful. I want to turn to the Printing segment. Last quarter, you highlighted a few ways in which HP is embedding AI into the Print portfolio more broadly. Can you talk about how we should think of the impact of AI on the broader Print opportunity? Is this something that impacts the TAM, impacts the go-to-market, the use cases, the margin profile for Print? Anything you can share just on the portfolio more broadly?

Yes. So using AI and Print, it really is a more compelling offering for our customers and delivers important experience and value for our customers. And that's why we think it's important to do it. It doesn't necessarily increase the print TAM, but it clearly delivers a better customer experience. And we are using AI and print quite heavily to do things like we call it Precise Print. It's an offering that we introduced in the United States, and we're now bringing to 130 countries, and it enables you to print exactly what you want to print.

So think about a spreadsheet that you want to print or a download of something from the web. It automatically prints the exact piece of what you want in your spreadsheet, and it eliminates all the things, the marketing that comes with a web print that you want to do. It's called Precise Print. The other things that we do are things like automatically redacting sensitive information. So think about social security numbers or birth dates or things like that, it will automatically know to redact that when it's printing. We also -- when we scan -- when you scan documents on the printer, we use Copilot to enable it not just to e-mail the scanned document, but also a summary of the scanned document. So things that just make it a little easier for people to do their work.

And is that something you can charge for? Does that add to the opportunity from a pricing perspective, especially when you think about the opportunity in both home and office print?

It does. So these new things that we're offering are things that we can charge for.

Got you. You're executing against your strategy towards more high-value opportunities. You talked about share gain in Big Tanks when we think about the home printing opportunity. How large is Big Tank as a share of your home print business today? And are there considerations as you move to more of this profit upfront model when thinking about the long-term operating margin profile for print?

Yes. So Big Tanks, if you think about it in terms of size, roughly 17 million printers were sold worldwide last quarter and about 1/3 of those were big tanks. So it gives you a sense of the size. In terms of Big Tanks, that's been a growing segment in the market that we had not been participating in as much. And so last year, we put our muscle behind it and really focused on driving growth in Big Tank. When you think about our market share in print, it's in between low to mid-30s worldwide. And in Big Tank right now, it's low to mid-20s. So we have plenty of room to continue to grow in the Big Tank space. And you saw us gain 4 points of share last quarter, for example.

In terms of print in general, participating in this growing segment of the market is really important. But we're also focused on participating in other important growing segments, industrial printing, for example, 3D printing, all of which have been really good growth drivers for us. And while we see in the traditional printing space, low single-digit decline. And in supplies over the long term, we still believe that we'll have low to mid-single-digit decline. It's these growing areas that help offset it, along with things like our subscription offering where we're driving more and more subscribers to our all-in plan. And those are things that help us offset some of that decline and also ensure that we continue to execute this business really well with margins that are higher than many of our competitors.

On the margin front, you've guided for fiscal 4Q margins to be at the low end of your 16% to 19% range. You attributed that to unit placements as well as navigating some input cost pressures. First, on the unit placements and to the extent that this is different than what you just said, why is placing more units important for HP when the TAM is thought to be down low single digits? Is it a function of mix shift? Or what's the strategic importance of going after these unit placements?

I'd start by saying that Print is a very large profitable market out there. So the TAM for the whole print space is about $150 billion. It's a big market. And we're focused on operating profitably within that market. And so we're doing that by all the things that I already talked about as well as continuing to place long-term profitable hardware units and making sure that we continue to maintain as much of an installed base as we can that this drives the supplies later is an important piece of operating profitably in this long -- in this big market.

And on the input cost front, can you talk about what specific near-term pressures you're navigating in the Print segment, if it's resin or something beyond resin? And how we should think about the impacts of that as we move through the back half of this year and into calendar '27?

Yes. So just like the PC market, we've got the rising cost of memory and storage. It impacts print to a lesser extent than PCs, but it does impact print. We also have had some increased costs with the oil-related markets like resin and plastics. But what you see for a long period of time is us managing those headwinds just fine. We're focused on dealing with our headwinds and working to offset them. And you've seen us do that. In print, we've been doing it with continued cost reduction, with growing where we can grow with mix and then obviously, with some price increases, too.

That's very helpful. And then in thinking about -- you've been very helpful in the past of quantifying for investors the share of your bill of materials from memory. It's a very helpful way of thinking about your embedded assumptions on pricing and mix. Anything to share on the bill of materials for print? I know it's a more diverse product category, but anything we should be monitoring or major categories that are top of mind?

Yes. I would say we don't share what it is for bill of materials and print for any one component because none of them are as big as the memory and storage was for the PC business, for example. But we do have rising input costs, just like I mentioned earlier.

Got you. One last one on Print, and then I'll maybe turn it over to the audience to see if there's any questions. Industrial Print delivered its 12th consecutive quarter of growth. You noted that Industrial and 3D are both categories that you're investing behind because their TAM expanding. What is the Industrial Print opportunity in your mind? And why is HP's leadership in home and office one that should translate to Industrial?

Yes. So the underlying print technology is similar, whether it's Industrial or whether it's Home or Office. So we're leveraging basic platforms in any of the spaces in which we operate. In terms of Industrial printing, that's been a really good and strong growth driver for us. Part of it is the switch from analog to digital for labels and packaging printing, which we've been capitalizing on. But we also have -- are helping many large print customers, think Shutterfly, think RRD, who are big customers of ours, help them with AI-enabled workflow management that enables them to go from concept to final print much more quickly than it did before we had AI enablement. So we now have a software called HP NEO attached to our Industrial Print that has been award-winning for AI enablement in printing. And that's clearly helping our customers, and it's enabled us to garner a lot more business, too.

Maybe one more and then I'll turn it over to the audience. Just quickly on tariff refunds. You mentioned there was a benefit in this quarter. We guided to a benefit for the upcoming quarter. Anything you can share to quantify the total size of the refund you expect? I know you've talked about $500 million in tariff and tariff-related expenses paid in the last fiscal year. And how we should think about those benefits hitting both segments, both in the last reported quarter and then as we look forward into the end of the year?

Yes. So the $500 million in tariff and tariff-related expenses that we talked about last fiscal year was not just IEEPA tariffs and not just tariffs alone. So it's the IEEPA tariffs that we are receiving the refunds for today, we've chosen to book them when we receive them. So in the third quarter, we said we had about a $0.11 positive benefit from IEEPA tariff refunds. That was also amounted to about an 80 bps benefit on both our gross and our operating margins in the quarter. And we said that in Q4, we expected roughly $0.08 of IEEPA tariff refund benefit. We will have a little bit more to go between -- after the $0.11 and the $0.08, and we'll book it when we receive it and be transparent about it. We might have a little bit more in the fourth quarter. It might be the first quarter. We'll see. But at this point, I don't expect it to go much beyond the first quarter, and we'll be very transparent about it.

And anything on the mix between the Print and the Personal Systems segment in terms of where you're recognizing that benefit?

Yes, the vast, vast majority is in print. So in Q3, the vast majority was in Print and there was a little bit of benefit in our PS segment. In Q4, I expect all of it to benefit print.

Great. I'll see if there's any questions in the audience for Karen.

If we assume that memory prices come back down to more normal levels, how would it affect Hewlett-Packard in terms of -- I mean, margins are going to improve, but what about profit dollars? And what's going to happen to the volumes on the low end that you've been missing out? Do you expect that catch up? And do you expect that to come in on a more premium level as well?

Yes. So thanks for the question. We do expect the cost of memory to continue to rise next fiscal year, as we said, but at a less steep slope. So we do expect it to moderate a bit. We do believe that on the lower end that we have seen more of a demand delay than a demand drop-off. So we do believe that as prices and costs stabilize a bit, that some of that demand delay from the lower end should come back. In the meantime, we see a really strong demand for the foreseeable future for the need to have an ability to run AI locally. And I don't see that changing anytime soon. So I think it's an important driver for us that we're just seeing the early phase of it now, and that's going to continue for a long time to come.

Any other questions in the audience? I have a couple more here. Any update on the status of your CEO search?

Sure. So we -- just like we say on the earnings call, I mean, the search is progressing well. I think our Board is being incredibly thoughtful about making sure that they select the right next leader for HP to lead us into this era of AI at the edge driven growth. Searches like this, we're 7 months in and typically, searches like this take 6 to 9, sometimes 12 months. So I think we're right in line with what's typical in these kind of time frames. And I would say, most importantly, in this interim time, we are not skipping a beat. So you're seeing us execute incredibly well in this very dynamic environment. And we're not putting on hold anything related to our strategy while we're waiting for a next CEO. We're advancing our strategy with momentum, and you can just expect us to continue to not skip a beat.

And should we still expect to learn more about your outlook for fiscal '27 even without a CEO in place as we get to the next quarter earnings call?

Yes. I mean when we do our fourth quarter earnings call is when we give our expectations for the following fiscal year, you should expect that to continue.

You're helping customers to deploy AI, but HP is also a large enterprise. So can you talk about the ways in which internally HP is deploying agentic AI? And any ways we can think about the operational improvements, the margin expansion opportunities that that's leading HP to have?

Yes. Thank you for that question, too. So I would say, first of all, we view ourselves as customer zero when it comes to our AI offerings. So we are using them, whether it's AI PCs or things like our workforce experience platform, we're using them internally. And they're helping us. In areas like in Asia, in our manufacturing facility, we're using our AI-enabled information to help us drive better quality first time in our facilities.

So I would say -- but just more broadly on AI enablement, helping to transform HP, we are using it to help improve our customer experiences with our call centers using agents, for example, to answer our customers' questions much more rapidly. We're also using it in our back office to enable us to be far more productive and to enable us to do things like pricing to our customers much more rapidly than we've been able to do before.

Maybe one final closing question for you here. When you look out over the next 3 or 5 years, what aspect of HP's strategy are you most excited about? And do you think there's a part of the story that investors might be underappreciating today?

Yes. Thanks for that question. I do think that we are at the very early stages of having AI conducted in a hybrid fashion, both in the cloud and locally at the edge. And I think that, that is a huge opportunity for us to lead and drive well into the future. And so I'm super excited about HP leading AI at the edge.

Great. Yes. If there's any other questions from the audience. We have a couple of extra seconds here. But if not, Karen, I really appreciate the time. It's been a privilege to have you.

Thank you, Kat. Appreciate it, too.

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. [Operator Instructions]As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Alok Juyal, Global Treasurer and Head of Investor Relations. Please go ahead.

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 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 1 year. .

We posted the earnings release and accompanying slide presentation on our Investor Relations web page 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 channel inventory, referred 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.

Thank you, Alok, and thanks, everyone, for joining us today. I'm pleased to share that we delivered record third quarter revenue and continue to exceed expectations on EPS. We're also laying a strong foundation for the AI era and are building momentum.

Our strategic execution, robust commodity mitigation plan and relies commitment to innovation are helping us advance our business and enable our customers to successfully navigate this most significant technology shift. Today, I'll share our third quarter highlights.

Discuss the innovations we are bringing to market and touch on how we are managing the current environment. Before I do, I know some of you are interested in an update on the CEO search. I'm sure you can appreciate that I am unable to share details or a time line, but the search is proceeding well, and we continue to make good progress on finding the right next leader for HP.

In the meantime, having spent the past several months leading the company day to day, a developed deeper perspective on HP for observations stand out. First, we need to continue advancing our operating infrastructure to become better connected, AI-enabled and data-driven, improving productivity while delivering better experiences for our customers, partners and employees.

Second, we will continue advancing our devices to be AI leading by bringing more computing to the edge or context of creating. This will enable more intelligent devices that anticipate needs and proactively solve problems. Third, we need to accelerate our evolution towards integrated solutions across our broad portfolio of devices, creating differentiated offerings that deliver greater value to our customers outstanding reoccurring revenue opportunities.

And lastly, we provide greater strategic clarity around where we choose to play and allocate capital, resources and capabilities against those priorities with focus and discipline. HP has tremendous assets, one of the most iconic brands and technology, a strong global footprint sophisticated supply chain, deep commercial relationships and a talented team, and there are meaningful opportunities to make HP stronger, more cohesive and more effective.

We are taking action now to strengthen the validation, sharpen our priorities and improved execution. So that when our next CEO steps in, it can build on that momentum, and lead HP into its next chapter of growth and value creation. Let me get to our results. This quarter, we delivered $15.7 billion in revenue. A record Q3 for HP.

This represents an increase of 13% and our ninth consecutive quarter of top line growth, driven by another strong quarter in Personal Systems, while print results were in line with our expectations. We executed on our commitments and accelerating our key growth areas, which collectively grew 46% year-over-year and faster than our core.

We continue to take share in high-value segments while managing commodity headwinds with our mitigation playbook, enabling us to deliver EPS above our expectations. Even when excluding a tariff-free fund benefit while also delivering strong free cash flow. In short, we did what we said we would do.

In Personal Systems, we achieved our tenth consecutive quarter of revenue growth, up 18% year-over-year, driven by solid growth across both commercial and consumer segments. We are particularly pleased with the continued strength of our AI PC portfolio continued to grow and is still expected to be 50% of our shipment mix by the end of this fiscal year.

At the same time, consistent with our strategy, we delivered double-digit revenue expansion in our key growth areas, including advanced compute solutions and workforce solutions. We also continue to capture share in high-value categories, including premium PC, returning us to share leadership in the Americas.

Overall, these results show customers continue to invest in the hardware and solutions they need to run AI or work habits. Turning to Print. Revenue was down 2% year-over-year and what continues to be a competitive market. We remain focused on pricing discipline and the placement of profitable units. We said we would double down on bigger tank market, and we did, gaining another 4 points of share this quarter.

Industrial Printing delivered its 12th straight quarter of revenue growth as customers continue to leverage our award-winning hardware portfolio to drive their digital workflows and grow their businesses.

Across both segments, we are balancing near-term execution with long-term investment and shifting our portfolio towards high-value and more profitable categories. Turning to innovation. This quarter, we unveiled advancements designed to help our customers thrive in the AI era.

We believe the future of AI is hybrid. That means AI will operate both in the cloud and increasingly at the edge. Our customers already seeing the cost of cloud-based AI [indiscernible] economics alone makes edge AI compelling. It can also improve security, latency and strengthen data governance.

To make Edge AI a reality, we are working with customers and ecosystem partners to build platforms to extend data center class AI capabilities to the edge by enabling GPU sharing through HP Z Boost and integrating it with our WXP software layer security and device features, we are making traditional cloud AI capabilities available locally.

Building advanced AI locally has to of specialized infrastructure, large budgets and complex setups. We are changing that. With our HP CGX Fury, we bring data center class AI to the debt side, so teams can build and run front tier scale models and always on agents locally.

The response since we first showed this direction at Computex has been clear customers want local AI, they can own. Over the next month, we will extend this momentum into more of the form factors people already carry with the memory empower those on device models actually need.

A leading automotive company is using HP solutions to bring visual AI and inferencing directly to its manufacturing line, helping improve quality inspections, performance and economics. We see the same potential in many other sectors that require on-site compute performance, strong security and the most cost-effective ways to manage increasingly complex AI models.

This creates significant opportunities in areas like retail, public sector and health care. We are also advancing what PCs can do as edge devices. In the Agentic era, PCs are becoming partners that understand their needs and help meet them. So we are reimagining what a personal computer can do with our new Omni book Ultra team powered by NVIDIA RTX Spark.

It brings the compute needed to build and run sophisticated AI models and personal agents to a thin mainstream mobile PC and our Omni desk mini desktop combines full-sized performance for the contact design and built-in AI capabilities.

In Print, we're already delivering tangible customer value with AI. In June, we expanded our flagship AI-powered print experience Precise Print to more than 150 countries. By intelligently removing unnecessary web content before printing.

Precise Print helps customers reduce paper usage by up to 38% and ink consumption up to 47%. Our HP neo AI companion brings a Agentic AI to industrial print operations and is gaining momentum. Neo was awarded a 2026 European Digital Press Association Award for Best Software agent in the print industry AI category.

This underscores our commitment to intelligent, data-driven production systems but built in remote remediation capabilities, and importantly, solving uptime problems for our printer service customers.

In Q3, we also signed a 3-year $100 million strategic agreement with RRD one of the world's leading print service providers. This reflects our shared vision to accelerate AI and industrial automation and print production. Succeeding at the edge also requires intelligent ways to manage the technology portfolio.

Work moves across PCs, meeting rooms, collaboration tools, printers and other end points. Our WXP platform helps CIOs track and manage fleets of connected devices and applications. This quarter, we integrated HP Poly lens and collaboration capabilities into WXP, getting IT teams greater visibility across PCs, printers and collaboration devices.

By bringing together insights that were previously isolated across different environments, organizations and channel partners can turn data into actionable intelligence, improved workforce experiences, lower costs and establish a governance layer. WXP was named a leader in the 2026 [ Gartner ] Magic Quadrant for digital employee experience management tools.

We believe the future of computing will be increasingly intelligent and integrated with devices anticipating user needs, executing tasks seamlessly and connecting traditionally separate cloud and desktop environments. By bringing AI capabilities closer to users, these devices can provide the context required for more effective reasoning and inference.

AI at the edge offers meaningful benefits for our customers while creating significant incremental growth opportunities for HP and the broader industry. We believe HP is uniquely positioned to lead this evolution through our broad portfolio of products and services, trusted brand presence in more than 180 countries and robust innovation pipeline.

Together, these strengths create substantial opportunities for growth. At HP, we consider ourselves customer, using our own business as a proving ground for the products and solutions we develop. Like our customers, HP is benefiting today from localized AI capabilities using edge inferencing across our business.

For example, in our Singapore production facility, teams are using our ZBook workstations running an OPUS model to enhance quality insurance and detection capabilities on the manufacturing line. This past quarter, we scaled our work with OpenAI. OpenAI frontier, we are integrating AI across the customer and partner experiences, the HC store, digital support, [ WXPtelenterin, ] employee productivity and software development.

Early deployments are already helping teams accelerate engineering workflows, enhanced security analysis and automate routine tasks while maintaining HP's high standards for data governance and security. We are just getting started with an AI and expect to share more as we turn our pilots into scale capabilities that create business value.

Let me now focus on the external supply and cost environment, which remains complex. We continue to effectively execute our mitigation plan. We remain confident in our memory and storage supply availability for this fiscal year and our focus on our needs into next year and beyond.

Enhanced operating model we are building is designed to compound over time, creating a more connected, process-led enterprise that can serve customers with greater consistency, speed and predictability. What we are building is not a short-term efficiency program or a situational response but a fundamental stronger operating model that better connects planning, decision-making and execution across the enterprise.

We already see early signs of this working in areas such as order delivery predictability, improved accuracy rates leading to better conversion on incoming orders. The solid mitigation efforts already in place and additional steps planned, we remain confident about HP's upside potential, both in near term and long term and the constraints the industry face begins to lift.

Looking ahead, we remain focused on being the trusted resource for customers in navigating a dynamic environment. In Personal Systems, we see opportunity for increasing commercial workloads [ AITCs, ] advanced compute to the broader shift towards hybrid AI and growing need for contact are use cases at the edge.

In Print, we will continue to place profitable hardware units, grow big tank and subscription businesses and invest in industrial applications. Our teams will continue to manage memory storage and geopolitical pressures through pricing, sourcing, supply chain actions, productivity and portfolio choices.

Opportunity ahead is significant. AI is moving from isolated experimentation into day-to-day workflows, devices and environments. HP is well positioned to be the customer's trusted edge AI platform, helping them make the most of that transition.

In closing, I'm proud of how the HP team performed this quarter. We delivered strong Personal Systems growth, managed through a challenging end market and continue to drive innovation that will shape how work is done. Thank you to our employees for their commitment and to our customers, partners and investors for the trust you continue to place in HP.

With that, I'll turn it over to Karen.

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 4-pillar plan to mitigate rising input costs.

These ongoing efforts to secure supply, shape demand, implement targeted cost reductions and take disciplined pricing action, all continue to ramp and have enabled us to deliver OP rates in line with our, growth 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 continue 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 promotion and our people. All in, 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% and 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 PC, 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% and 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 and what remained the 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 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 continue 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%. The 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 FY '27. 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 and 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 OI&E 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 $319 to $329. Up from our previous range of $290 to $310 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 billion 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 PC, 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 PSOP rate back into our long-term range as quickly as possible in FY '27.

In Print, we will remain focused on protecting operating profit through share gains and 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 2017 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 [ Ketan 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.

[Operator Instructions] And our first questioner today will be Amit Daryanani from Evercore ISI.

I guess I have a question and a follow-up, but maybe just to start with Karen, could you just spend a little bit of time on the Personal Systems assumptions for Q4? I think you 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 tees, but revenue is still growing by a few points, persisting through fiscal '27? Or is that more in Q4?

Yes. Thanks for the question, Amit. 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 PC, 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 to prioritizing profitable growth and edge AI driven demand rather than chasing a low margin share. Our comments on revenue growth relate to Q4. It's too early for us to be giving FY '27 guidance. We'll be doing that on our Q4 call.

Fair enough. I figure 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 just talk about. Is that just you getting better allocations or there's more spot availability?

Just what do those things mean for HP Inc. And from your perspective, where do you think PS margins would trough as you go forward?

Yes. Thanks for the question. On supply, we are getting the supply that we need to fill our customer demand. So that has not been an issue. And as we look ahead in Q4 at our margins, 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. 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. Costs have continued to rise, and we are working through the benefit of the lower cost of inventory on our balance sheet that we had more in the first half and now you're seeing inventory that is carrying higher cost working through our P&L in the back half.

But at the same time, we've been successfully implementing our mitigation plan. We've secured supply. We've qualified new suppliers. We've reshaped demand and configuration, and we've taken targeted cost actions and reprice 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 takes some lead time.

We also expect margin benefit from the areas where we're prioritizing growth in the premium categories and 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 FY '27 and in 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.

The next question comes from Mark Newman, Bernstein.

Following up on the margin. On the timing of memory cost increases, is the inventory, the low cost may lower cost memory inventory benefit done? Or 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 gene relationships may be a bit of a lag in sort 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 thermal partners still need catching up due to whatever terms. So in other words, I'm trying to figure out -- is there more upside to pricing? Or should we expect you to be quite in line with the market going forward?

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 cost of inventory that was on our balance sheet 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 cost of 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 and taking cost out everywhere that we can. We use pricing as the last lever.

So I'll let Ketan add anything.

Karen. You covered it very well on a few of the pricing questions. I'll 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 a few months before price changes will 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 WSP 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 initiative, which has led to highly optimized costs for specific products for specific countries, which gives us structural capability to serve customer needs again at the right value and cost.

The next question is from Krish Sankar, TD Cowen.

This is Stephen on on behalf of Krish. The first one that I had was for Bruce, previously in the prepared remarks, you talked about a 50% AI PC mix target by year-end. I'm just kind of curious, like in terms of the configurations of those AI PC, does that include a lot of AI workstations and what's sort of the attach rate of discrete AI accelerators in -- within that IPC mix?

Well, thank you for the question. And really is oriented to the AI PCs in totality at the workstation. So just to provide that context relative to the attach rate. The tax rate on the AI PCs are very similar to the attach rate that we see and other parts of the PC business.

And that's traditionally around 1/3 have a 30% margin kind of opportunity for us. On top of that, we also see opportunity to continue to add solutions to our IPCs that is oriented to really things like the HP IQ, which will be coming out later this year, device security, there's another area where we look at.

And even in our areas of primer we have AI-enabled print, which complements our AI and so I would say, as you look at the IPC there as Pete and Karen have talked about that they are at premium pricing and our significant value to our customers that are complemented by the attach rate that we firmly and then on top of that, we have a number of solutions that we're able to add to the ITCs that offer it to be more valuable to the customer and, frankly, more value to us.

I'll just add on top of what Bruce mentioned, AIP sees a strong performance also for us this quarter. It contributed 46% of our mix, in line with our 40% to 50% forecast for FY '26. 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 with software companies with more than 150 of them to leverage the capabilities of the species. And as Bruce mentioned in his comments, with a growing AI workload being pushed to the edge, driven by cost, latency and privacy considerations. The lower of these pieces in customer fleets will continue to expand.

So this will be margin accretive to us, and that's what we'll continue to focus in terms of AI PC mix as well as workstations, which are critical categories for growth.

Got you. Maybe for the color, [indiscernible] and for a follow-up, I had a question on the strong double-digit growth that you guys are seeing in both the EMEA and APJ markets. If I recall correctly, the Windows 10 refresh was a big driver of that in the near term.

Kind of curious like in the current quarter and maybe like the quarter after as well, is when does the refresh still a big driver there? Or is that going to play out in the near term? And any other thoughts on demand pricing to be helpful.

Yes. Thanks for the question, Stephen. We now see roughly 70% of the Win 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 Win 11 catalyst is really being increasingly augmented by a rising demand for AI PCs, Edge AI and genic workloads requiring more capable PCs. So 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.

Your next question today comes from Wamsi Mohan, Bank of America.

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 have a follow-up.

Thanks, Wamsi. 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.

Okay. As a follow-up, we heard a lot about AI and IPC as positive mix. 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 cycles. Just how much utilities being provided today towards ROI from IPCs versus future proof debt?

I'll take that. So one, thank you for the question. Clearly, this is -- the 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 our customers, especially on token economics, which is a big topic right now as you start deploying workloads in a customer environment.

So that's significant value which customers are seeing. On top of it, they also see advantage of keeping sensitive data closure to where it is generated, reduced 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 higher-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 a fleet of devices and also to broader enterprise workflows. So that's how we see the current trend.

Next, you'll have a question from Asiya Merchant from Citi.

Mike Cadiz on for Asiya with Citi. Let me just go ahead and ask both my questions at once. So the first would be, could you give more color on the upside of the free cash flow guide -- could it be more than just tariff refund related or levels in that? So that's question one.

And the second one would be on additional color, please, on the proportion of enterprise customers deploy AITC in various pilot versus at-scale kind of deployments.

Thanks, Mike, for the question. I'll answer the free cash flow, and then I'll ask Ketan to take the second one. In terms of free cash flow, we are pleased with our performance year-to-date. It is above 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 focus on that. So it was driven by -- yes, more than the tariffs. Tariffs helped a little bit, but clearly driven by underlying performance.

Ketan, do you want to take the second question? .

Yes. On top of the comments, which I had on the IPC and the workloads, I would say that -- there are clearly unique needs, which we are addressing right now through our PC printer pay for our services and meeting room solutions for modern work.

Simultaneously, our solutions like WXP are allowing great control for IT and admins to monitor support 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 debited all of this in our first local first AI model through HPI and also Wolf security solution, which HP is implementing is unique and in protecting at a bias level inclusions.

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.

Maybe I'll just add a little bit there. I would say that we are seeing better ROI and in a number of different areas. And I think that a large one we're seeing, as Ketan mentioned, was developer customer service, but we're also seeing it in manufacturing, where our workstations are able to be incorporated in the manufacturing line or our quality control that can use it for quality control and other NII-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 health care area. We're seeing a significant amount about interest and demand as a result of some very powerful use cases, both in the subsectors that we're focused on. in addition in the broader areas like what Ketan has talked about.

Your next question comes from Erik Woodring from Morgan Stanley.

I apologize I hopped on late, but Ketan, you sound very optimistic about fiscal '27 Personal Systems operating margins and you've in the October quarter being the trough. But if we think about 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 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 cost. 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.

Yes. Sure, Eric. Happy to help. So obviously, we talked about the fact that we expect cost 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 takes 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 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 attached 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.

Okay. All right. I appreciate that. And as a quick follow-up, I know obviously, myself included there 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.

Yes. I would say on the print margins in FY '27, 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.

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 the competitive environment. But as we look more broadly to FY '27, we will remain focused on protecting operating profit through share gains and profit upfront 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. So hopefully, that helps.

Our next question today comes from Katherine Murphy, 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 1/3 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.

Thanks, Katherine. I'll take that question and Ketan, feel free to add, if you want. I would say 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. Ketan, anything you would add?

Yes, just to give some color to the mix thing that 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 attach businesses, which is a combination of peripherals, collaboration solutions, services such as WXP and others have contributed 1/3 of the overall PS gross profit.

And that's in line with what we have been forecasting that those are the businesses which will continue to focus.

Great. And then I'll attempt to ask if there's any preliminary thoughts on industry PC volumes as we think about fiscal 2027.

Yes. I would say on FY '27, 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.

I would just only add that there are 2 demand vectors as you look at 2027. As Karen mentioned previously, a growth catalyst being the shift towards AI workloads and hence, some of those categories are on AI PCs and premium PCs and workstations.

So that's going to be a tailwind. At the same time, there has been demand delay or 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 2 different demand signals coming through.

Your next question comes from David Vogt from UBS.

So Karen, I just want to maybe just 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 contract count 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 refunds? And if you could help us understand, jump on late, 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.

Yes. 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 onetime 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.

Perfect. That's what we thought. And then maybe just as a quick follow-up. In terms of mix, I think we were -- we were worried about mix to hardware in the quarter, obviously, supplies are sub season, 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?

Yes. 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 FY '26, we see it declining low single digit in constant currency, but our long-term view of supplies hasn't changed.

And the next question is Ananda Baruah with Capital.

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 if the situation where corporate is refreshing to higher-spec PCs now as a trend such that it's not -- you got a -- you guys are seeing higher ASPs not only because of memory prices, but because it's actually what customers are increasingly watching.

And I guess what I'm trying to get like an echo sense of, is there increasingly a much more -- is there more appetite natural appetite for higher pricing as the thing for memory pricing increases as we go through '27 to '28

Yes, 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.

Our customers in their environment are now as they're implementing AI in their workflows, they are 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 requires 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.

And this is a tricky one here. Just a quick follow-up. But are you guys -- do you guys yet have visibility to enterprise users adopting AI PCs or talking about AI PC. You sort of quick touched on it as a way to get just to get off basically just to model off the Internet, right?

So they don't have to observe token costs so they can actually run the native and just avoid the token costs. Is that a meaningful part of conversations yet?

Yes, there are 2 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 customer -- take care of employee needs of requirements to use different AI models for their work.

So that's definitely one of the conversation. And the second big one is, as they deploy agents more in that environment, how to govern those agents more securely and drive the right level of enterprise manageability. I think those are the top 2 use cases, which we believe are happening as we speak, apart from the industry vertical workflows, which Bruce talked about earlier.

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.

Thank you, and thank you all for the thoughtful questions and joining us today. As we -- you can tell from our voices, we are excited about the future and AI [ FDAs ] creates some incredible opportunities and HP is well positioned in this area. As we 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 she'd place in HP, and we look forward to keeping you updated on our progress, and have a good afternoon. Thank you.

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.

All right. Perfect. Good morning, everyone. I guess before we get started, I got to read the disclosure statement. So today's discussions include forward-looking statements that involve risks, uncertainties and assumptions, which are further described in HP's SEC filings, including HP Form 10-K and 10-Q. HP assumes no obligation and does not intend to update any such forward-looking statements. For more information, please refer to HP's Investor Relations web page at investor.hp.com. I did a great job with that.

Thank you, Amit.

Perfect. Well, good morning, everyone. Thanks a lot for being here. Really delighted to have with us, Karen Parkhill, CFO of HP Inc. I'm going to keep this fairly interactive for the next 40 minutes. If anyone has questions, feel free to raise your hand. I guess maybe just to kick this off, Karen, you folks reported numbers last week. It was a lot better than expected, I think, from a -- at least from the buy-side perspective or sell-side perspective. The $2.8 billion to $3 billion free cash flow is at least to me a standout. But maybe just spend a little bit of time on just recapping earnings and touching on what you folks are embedding in thinking about the back half of the year from a PC demand perspective? And then we'll take it for some more questions from there.

Yes. Perfect. Thanks, Amit. Thrilled to be here. Yes, we did have a really strong quarter. We're pleased with the performance there. We did announce earnings significantly better than expected, above our guidance range and with over 20% year-over-year growth. We also guided -- raised our guide for the year. Last quarter, at the early stages of the memory cycle, we were prudently pointing to the low end of our range. And now with the strong execution in the second quarter, we believe that we'll be solidly within our range of $2.90 to $3.10 for the full year.

As we think about the inputs to our guide, particularly for the back half in PS, we do -- we are aligned with industry experts out there expecting TAM units to be down in the high teens for the rest of the calendar year. Amidst that, we expect to still grow revenue, though at a slightly moderated pace from what you saw this past quarter. And part of that is due to the fact that we had -- we believe we had some pull-ins in the quarter. But we're focused on from a margin perspective, we believe we've got continued rising memory and storage and input costs, though at a slightly lesser rate than what we had seen in the second quarter. And we're focused on our mitigation playbook against that. But we do expect margins to be below our long-term range for the back half in PS.

We did have the benefit in the first half of lower cost of inventory that was working its way in through the P&L, and we'll lose that benefit, but we are gaining traction on our on our mitigation playbook and you saw that in spades in the second quarter.

Perfect. And I have a bunch of questions I want to ask you about just the back half and margins and everything else. But there's also a fair amount of announcement at Computex with NVIDIA with Spark, and I think HP announced a couple of laptops that are going to come out and desktops with that. Maybe spend a minute or 2 on just kind of what those announcements entail and what kind of HP product looks like from that basis.

Yes. So we think the announcement yesterday really strengthened our thesis all along that more and more AI is going to be done at the edge. It is safer, more secure. It's a lot cheaper, uses -- it doesn't use the tokens that you need for the cloud. It's better for the environment. And so we just think more and more is going to be done at the edge. And NVIDIA's announcement of the Windows platform for AI locally, RTX Spark is exactly just that. So along with that, we did say that we're going to be introducing laptops, desktops and workstations that can run this platform locally for customers, and coming soon.

Perfect. I tried to ask Alok about pricing on that, but he says that's a little bit more TBD. We'll wait for that.

Pricing is TBD.

Karen, if I just go back to the earnings call for a minute. I think one of the things that surprised a lot of folks -- one of the questions I got a fair amount was just you folks had -- talked about, hey, PSG, the PC side, operating margin will kind of trough out in Q4 and they should start to improve from there as you go into the next year. Maybe just dig into like what sort of visibility or what are you seeing that gives you conviction that margins will trough in Q4 and start to improve? Just talk about the puts and takes around that.

Yes. So part of it is what I already talked about with the benefit of the lower cost of inventory with that tapering off and continued rising memory costs. Of course, we're working our strong playbook to mitigate. If we can do better, we will. But we've been focused on prudently guiding. And we believe at this point that our margins will be below our long-term range for the back half, reaching a trough in Q4 and improving sequentially into FY '27 from there.

What gives us confidence is that our playbook is continuing to take traction. And we'll have the full year run rate of the actions that we've taken this year to help us next year. And we're also continuing to see a higher mix of premium products, particularly AI PCs. We talked about the fact that AI PCs were up from 35% of our shipments the prior quarter to 44% this quarter. And we expect them to be 60% to 70% of our shipments as we look ahead into FY '27.

Got it. Maybe spend a bit of time on just the cost mitigation efforts, the playbook that you folks have. What are the different tools that you are focused on to exercise to offset the memory headwinds that we have right now?

Yes. So there's been 4 pillars to our mitigation efforts on the memory and storage challenges. The first is that we're focused on securing the supply that we need to ensure that we can deliver on the demand that we've got. And we feel really confident that we've got that strong supply through both our long-term relationships and the fact that we've got strong relationships with our customers.

The second is working to strengthen our operations from the supply chain side all the way to the front line to enable us to align the supply that we've got with the demand that we have and reconfigure devices to shape what the customer really needs. And we've been improving our processes to align that better, and we've been introducing new tools to align that better. And that started to take good traction toward the end of last quarter, and we expect that to continue.

The third is to reduce costs everywhere that we can. And we've been driving our AI transformation across the company. We also announced an early retirement program that's friendly to employees last quarter. We saw some traction on that. And then the fourth is repricing. And clearly, we've been focused on increasing prices to compensate for the remainder of what we can't handle through our other actions, and that's taking good traction, too.

Got it. Just on the memory side, some companies will come and say, "Hey, we have LTAs in place that give us visibility on this on a fairly extended basis." How do you folks look at LTAs? And how much kind of visibility do you have on components and the pricing that you have to pay for these things?

Yes. So we have these long-term agreements that give us the assurance of the supply and give us confidence that we've got the supply that we need. And that gives us the confidence that we have the supply we need for this year, and we're already working on next year.

In terms of pricing with those agreements, we focus on locking in the price a quarter in advance so that we at least know how we should be pricing for our customers, but we don't want to lock it in so far in advance that we're at a disadvantage when prices stabilize and start to move down.

Got it. That will be a fascinating time when they start to move down at some point. I'd say I think a lot of the discussions I have, the focus has always been on what's happening with memory, what are the mitigation efforts, how are you folks are dealing with it. As you've been talking about all these mitigation efforts, a lot of them seem to be structural versus transient, if that's the way to define them. And so I'm just wondering like to the extent the scenario plays out that memory just flattens out, maybe not even go down, how should we think about the longer-term PSG margins? And if some of these initiatives are more structural, then is there a different framework to think about them as you go forward versus what you folks have talked about in the past?

Yes. So you're right that much of this mitigation is structural. And our goal and focus is to be improving our margins over time. Right now, we've given you the near-term view that we expect them to be under the long-term range in the back half and improve from there into FY '27. But we'll continue to focus on improving them. We're not going to change our long-term range at this point yet. But over time, we're going to focus on continuing to improve.

Got it. And then just from a customer perspective, right, I mean, price of PCs and other things have gone up pretty dramatically in the last 6 months. What are you seeing from an enterprise channel partner perspective in terms of their purchasing behavior? And I think one of the fears everyone has is things are good so far, but how much of this is really a pull-in versus demand is just better.

Yes. So we do recognize that there's some elasticity here. And that's one of the reasons why we're aligned with the industry experts that we expect unit volume to decline. That said, we're very focused on the premium side here, and there is less price sensitivity when you're talking about premium devices, particularly AI PCs, and we're increasing our shipments on that.

Yes. On the competitive side, right, how is competition kind of stacking up in the PC world right now? And I imagine the element of maybe some of the smaller companies that are subscale are not playing as much. So I'd love to just get to know what the competitive environment looks like on PCs.

Yes. Clearly, we've got some good competitors that we watch closely, and our focus is on gaining share against those competitors. We did gain share in the premium space last quarter, and we intend to regain share overall as we look ahead. And part of that was making sure we worked out the kinks that I talked about of matching our demand and supply and putting in place new processes and tools, which we have in place now. But it's a competitive environment, but we believe we're incredibly well positioned.

On AI PCs, I'd love to just kind of understand how you folks look at it from HP's perspective. And to the extent you see, I think you've talked about, hey, well over 1/3, I think, at this point of PCs that you ship are AI-enabled. Just talk about like what is driving the growth? Because I think a lot of times, we'll sit back and say, like, what is the application that makes you want to go and do this? Maybe RT Spark would be one over time. But just like when you hear customers say you want to buy AI PCs, what are the reasons they want to choose it for?

Yes. I would say a couple of years ago, when we were talking to CIOs about refreshing their fleet with AI PCs, it was to stay ahead of what is to come. And the reality is what is to come is now here and just gaining momentum every day. There are more and more applications being developed to be used at the edge. We've been working with hundreds of ISVs to enable that. And you're seeing things like the NVIDIA announcement yesterday. So there will be a future where there will be significantly more AI applications done at the edge, and we intend to lead there. There will always be a need for cloud, but there's a growing need now for AI at the edge at the same time.

Got it. And do you find customers that are adopting it are almost more wanting to future-proof their fleet versus actually have use cases today for it?

There are use cases today. I'd say 2 years ago, it was future-proofing. Today, there are use cases and they're growing. So some may view it as future-proofing because it is still growing, but there's plenty of use cases today.

And is the way to think -- in the past, folks I think have talked about, hey, AI PCs have a better margin profile than traditional PCs. It's a higher ASP for sure, right? Is that still the case? Or is kind of memory inflation changed that equation a little bit? I'd love to just understand margin profile for AI PCs versus the rest of the fleet.

Yes. It is still the case. So AI PCs are premium products. They do carry higher price and they do have higher margin.

Any framework on how ASPs are in AI PCs versus traditional laptops because that's a nice little tailwind as well that you folks have.

Yes. So you've seen our ASPs increased quite a bit last quarter. We expect that to continue. And part of that is the repricing that we're doing because of the higher input costs and part of that is the mix shift to more premium products, which includes AI PCs.

Let's shift gears a bit on the Print side. Last quarter, you guys had 18.2%, 18.3% margins on Print. But I think the guide sort of said, "Hey, this will go back towards the lower end of the 16% to 19% range that you have longer term." Just talk about like what's happening in the Print margins driving the downtick? And how much of that is perhaps a transient thing because of oil issues or Strait of Hormuz being closed versus something else? So just talk about just that margin trajectory on the Print side.

Sure, sure. So we talked about our Print margins being towards the lower end of our long-term range in Q3, and that's really due to 3 things. First, Q3 is typically our lowest quarter, less supplies and typically the lowest quarter. And so you've got that, that's not transient. But on top of that, we are dealing with a little bit of impact from the Middle East situation and the increased oil prices that we're working to mitigate. And so that, I would say, is definitely transient.

And then third, we're focused on taking advantage of opportunities to place long-term profitable units that are a bit of a drag upfront as you place them, but are long-term profitable for us. And we're going to be placing more units in Q3 and likely Q4, too. While we said that our margins will be toward the low end of our range in Q3, we expect them to be back solidly in the range in Q4 and solidly in the range for the full year.

Got it. Perfect. What's the right way to think about the supplies trajectory as you go forward? It's always been kind of, I think, down low single digits, give or take. I'm curious like what's the right way to think about that model as you go forward?

Yes. We did see supplies roughly flat in the second quarter. And that's a lot due to the fact that we had increased pricing due to tariffs last year, and we're seeing the benefit of the couple of times that we increased price last year. But for this year, we do expect supplies to be down low single digits. That hasn't changed. And as we look longer term for supplies, we do expect, in constant currency, supplies to be down low to mid-single digits.

But overall, in Print, we're focused on working to offset that drag for us through a keen focus on increasing subscriptions, which are good recurring revenue; increasing in industrial and 3D, which you've seen strong double-digit growth over several quarters in those key growth areas; and also focused on placing some more big tank units with profit upfront.

Perfect. I want to come back to that stuff in a bit. But on the hardware side, right, I mean, we've seen hardware units in Print decline, I think, for several quarters. And you folks obviously are making the statement like, "Hey, we're going to go after a bit more hardware installations as you go forward." What's driving the decision to change that in terms of the shift of wanting to place more hardware units versus historically?

Yes. So I don't know if there's really a shift. We look at opportunities to place the long-term profitable units, and we believe we've got some opportunities in the back half to do that. So that's what we're going to be focused on doing.

Yes, it's been a competitive environment in Print, and we're going to focus on doing the right, placing long-term profitable units and not just placing units for share's sake.

Got it. Karen, the competition in Print, especially on the hardware side has been a lot of the Japanese companies that I think have used the weaker yen to some degree to go after market share. Is that starting to change a little bit as well, which perhaps is giving you a bit more of an entry for you to say we can place these -- place incremental hardware units? Or...

It's still a competitive environment out there. Our Japanese competitors do still have the benefit of the yen. That said, we're seeing some good trends out there. For example, the office decline that we had seen is improving, still declining, but declining at a less rate. We're also seeing good stable usage trends of Print out there. So we do believe that over time, we'll see more and more refresh happening.

Got it. And then on supplies, you kind of talked about, hey, there are 3 different growth vectors or things you can focus on like the big tank subscription and then 3D printing and the materials there. As you think of those kind of growthier piece of the bucket, are those generally margin accretive to your Print margins or not? And then of the 3, which ones maybe is the way to think about how big these opportunities are and which ones are you more focused on right now?

Yes. So subscriptions, for example, our all-in subscriptions are a better long-term profitability than traditional unit placement. And so those are strong for us. We don't disclose our margins in industrial and 3D, but we like the growth that we've been driving there, and we do think that helps offset. And we've -- you've seen us operate at the high end of our long-term ranges in Print for many, many quarters. And while we're not planning to in the back half, you've seen us do that. And part of that is us continuing to take out structural costs in Print and continue to operate as effectively and efficiently as we should.

Got it. And then subscription, by the way, I mean, it grew double digits last quarter in Q1, I think. Is -- was there something unique that helped you drive that kind of growth? Or is that sort of the right way to think about the subscription piece, at least as you go forward?

Yes. I mean we've been talking about subscription. We've been placing concerted effort on it. So we're really pleased with the growth we had there. Our subscription revenue was nearly $1 billion at the end of last fiscal year. So it shows you the strength of it. And all in, in particular, we've been marketing just in the U.S., and we're focused on taking that outside the U.S. So we've got plenty of opportunity to continue to grow there.

Got it. One of the things and maybe it's -- maybe a little bit more back on the PC side has been the ability to sell incremental accessories along with the PC sales that you folks have, right? And Poly certainly is a very big asset that you folks have there. Just talk about how is that kind of attach rate working as you go forward? And I would imagine it's very reasonable to assume that those incremental accessories, the headsets and everything else is much better margin than traditional margins are.

No, it's true. So our attached business is higher margin, and it is something that we've been focused on driving even more of, and we've got plenty of opportunity. If you look at our attach rate right now for many of our customers, particularly our enterprise customers, it's low. And we've been focused on attacking that. In fact, we've got a program with our sales force that's called Attach Attack, and it drives greater sales incentives for that.

We've also changed some of our sales incentives to have our incentives focused not just on revenue dollars, but also on gross margin. And as we focus our front line on gross margin, too, that incents them to not just focus on the increased price that we need to drive, but also the mix and attach as part of that mix.

And does Poly fit into that as well? Or is that attached more around keyboards and displays and all those other things?

Poly fits into it, too. It all fits into it. Yes.

Is there a space -- Poly had this kind of narrative about trying to go after office and make it more video conferencing ready and huddle room, I think, was a product that they would have. Is that still a narrative that HP can leverage and focus on? Or is Poly become more of an on-desk thing?

No, absolutely. As we drive what we're calling the future of work, where we've been creating HP IQ platforms to enable all of our devices to talk seamlessly to each other and recognize things like when you walk into a room with your PC, it automatically knows who you are, pulls up your conference call, pulls up the presentation that you need. So it makes it very seamless for the worker.

Got it. One of the things you talked about when you talked about all the mitigation efforts and you folks also have like this AI-enabled savings program that HP is trying to go after. Just talk about the cost-reduction initiatives the company has and how big can this get on a gross, on a net basis? And what are the different vectors you're looking at?

Yes. So we have been focused on driving some cost savings and transformation through AI enablement across our whole company. And we've been seeing good traction on that. Some examples are that in our supply chain, we've been scaling AI agents that enable us to automate order entry and returns. We also have a digital teammate for our channel partners where they can ask questions, they can get guidance on next steps. And we've been using AI in our software development area to help boost the productivity of our developers. And those are just 3 examples. We're working on scaling it quite a lot across the company. That program is intended to drive $1 billion in gross annual run rate savings by its third year by FY '28. We're well on track there. And we're excited about what AI can do for us from a productivity perspective inside HP.

Karen, just from my side, how does the AI-enabled savings program differ from the Future Ready? Because I think those are 2 different kind of buckets you talk about. And then maybe the second part of this is, when I think about $1 billion gross savings, is there a rule of thumb to think about what could be the net on that? Or is that more dependent on what does the top line look like?

Yes. Yes. So it differs from Future Ready. Future Ready was our program prior to this. And Future Ready was before the ability of AI to enable us. And so that was really a lot focused on driving traditional type cost savings across the company, and we successfully exceeded our expectations on Future Ready. But with the advent of AI, it enables us to do so much more, and that's why we've announced this AI-enabled transformation. Your second part of the question?

Just the $1 billion of gross savings, is there a rule of thumb to think about what does that net look like? Or is that more contingent on what top line ends up being?

Yes. So for these -- all of these savings programs that we've done, they enable us to ensure that we're able to invest for the longer term while still driving a good bottom line. And so rule of thumb, I think a lot depends on the kind of headwinds that we're facing that we need to offset and the investment needs that we see ahead.

Got it. Just on free cash flow, right? If I think about the guide for this year of $2.8 billion to $3 billion, it sort of implies that, hey, we'll do about $1 billion a quarter in Q3, Q4. That would be the math, right? Seems to be a nice step-up in fairness to what you've done in the first half. Now some of that is normal. You always have a better back half. Just talk about like what is enabling this kind of step-up in free cash flow in the back half? And then maybe if I just extend that a bit like how do you think about longer-term free cash flow generation for the company?

Yes. Thanks for the question. So we're really pleased to have delivered about $1 billion in free cash flow just in our first half. And seasonally, you're right, our first half is much lower than our back half typically. A lot of that has been driven by the strength of our PS business, which we expect to continue. That has a negative cash conversion cycle and clearly helps. We've also driven some improvement in our working capital position in the first half. And yes, we're confident about what we intend to deliver in the back half, and that put our guidance. We increased our guidance along with increasing it on EPS and free cash flow to put us solidly in that $2.8 billion to $3 billion range for the year.

And just going beyond this year, right? I mean what's the way to think about free cash flow generation for the company? Is there -- you target 90%, 100% of net income. Just talk about just longer term, how do you think about free cash flow generation? And maybe especially in the context of memory is taking up more working capital as you go forward, I feel.

Yes. Yes. But that said, we are focused on driving continued free cash flow growth. We know it's important for our shareholders. We know earnings are important. We know free cash flow is important. And so we're going to be focused on continuing to improve it from here.

Can you spend a minute or 2 on just capital allocation, how do you folks look at that? And what do you think about dividends versus buybacks versus tuck-in or whatever M&A you would look at?

Yes, yes. So I would start with just in general, our capital allocation policy has remained the same for a long period of time. And for those of you who don't know it, it's a policy that we intend to return roughly 100% of our free cash flow to our shareholders over time as long as our leverage remains under 2x, and there aren't better ROI opportunities. And you've seen us do just that over a long period of time. In fact, just in the first half, we returned roughly $1 billion to shareholders. We generated roughly $1 billion.

And in terms of dividends and share repurchases, we like them both. And what you've seen is us growing our dividend over time. We know that's important to our shareholders. So we believe in a growing dividend. And then we like to supplement the share return with share repurchase.

Got it. There's been a lot of focus on memory in the last 6 months, last 9 months, clearly. One of the things that seems to happen is there seems to be a wider array of components that are getting to be in short supply or supply chain challenges starting to persist. I was wondering if you're starting to see that as well where this is not just a memory issue is becoming a broader issue. And if that's the case, maybe go to, like does that put more headwind on working capital as you go forward because you perhaps have to allocate dollars not just for memory, but processors and power amplifiers and all kinds of different things.

Yes. So we have seen input costs rise in general. Initially, we had a higher rise on memory. Right now, we're seeing a higher rise on storage. And we had talked about both memory and storage being 35% of our BOM for the year. That was the average for the year. So it will be higher in the back half. That didn't include CPUs, but CPUs were obviously included in our outlook, too. But in general, we're going to be focused on where we have rising costs, making sure that we offset it, again, through our 4-pillar mitigation playbook, the last of which is increasing price.

Tariffs, maybe, on the other side seem to become less of a headwind to that potentially and get rebates potentially on the road. Maybe any perspectives on where tariffs are as a headwind and then how you look at the framework of potentially getting some of these credits back?

Yes. So we dealt a decent amount with tariffs last fiscal year. You saw us work to offset that. And should more come our way, we'll be doing the same. Right now, the tariffs have been impacting our Print business and they've been roughly about 10%. The administration may announce something in July around tariffs, but whatever that is, we'll be focused on mitigating.

In terms of refunds, we're a complex multinational company, and the government isn't yet ready to process refunds for complex companies like us. But as soon as they're ready, we'll be applying.

Got it. Any update you want to share on just on the CEO search, the time frame, time line on that?

Yes. So our Board has been actively working on the CEO search. We're not going to give a time frame. These things always could take longer than you expect anyway. But I'd say the Board remains focused on finding the right next leader for HP with a proven track record of leading complex global companies like ourselves. But in the meantime, I would say we are not skipping a beat with Bruce at the helm. He has done a fabulous job as Interim CEO. He's just a really terrific seasoned leader. And we are continuing all momentum under his leadership.

I'm up on my questions, but maybe I'll turn this back to you. Any closing comments, anything we did not touch on that you want to flag our way. You've been at HP a couple of years now.

Yes. Just under 2 years.

Just under 2 years. Just love any thoughts from your side on the whole thing.

Yes. So HP, obviously, is the founder of Silicon Valley. And we've had our ups and downs over the years. But one of the key reasons why I was so excited to join this company is because we're an iconic company in the midst of a significant technology transformation with AI. And I think from an investor standpoint, you're just seeing the beginning of this with our stock price movement just over the last week. But I would say we are going to be very focused on leading and driving this AI transformation at the edge, leading and driving the future of work, our future of work strategy. We are investing behind it, and we are focused on ensuring that we take HP into its next best era.

Perfect. We'll wrap it up with that. Thank you very much for your time. Thank you.

Thank you, Amit.

Good day, everyone, and welcome to the Second Quarter 2026 HP Inc. Earnings Conference Call. My name is Krista, and I'll be your conference moderator for today's call. [Operator Instructions] 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 Relations. Please go ahead.

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 1 year. We posted the earnings release and accompanying slide presentation on our Investor Relations web page 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. In addition, unless otherwise noted, references to HP 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.

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 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 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 multisegment 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 time line, the Board is actively evaluating candidates who align with HP's needs.

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 workflows run. AI is transforming computing from passive devices to context-aware intelligence systems.

Companies like HP 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 agentic 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 is enabling the Future of Work by providing the essential tools and technology necessary for this transformation. Our device software stack support the shift with strong architectural capabilities for edge inferencing and new AI workload. 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 Imagine event, our annual global technology showcase of new products and solutions. In Personal Systems, we introduced the next-generation AI PC 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 Multi Jet Fusion 1200, bringing industrial 3D printing capabilities into a more compact, accessible system design 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 HP IQ. This is a groundbreaking intelligence layer that coordinates seamless integrated experiences across all our products. A key feature is [ HP NearSense ], a new spatial intelligence that helps devices easily discover and connect to each other. The goal is to make test 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 One HP 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 a 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 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 continue 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. In 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 costs 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 4-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 continuity to 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. We 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 disciplined execution positions us well to drive sustainable growth and long-term shareholder value.

With that, I'll turn it over to 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 Win 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 AI PCs, 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 macro 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 2x 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 we'll 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 promotions 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 OI&E to be approximately $500 million for the year and corporate other expense to be slightly under $1 billion.

In summary, with 2 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 billion 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&A, given the current dynamics in our PC business, we've invited Ketan 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 open the call for your questions.

[Operator Instructions] And our first questioner today will be Samik Chatterjee with JPMorgan.

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 it -- is the back half more dictated by price increases that you potentially need to take? And I have a follow-up as well.

Yes. Thanks for the question, Samik. 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 FY '27.

Got it. Got it. Great. And maybe on [ Brent ], you mentioned the increasing input cost on that front as well, including resins. 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?

Yes. 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.

Yes. 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 supply 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 our demand shaping to optimize platforms and conflicts.

Your next question is going to come from the line of Amit Daryanani with Evercore.

I guess maybe the first one to start with, could you just help us frame or help us think about the size of the extent of which the first half commercial strength that we saw in the Personal Systems 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 in AI PC transition? So I'd love to just understand on the Commercial PC side, how much of the strength you saw was pull forward versus underlying trends?

Yes. 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. I hope that helps.

That's super helpful. And then just as a follow-up, right? If I think about the back half guide, the EPS run rate, I think, is around $0.65 to $0.70 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 $2.70 to $2.75 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 I would appreciate any insights on that.

Yes. Thanks, Amit. We are still in our planning process, so it's too early to give guidance for next fiscal year. But I would note that with this increasing cost of memory in Q3 and Q4, we do expect our Q4 PS 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.

Your next question comes from the line of Erik Woodring with Morgan Stanley.

Karen, can you just maybe -- just building on Amit's question, 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 really is, as you guys sit here today, how do you think about visibility into 2, 3, 4 quarters out as you just kind of alluded to some of those statements with Amit? I would just love to kind of understand how you kind of take that view today, how much visibility do you actually have and how you think that impacts the band elasticity. And then a quick follow-up, please.

Yes. Thanks, Erik. Appreciate it. 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, 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 what -- exactly what we've been driving: increased prices, increased mix to premium, higher attach businesses, et cetera. So Ketan, I'll let you add anything here.

Yes. On top of it, we believe there is an intrinsic strength and strengthen the demand in both Commercial and Consumer businesses driven by 2 factors. One, still Windows 11, 30% of the installed base is still to be refreshed. That's 1 tailwind which we see as an opportunity in short term. 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.

Okay. Super. And then just a quick follow-up. At least in the quarter, I know you guys are in the midst of a multiyear 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?

Yes. Thanks for the question. So our OpEx was flat as a percent 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.

Your next question comes from the line of David Vogt with UBS.

This is Brian on for David. So regarding my first one, it's on memory resources 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.

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 in 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 is different by customer segment, by geography, by channel type. We're balancing this mix to maximize meeting the customer expectations, and cost recovery will continue to remain our focus.

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 may be spending less on other hardware-related products?

Yes. 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 3 quarters, which is a good sign. And we continue to see print usage trends remain pretty strong.

Your next question comes from the line of Wamsi Mohan with Bank of America.

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 supplies trajectory, and as you think through the course of the year, how that might play out? And I do have a follow-up.

Yes. Thanks for the question, Wamsi. 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 in 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.

Okay. Thanks, Karen. And on print margins, you called out or 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 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 lines, please?

Yes. 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.

Your next question comes from the line of Asiya Merchant with Citi.

This is Mike Cadiz for Asiya Merchant at Citi. So my first question is, are you able to give any color on the performance by geography and why it's perhaps more disparate? It seems that the -- 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?

Yes. Thanks for the question, Mike. We did see good growth in both EMEA and APJ this quarter, and some of that was 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. Geographies?

Yes, I'll just add that the -- Karen covered it in terms of Europe and APJ 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 3 geographies, you see structural demand coming on AI PCs and premium PCs, largely because of the AI and the edge opportunity, which I called out before, and that remains strong even for Q3 and Q4.

Your next question is going to come from the line of Ananda Baruah with Loop Capital.

I really appreciate it. I was wondering, Ketan, you -- you mentioned memory available procured through fiscal '26. What's the 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.

Yes, the way you saw our approach in 2026 of securing memory and storage and even CPUs throughout the fiscal year through our strong supply 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 our process of qualifying those components with the right level of quality checks into our entire portfolio. So that effort will continue to drive in terms of securing supply for next year.

And it sounds like you feel pretty good at this point with being able to procure what you need?

Yes. It's always a moving piece, but yes, we have been confident as you see in our '26 situation, and that same playbook will apply moving forward.

Your next question comes from the line of Katherine Murphy with Goldman Sachs.

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?

Thanks for the question, Katherine. We are seeing a rising cost 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.

Your next question comes from the line of Krish Sankar with TD Cowen.

This is [ Steven ] calling on behalf of Krish. I had two as well. First one is actually on component supply as it pertains to processors. Just kind of curious just with the strength in the 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?

Thanks for the question. We have required supply we need on CPUs. We have known about small core, specifically having constrained since the beginning of the year, and we have been working to secure the 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.

Got it. And as my quick follow-up, I 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 the comments earlier, was that specifically focused on companies or customers that have large software developer bases? Or was it a -- on, I guess, anecdotes from customers that are kind of debating between purchasing hardware that can run all the open source agents versus -- or the subscription models, whether it's Copilot or other frontier models?

Thank you. There is a real shift happening towards the AI 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 PCs and workstations are capable for running AI models locally. And we demonstrated this through some amazing product innovations earlier at HP Imagine, including HP IQ and [ Wolf ] Security Solution, which is unique in protecting at biased level instruction. So yes, this is a great opportunity, and our partnership with 150 plus software partners who are also working on different use cases, like productivity, developer needs and creative needs for building -- bringing in local workloads is also helping.

And Krish, I would also add that our AI PC 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 AI PCs to be a greater part of our shipments going forward, reaching 60% to 70% next fiscal year and then above 70% by FY '28.

Maybe I'll just add a few things to what Karen and Ketan talked about is we are seeing use of agentic with our technology. We're seeing it both on the governmental side and on the enterprise side. And the applications are both in using cloud, but more importantly, really utilizing the edge computing.

And what we're seeing over time, and we're hearing it from our customers 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.

Your next question comes from the line of Tim Long with Barclays.

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 changed in 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 and 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?

Sure. I'll start, Tim, and I'll ask Ketan 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 U.S. 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. Ketan, 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.

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.

Yes. 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.

Your next question comes from the line of Mark Newman with Bernstein.

You mentioned earlier that supply was locked in, I think I heard correctly, for memory and [ HDD ] for the rest of the year. I think I heard that. Have you also locked in prices to -- I'm just curious if you could talk more about how your long-term agreements work? And I have a follow-on.

Yes. We are confident in our supply position for the rest of the year. And as Ketan already noted, are working 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. Anything you would add, Ketan?

You've covered it. Thank you.

That concludes our question-and-answer session. I will now turn it back over to Bruce Broussard for closing comments.

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 a 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.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Good morning, everyone. Thank you for joining us day 1 here of the 2026 Morgan Stanley TMT Conference. My name is Erik Woodring. I lead the hardware research coverage based out in New York. Quickly, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, reach out to your Morgan Stanley sales rep.

And then from the HPQ side, today's discussion includes forward-looking statements that involve risks, uncertainties and assumptions, which are further described in HP's SEC filings, including HP Form 10-K and 10-Q. HP assumes no obligation and does not intend to update any such forward-looking statements. For more information, please see HP's Investor Relations website at investor.hp.com. So I'm pleased to be joined this morning by HPQ's CFO, Karen Parkhill. First time at our conference, joined in August 2024, has a ton of CFO experience, most recently at Medtronic.

But obviously, thank you for joining us today.

Thank you, Erik. Thrilled to be here.

Awesome. So I think it's probably the easiest place to start is just a quick look back on your January quarter and what you announced at earnings last week. Maybe just give us a quick postmortem and kind of how that bleeds into what you're looking at for 2026.

Yes. Yes. No, thanks for that. So we had a really strong Q1, and we're pleased with our performance in the quarter. We delivered 7% revenue growth and EPS at the high end of our guidance range. Amidst that, we gained share aligned with our strategy in the key areas that we're focused on in PS in high-value segments and in consumer. In print, we gained share in Big Tank and developed markets and in supplies. So we are really pleased with our performance.

We did give an update to our outlook on our earnings call as well. And obviously, we're dealing with the situation of the supply environment for memory and the significantly increasing costs. And so with our guide for the year, we talked about that memory situation. We talked about the fact that we're driving strong mitigation playbook against that.

We also talked about the fact that we're pleased to be delivering higher than typical revenue growth in the first half and that we now expect our print operating margins to be at the high end of the range. And so when we take all that together with our guide, we said that we're taking a prudent approach and expecting our revenue growth to moderate a bit in the back half. And with all of that put together that we expect at this stage under these current assumptions that our EPS will more likely be at the lower end of our annual range that we had provided.

Okay. So that's a good starting point, and maybe I want to touch on that because there's so many uncertainties and unknowns in the world, demand, costs. Can you just talk about how you think forward and factor those into your guidance today, knowing that there are things in the second half of the year that you might not even know about? How do you discount that in this updated guidance?

Yes. So obviously, the environment that we're operating remains fluid and particularly against the memory situations and to some extent, against tariffs, too. But what gives us confidence in where we are right now is that we've got a strong mitigation playbook that we are executing. And against that playbook, we're securing supply in memory. We are helping our customers and shaping the demand and product configurations around the supply that we have. We're reducing costs everywhere that we can, not just in our PS business, but across our entire company, and we're increasing prices. And that's a playbook that we know how to do, and that gives us confidence in where we are.

Okay. And before we maybe dig further into that, can we just maybe touch on the CEO search? I'd love to just maybe get your thoughts on how we think about a permanent replacement. But in the meantime, what role does Bruce play as interim CEO? And kind of what are the characteristics or qualities that you're looking for as someone to replace Bruce more permanently?

Yes. Thanks for the question, Erik. So obviously, Bruce Broussard has stepped down from our Board to serve as interim CEO. And he's really providing continuity and stability and enabling us to continue to drive forward momentum in this time. He's a seasoned CEO, and he's bringing really good insights that are helping us and accretive to the strong leadership team that we've got right now.

He's also a familiar -- quite familiar with HP because he served on our Board for a while. So he's familiar not just with the leadership team, but also with our strategy because he helped build that strategy. So I'd say things are really on course at this stage with Bruce stepping in. And then in terms of the CEO search, the Board is really taking a thoughtful approach to this and looking at a wide range of candidates, but really focused on a leader that is proven and successful at leading and driving large, global, complex, multi-segment businesses at scale.

Perfect. So unfortunately, I think we have to start with the memory questions just to get them out of the way, then we can turn to some more company-specific questions. But maybe just to start, how do you ensure in this kind of crazy world right now, you have access to all the memory supply you need. Obviously, if you talk to memory guys, they'll say there isn't enough to go around. But you talked about that you do have LTAs in place. And so you've qualified low-cost suppliers, as you mentioned. Is that enough? Or what are you doing -- maybe the question is, what are you doing to ensure there's no supply disruption or issues?

Yes. So again, we're tested in these kind of situations. And when it comes to memory, we have been focused on using the long-term relationships that we've got. And we've got them with all the major suppliers and nurturing those relationships to help ensure that we've got the supply that we need. We've also qualified new suppliers. You mentioned that. And we've taken on -- strategically taken on inventory for key platforms. And so when you bake all of this together, we're confident that we've got -- that we've got the supply that we need to execute our plans this year.

Okay. And then maybe as a follow-up, touching on the price side of things. You outlined kind of how you're thinking about the bill of materials or at least the percentage of bill of materials that memory would represent this year on the PC side, like you're kind of saying like it doubled as a percentage of the bill of materials. Is that enough? Or maybe why not assume maybe a more significant pricing increase just given the fact that memory is up a lot. There's a lot of unknowns in the second half. Just help us understand maybe the counter to that, what I'm alluding to in that question.

Yes. So we have said in our outlook that we've got memory doubling sequentially from our Q1 to our Q2 and that we expect the cost of memory to increase even further sequentially from there. And -- but against that, we're focused on strong mitigation playbook of shaping demand and product configurations around the supply of taking cost actions, again, everywhere that we can, not just in the business but across the company and of increasing pricing. And when you take all that together, we expect unit demand decline, particularly in the back half, but we still expect some revenue growth as we focus on increasing prices and on driving share gain and on driving attach of non-memory affected businesses.

So let's dig into that. That's a perfect segue, which is you're guiding to Personal Systems, kind of backing into a kind of mid-single-digit plus revenue growth this year. Just walk us through the assumptions and kind of what we -- what you guys have to do to get to that point in terms of share gains and pricing, demand elasticity? Just what are the building blocks that help us arrive at mid-single-digit plus growth?

Yes. Yes. So I'd start with, yes, we expect the mid-single-digit revenue dollar growth. Against that, we are aligned with industry experts out there calling for a high single-digit to low teens decline in units in the calendar year. And that translates and implies a low double-digit to mid-teens decline for us in our back half of our fiscal year. And against that, again, we're driving increased pricing to help offset the headwinds. We're focused on driving share gain, but particularly in areas that are aligned with our strategy in commercial and premium categories in attach. And we're driving -- we've got a significant opportunity to drive more and more attach against our installed base. And that attaches the peripherals, the docs, the displays, the services that we can drive for our customers. So we're keenly focused on driving that as well.

Okay. And then last high-level question, and then we'll get more into PCs, more into print, capital allocation, et cetera. On print, I think there's some memory exposure there. There's not nearly as much as in PC -- in the Personal Systems business. How do you account for that? Is that an issue in the print business? Just if we kind of focus on print not relative to PC?

It's a tiny issue. So within print, there's not DRAM memory in print. There's other legacy memory like DDR1 and DDR3 that are very different suppliers for that memory. So it's a very small impact in print, and it's obviously embedded in our outlook.

Okay. Cool. So let's move beyond that. So let's dig further into the PC business or Personal Systems. So you touched that there's a little pull forward in the January quarter, but you've also highlighted that win 11 upgrades are, I think you said 60% kind of complete. You're very bullish on AI PCs and what that means for PC growth. So while there are headwinds from memory, you're also alluding to plenty of important tailwinds. How do you kind of combine those 2 into your updated outlook? What are we assuming from a refresh standpoint? Are AI PCs kind of accelerating replacement cycles? Are they an ASP driver, just the building blocks of some of those tailwinds?

Yes, thanks for that question. You're right, Erik, we did see some pull forward, moderate pull forward in our Q1, and it was mainly in our consumer area. And when it comes to win 11 refresh, we have said that we believe that about 60% of the refresh is complete at this point. And that means there's roughly 40% to go. And most of that is in Europe and Asia and across small and medium businesses. And so we're going to be continuing to drive that refresh in those areas. And you saw us drive better growth in those areas this past quarter, just given the fact that, that refresh is continuing.

On AI PCs, we are continuing to drive and see a higher penetration of AI PCs as part of our shipments. This past quarter, 35% of our shipments were AI PCs. That was up from 30% in the prior quarter and up from 25% in the quarter prior to that. And we see AI PCs continuing to be a bigger part of that mix going forward. So all of that is built in. But I would say all of it is built in, again, under the assumptions too, that we're going to see the unit decline, particularly in the back half that I talked about already.

Okay. And then maybe one of the most maybe misunderstood in my belief parts of the Personal Systems business is 1/3 of that is non-PC or it's related to PCs, but it is workforce solutions, PC peripherals, attach, video, et cetera. If we were just to kind of take that business in aggregate, what is the kind of growth/margin profile of it? We've historically put that into kind of a growth bucket, but it's kind of important to highlight that as an offset to the concerns that could exist in the PC market. So maybe just help us frame what this business grows, how profitable is it, maybe even just relative to traditional PCs and the maybe headwinds, tailwinds you face in that part of Personal Systems.

Yes. So you're right, roughly 1/3 of our PS gross margins are related to these businesses that don't have much memory component in them. And they are hybrid, they are peripherals, gaming peripherals, services, workforce solutions. And we are purposely driving that and have a great opportunity, I think, to do that, like I mentioned. So those businesses, we do expect to grow decently, and they do -- they are attractive businesses with higher margins.

So as a follow-up to that, because we've checked the peripheral space for so long. You made an important hire last year. You hired Logitech's former COO to become your kind of Chief Strategy and Information -- Transformation Officer. When I see that, it feels like it signals maybe a bit of a more concerted effort to go after that market. Obviously, there there's significant margin that you could capture in that market. Am I looking too much into that? If yes, help me understand why. But if not, if I'm not looking too much into it, maybe just talk about why now is the time to disrupt that peripherals market.

Yes. Thanks for the question. So I would say Prakash has been a great addition to our leadership team. And yes, he is driving a strategy and transformation for the company. But as it relates to peripherals, our focus on peripherals is really about tying to our strategy. It's about driving our future of work strategy with better together experiences across our devices, software, services and creating an integrated platform that helps our customers get work done easier. And it's also about driving higher attach, particularly in this environment like I talked about. So it's not necessarily about just going after disruption in a single category. It's all tied to our broader strategy.

Okay. And maybe last PC question is, when we think about all these moving pieces, especially with memory and the challenges that much higher prices could bring to demand, is the focus we want to -- we want to maximize growth and gross profit dollar growth or operating income growth is the message we want to protect margins? Like what is the main priority for HPQ in the Personal Systems business amidst all of these kind of headwinds and tailwinds right now?

Yes. So clearly, in the near-term environment, when we're dealing with the memory cost challenges, our focus is on offsetting those challenges, particularly on a dollar basis. So those challenges can have an impact on our margins because we're working as we price to offset the net impact of the headwinds on a dollar basis. So on a rate margin, that can have a slight negative impact. But over the long term, our target ranges for our operating margins in our PS business of 5% to 7% has not changed. And our focus and goal will be to get back to those ranges as quickly as possible.

Okay. So let's shift to print. Just maybe at a high level, what are you hearing from customers amidst, again, everything that's going on in the tech -- in the tech budget, AI, PCs, et cetera. What are you hearing as it relates to print demand spend? How is that changing?

Yes. So right now, we have seen IT leaders and CIOs prioritize other things outside of print in the moment. But we have seen a decline -- the rate of decline improve actually in print, and we've seen stable usage patterns, and this is important across businesses. And so -- and those stable usage patterns, we think, are really aligned to the return to office trends that are happening. And so we're encouraged that at some point, we'll see some uptake in print, particularly in office print.

Okay. On the point of competition, I don't want to take the focus away from HPQ, but a lot of your competitors are based in Japan. Historically, they've used pricing as kind of a lever to get more aggressive in the market to try to go after share. You've talked about raising prices partially and as a response to tariffs. What are the opportunities and risks as you think about this competitive environment and what your competitors are maybe trying to do to come after the leading vendor in the world right now?

Yes. So hard for me to talk about our competitors. I don't know exactly what their focus is. But -- but I would say what we're focused is on being disciplined. You've seen our print operating margins be at the high end of our range for a while, and that's due to our strategy and discipline. So in some cases, when our competitors, particularly with the increased cost of tariffs are not necessarily increasing pricing like we have been doing. In some cases, we are ceding a little bit of share, but that's because we're being disciplined. We're still the market leader in print. We still have 33.5% share, and we're going to remain disciplined in that environment.

I want to ask kind of a similar -- the question that I asked you on Personal Systems about the non-PC business. I want to ask a similar question about print, which is there are alternative ways to buy printers other than just the historical transaction. There's an office print market, there's industrial, there's 3D, there's a Big Tank, Big Ink, I can go on. But the point is it's not necessarily a straightforward, it's just P x Q, as people might think. And so where are those opportunities outside of what people might think about as core print to offset challenges from a demand side, but also drive that margin rate upside that you just alluded to?

Yes. Thanks for that question, Erik. So we've been driving a really concerted strategy around print. And it's around focusing on placing profitable units out there, long-term profitable unit, but it's also about driving more profit upfront with Big Tank unit placement. That's something that we're amping up a lot starting this fiscal year, and we're putting increased marketing dollars behind it. We're also driving a greater focus on subscriptions with our all-in plans, which includes printer, paper, PC -- printer, paper and ink. And then we're focused on driving cost reduction everywhere that we can across print, and that's helping us maintain our margins along with these other strategies. And then we've got some bright spots in print, too. You mentioned industrial. That is a place where we've grown for 10 consecutive quarters. We -- it's got strong supplies and attach to it. And we're continuing to drive that along with the trend of the move from analog to digital printing in that business.

Okay. Last question on print before we maybe turn to the CFO side of the world, so to speak, is for the better part of 5 years, your print operating margins have been solidly at the high end of that 16% to 19% range. It doesn't matter the demand environment, you've been in 18% to 19%. But you've kept that long-term target range at 16%, 19%. Is there conservatism in that 16% to 19%? Or maybe what I'm trying to ask is, is 18% to 19% print operating margins the new normal? Or why would we then see margins maybe fall below that range if you've been able to hold them through effectively every type of environment you might be able to see?

Yes. No, I appreciate the question because absolutely, you have seen us operate at the high end of that long-term range for a while now. And we've said this fiscal year, in particular, we intend to be at that high end of the range, again, to help offset some of our headwinds in the PS business. But we maintain that 16% to 19% range really because there may be a time period or a quarter or 2 where we see an opportunity to place more long-term profitable units that are the right value creation, but may have a little bit of impact in that time period.

Okay. Right. Okay. Okay. And that strategy hasn't necessarily changed?

That's correct. That's correct.

All right. So let's move beyond PC print, move to kind of capital allocation and whatnot. So I want to touch on free cash flow. I think it's incredibly important because PCs are kind of the cash conversion cycle driver, so to speak, but we're talking about some caution in the second half of the year, but you're really not backing down from that free cash flow guide. You brought it down maybe $100 million at earnings for this year. What are the offsets or what are the tools that you guys are leveraging to protect free cash flow in this kind of wild environment?

Yes. We recognize that free cash flow is super important, and it's a critical part of our capital allocation framework, too. And so we're going to be laser-focused on delivering that free cash flow. As it relates to the cash conversion cycle around our PS business, while we do expect some unit decline, it's not the units that matter for free cash flow, it's the dollars that matter for free cash flow. And we do expect that we'll still have some revenue growth really driven by our share gains, our pricing actions, the attach that we talked about, and that can have a benefit on free cash flow as well.

And is there anything on the working capital side that we need to be aware of that is maybe unique or differentiated or new to this year as you think about 2026 that hasn't necessarily happened in the past or anything in terms of a ballast?

No, I would just say you've seen us be good stewards of working capital, and we know how to do that, and that's just going to continue. And then obviously, we've got a little bit added benefit from the negative cash conversion on the PS business.

Okay. All right. Perfect. And then I want to talk about reinvestment, too, or maybe asked differently, what are the maybe key areas, not all of them, but key areas you're really trying to innovate in and maybe become more differentiated from your peers, whether that's in PC or print?

Yes. So when it comes to investment, it's really aligned with our strategy. So in the PS side of the business, it's aligned with driving AI PCs and driving our Better Together strategy with the interconnectedness of all of our devices. That's where we're investing on the PS side. And on the print side, we're investing in and more AI enablement and secure printers. And in the nearer term, we're also investing in some marketing against our subscriptions and against big tanks in developed markets like we had talked about.

Okay. Cool. I want to talk about OpEx. That is a lever that you guys can use. And you announced a 3-year cost reduction plan. I believe it was not last quarter as in last week, but the prior quarter, the October quarter. And it's really actually focused more on AI-driven initiatives, which obviously have been in the news plenty recently. Can you maybe just help us understand what you are actually doing internally to reduce costs or at least transform your cost base using AI? And how much of a lever is OpEx for you to pull? In the event things get even crazier than where we are, how much more can you lean into cost reduction, cost efficiency as a tool?

Yes. Thanks, Erik. We did announce $1 billion AI-enabled cost savings program, where we expect to drive that $1 billion by FY '28 in gross annualized run rate. That -- we also said that we expected to drive $300 million of it this fiscal year, and we expect it to spend roughly $650 million for the program with $250 million of it this fiscal year. And I would say with the current headwinds that we're facing with the memory challenges, our focus is on accelerating that program everywhere that we can and also driving other cost actions and cost takeout that we can. So as a result of that, you could see us spend a little bit more than $250 million this year to drive that. But I would say our estimated savings and expense for those savings are all included in our outlook.

In terms of the things that we're doing with AI enablement right now, it's things like having digital teammates help us with our channel partners to answer questions, to provide next steps. It's also embedding AI into our supply chain to automate order entry and sales return and how we handle our products through the supply chain.

Okay. Perfect. Maybe last question as we get close to wrapping up here. Last question before we kind of do the wrap-up question is, is there an opportunity for consolidation in the print or Personal Systems market? And I just say that because we can go back to pre-COVID. We remember what happened pre-COVID. It feels like there's a way at least definitely in print that maybe we could make the market healthier if there is consolidation. You guys are coming from the position of power. So just help us understand, is there an opportunity for consolidation in either market? And based on your answer, how would that create more shareholder value at HPQ either yes or no, so to speak?

Yes. So I would just say that we are a highly large global player in both of our businesses in print and PS. And we believe that you do need that scale to compete effectively in these businesses. But we like where we are right now. And we don't see need to change anything. And clearly, in this environment, in particular, we're focused on -- clearly focused on driving the mitigation offsets that we've talked about for the challenges that we've got.

Yes. Okay. So I -- it's -- compared to what you guys have to do, it's easy to write research about tariffs. You guys have to deal with them in real time. And obviously, the landscape we can say is probably more than uncertain. Just after the Supreme Court decision a few weeks ago now, can you just give us a lay of the land of what's changing from a tariff exposure, tariff rate, tariff payment, tariff exemption perspective? I'm not sure I even know. So would love your feedback on where we stand and how that has changed.

Yes. So happy to talk about that. So after the Supreme Court ruling, which took away the IEEPA tariffs and the fentanyl tariffs for us, and these tariffs, by the way, are mostly in our print business. Our PS business is largely exempt from these tariffs.

And that remains the case.

It remains the case, yes. And so the court took away those tariffs, but we're still dealing with Section 301 tariffs in our print business. And the administration reacted by putting in place 15% tariffs across the board for 150 days. When you net all of that out, based on what we know today and the policies in place today, there's a slight benefit that we've got that we're going to obviously use to help us offset the other challenges that we've got across our businesses. And obviously, the environment remains very fluid. We've got a super strong team that is used to working in concert with the administration on these things. And if something changes, we'll continue to keep you posted.

Okay. Perfect. So I want to end with just giving you kind of the dance floor here and the final word. And really what I want you to focus on maybe to help us all is what maybe we don't fully appreciate, what maybe we don't fully understand about the HPQ story today that internally at HPQ, you guys are extremely excited about?

Yes. Thanks for the opportunity for that question. I would say, first of all, we are very used to operating in tough environments, and we've proven ourselves that we can not only deal with our environments, mitigate our challenges, but also come out stronger from them. And we've done that with the pandemic. We've done that recently with the global trade war, and now we're dealing with it in the memory situation. But I would say we're a proven tested team on this.

We've also got, I'd say, an investor-friendly capital allocation framework, where we're focused on paying out 100% of our free cash flow to our shareholders over time as long as our leverage ratio remains under 2x and there aren't better ROI opportunities. And what you've seen us do is pay back roughly $19 billion to shareholders over the last 5 years. I would say also, we're very focused on our future of work strategy as we move forward. And with the continuing rise of AI and the focus on more and more AI being done at the edge that we're focused on delivering against and honestly driving for, I think there's a great opportunity ahead in the long term.

Perfect. We just hit all zeros.

We did. Thank you, Erik.

Awesome. Thank you very much for joining us.

Yes. Thank you.

Good day, everyone, and welcome to the First Quarter 2026 HP Inc. Earnings Conference Call. My name is Regina, and I will be your conference moderator for today's call. [Operator Instructions] 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 Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's First 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 1 year. We posted the earnings release and accompanying slide presentation on our Investor Relations web page 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. In addition, unless otherwise noted, references to HP channel inventory refer to Tier 1 channel inventory and market share references are based on calendar quarter information. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations.

With that, I will now turn the call over to Bruce.

Thank you, Alok, and thank you, everyone, for joining us here today. I'm excited to be here with you for my first earnings call as interim CEO. I have served as a director on HP's Board since 2021, and I, along with my fellow board members, strongly believe in the management team and the strategic direction we are charting at HP. I'd like to also acknowledge Enrique Lores and his contribution to the success of the company during his 36-year tenure. We are sincerely grateful to him. The Board and I are committed to a strong stewardship, including disciplined decision-making, operational consistency, stability for our employees and delivering value for our customers and shareholders.

With that in mind, I want to provide a brief update on the CEO search. The process is well underway. The Board's priority is to identify the right leader to guide HP through its next phase of evolution. We will consider a broad range of candidates with a preference for proven executives who have successfully operated large multi-segment business in a complex and dynamic environment.

During my first few weeks since we've announced the CEO transition, I've immersed myself in the company. I've met with thousands of employees and spent considerable time talking with customers and suppliers. We've also had the opportunity to work closely with the leadership team. I want to thank the employees, suppliers and customers with a warm welcome. Together, these discussions give me a clear view of the opportunity ahead and the deep confidence in what the organization can deliver.

We are at an exciting inflection point in technology, where customers need a trusted partner to enable edge computing, simplify experiences through integrated solutions and embed AI into products that proactively anticipate users' needs. This is the foundation of our Future of Work strategy, which positions us to expand market share and ensures our pricing reflects the value we deliver, especially as we navigate near-term challenges. We will stay disciplined in executing our fiscal '26 plan, which you'll hear more about today, taking great care of our customers, partners and suppliers and continuing to build a company where people are proud to work and grow. I'm working directly with the talented HP leadership team to ensure we are actively managing every lever available to us to drive value creation.

With that, let's get into the quarter. Overall, we executed well in Q1 and made solid progress against our strategy. Karen will cover the details shortly, but let me highlight a few points. We delivered another quarter of steady top line growth with revenue of $14.4 billion, up 7% year-over-year, driven by performance in Personal Systems, as we continue to see the positive impact on PC demand in the Windows 11 refresh cycle and the continuing momentum of AI PCs. We achieved PC market share gains across our high-value Commercial and Consumer categories, contributing to our double-digit revenue growth in the segment. In print, our results were in line with expectations with continued momentum in Consumer subscriptions, which grew revenue double digit and industrial print, which grew mid-single digit with continuing shift from analog to digital production. We prioritized the placement of profitable units and grew Big Tank share in developed markets.

Non-GAAP EPS of $0.81 reflected 9% growth compared to the prior year and was at the top of our guidance range.

Turning to our strategic advancement highlights. HP is dedicated to creating a more fulfilling professional experience. In the first quarter, we made meaningful progress bringing AI to the workplace through innovation. HP's focus on AI at the edge reflects an increasingly critical role of this technology in the daily lives of our customers. As the AI curve moves from an experiment to scale deployment and measurable returns, we are enabling customers with compute power to run powerful large language models locally, complementing AI in the cloud with secure, high-performance and cost-effective AI at the edge. This is an important part of our Future of Work strategy.

This quarter, AI PC is accounted for over 35% and of our PC shipments, up from 30% in the prior quarter and 25% a quarter before. We also launched the HP EliteBoard G1a. This is the first AI PC with intelligence built into the keyboard or hybrid work, and it's just one example of how we are bringing on-device architecture to life.

In print, our new AI-powered scanning and redaction capabilities are now reaching customers, simplifying workflows and reducing friction for small business. Our focus on delivering more secure and AI-enabled print experiences is also being recognized with industry analyst [ Chris ] [indiscernible], recognizing our leadership in AI-driven print solution.

The next step in our strategy is driving Better Together experiences. We believe there is enormous value in integrating devices, software and services to work as a unified experience. In the first quarter, we launched HP Digital Passport, personalized hub that centralizes information across the full HP ecosystem, resulting in better customer engagement and more efficient support. We also expanded our partnership with Microsoft, embedding Microsoft 360 Copilot directly into HP printers to improve how employees manage documents on the device. This brings us to our third step, empowering CIOs with tools to gain actionable insights, manage risk and run IT more strategically at scale. To that end, we introduced multiple enterprise-focused updates in Q1, expanding our workforce experience platform commonly called WXP capabilities to further simplify device and printer management, combined with reducing downtime. WXP is now the most comprehensive multivendor fleet management solution across PCs, print and collaboration. By taking in data from 50 million endpoints and processing more than 1 terabyte of data daily, the platform enables predictive insights that allow IT teams to proactively identify issues, streamline operations and improve workforce productivity.

In addition, this month, HP established an exploratory partnership with OpenAI to pilot OpenAI Frontier, their new enterprise platform for building and managing AI agents. This puts HP at the forefront of enterprise AI deployments with built in governance, security and observability as we move from pilots to scaled adoption across workflow. In March, we will host our HP Imagine event for industry and media analysts. This showcases our latest innovative solutions to help people do their best work from anywhere. The new experiences we unveil at HP Imagine, will demonstrate how we continue to lead the Future of Work by helping customers drive growth, professional fulfillment and foster innovation in the era of AI.

Now let me touch on the rising memory cost environment and how HP is addressing these market challenges, which are impacting companies across the technology sector. Like others, we are seeing increased input costs driven primarily by the rising prices of DRAM and NAND. We expect this volatility to remain throughout fiscal '26 and likely into fiscal '27. While we believe the market will rationalize over time, we have already been implementing a number of mitigation measures. And since I moved into this role, I've been actively working with the team to drive these actions forward, make adjustments where needed and bring as much of the memory dynamic as we can under our control. To get a bit more granular on these mitigation measures. Let me focus on progress of our key strategies.

First, on the supply side, we have leveraged the strength of our supplier relationships and secured long-term agreements covering our memory requirements for fiscal '26. We've qualified new suppliers built in strategic inventory positions for key platforms and cut the time to qualify new material in half to accelerate our product configuration changes.

Second, on the cost side, we've expanded lower-cost sourcing across our commodity basket, lowering logistics costs with agile end-to-end planning processes as part of the company-wide AI-enabled program. And we've accelerated company-wide productivity efforts as part of this program to use the company-wide broader cost base to execute offset.

Third, at the same time, we are implementing strategies on supply and cost. We are also configuring our products and shaping demand to align the supply we have with our customer needs. And we are taking targeted pricing actions to offset the remaining cost impact in close partnership with both our channel and direct customers. We have a strong track record of managing through commodity super cycles and uncertain times. We've demonstrated this during the pandemic and more recently through trade cost uncertainty. We built a more resilient supply chain and leverage our strong brand and distribution strength to gain share and expand margin. HP is also well diversified with a meaningful portion of our Personal Systems profit coming from services and peripherals. While the near-term environment will remain challenged and pressured PS margins, we are confident the actions we are taking will position us for long-term success.

I also want to touch briefly on last week's U.S. Supreme Court ruling on tariffs. We are evaluating the impact of including the announcement of new tariffs in the last few days. Right now, we do not expect to be negatively impacted by the subsequent developments following the court decision. However, we will continue to engage the administration on these matters and others. We are confident in the strength and agility of our supply chain, which provides the flexibility needed to navigate an uncertain trade-related cost environment. In this fluid operating environment, fiscal '26 will be shaped by a range of factors, some of which remain uncertain. Our focus will be on prudent execution of mitigation plans to offset the impact of memory costs, accelerate company-wide cost actions and continue to execute against our Future of Work strategy. We expect that the memory situation will normalize at some point. In the meantime, we are not backing away from our long-term commitments despite the headwinds. And my focus is to ensure we continue to move forward with the urgency and discipline without missing a beat.

Before I close, I want to say, what an honor it is to be part of the HP team. This is a special company, and I have great respect for our mission, culture and people. To our shareholders, thank you for your continued belief and confidence in HP. And to our employees around the world, thank you for your dedication and commitment. And I'm proud to be on this journey with you.

And lastly, I want to provide an update on the Investor Day we had planned for April. In light of our ongoing CEO transition, we will be rescheduling this and look forward to sharing a date with you at the right time.

I'll now hand it off to Karen to walk through the first quarter results and outlook for the remainder of the year.

Thank you, Bruce, and good afternoon, everyone. We are pleased with our first quarter results and the solid progress we made on delivering against our financial commitments. We drove better-than-expected top line growth, fueled by continued refresh momentum in Personal Systems and in our key growth areas. We also delivered non-GAAP EPS at the top of our guidance range. In a dynamic environment, our teams executed well. Making progress on the playbook we laid out at the beginning of the quarter to mitigate higher input costs.

As you heard from Bruce, our initiatives are focused on securing supply, shaping demand and product configuration, implementing targeted cost reductions and taking pricing actions and all of these are well on track. While the memory situation remains fluid, we are executing well on all of the levers within our control and will continue to do so in the quarters ahead.

Now let me walk you through our first quarter performance. We delivered revenue growth of 7% year-over-year, up 5% in constant currency with growth across all regions. Strength in Personal Systems drove APJ revenue up 13% in constant currency with EMEA and Americas growing 5% and 1%, respectively. Gross margin was 19.6%, reflecting an increased mix from Personal Systems as well as higher commodity and trade-related costs, offset in part by pricing and cost reduction actions.

We drove non-GAAP operating expenses down year-over-year through strong expense management and the continued benefit from our Future Ready cost savings program completed at the end of fiscal year '25. All in, our non-GAAP operating margin was 6.9%. Below the operating profit line, lower net financing expense and lower currency impact contributed to better-than-expected non-GAAP other income and expense in the quarter. And with a diluted share count of approximately 932 million shares, our non-GAAP diluted net earnings per share was $0.81, up 9% year-over-year.

Now let's turn to segment performance. We delivered better-than-expected top line growth in Personal Systems with revenue up 11% on 12% unit growth with continued momentum in Win 11 refresh, AI PC adoption and particularly strong Consumer performance. We outperformed the market and consistent with our strategy, gained share in premium categories. We also drove strong performance in key growth areas, including AI PC, Advanced Compute Solutions and Workforce Solutions.

In Consumer, we delivered 16% revenue growth on a 14% unit increase, above our expectations. We attribute part of this above seasonal performance to demand pull-in aimed at avoiding the impact of rising memory prices. At the same time, we drove increased ASPs while delivering share gains in premium consumer devices.

In Commercial, we drove 9% revenue growth with units up 11%, fueled by Win 11 refresh, particularly in EMEA and AI PC strength. While we increased prices to help offset rising memory costs, we also had some large education deals in the quarter that impacted ASPs. Consistent with our Future Work strategy, we gained share both year-over-year and sequentially in commercial premium categories.

Our operating margin in Personal Systems was 5%, within the range we guided at the beginning of the quarter but slightly below expectations, given the stronger-than-expected performance in consumer and education. In print, our results were in line with expectations with improvement in the rate of market decline. Revenue was down 2% on lower supplies volumes and market-driven hardware declines. Consumer revenue was down 8% year-over-year and Commercial revenue down 3%, with higher ASPs helping to offset lower volumes.

Supplies performed as expected, down 2% year-over-year in constant currency. We continue to gain share in supplies while increasing pricing to partially offset installed base and usage headwinds. We delivered solid performance in our key growth areas. Consumer subscriptions grew double digit year-over-year, helped by the continued ramp of our All-in-Plan and reflecting our focus on increasing lifetime value per customer.

Strong demand in drones and robotics drove double-digit growth in 3D and industrial print revenue grew for the tenth consecutive quarter, driven by the continued transition from analog to digital. And in line with our guidance, we delivered an operating margin of 18.3%, within the upper half of our long-term range. We are making solid progress on our initiative to embed AI into our processes to accelerate product innovation, improve customer satisfaction and boost productivity. For example, we are working to integrate AI into our channel partner experience through a digital teammate that will answer questions, act on queries, provide integrated workflows and proactively guide next steps. We are also scaling additional AI agents and supply chain to automate order entry, sales returns and product data management. We remain on track to generate approximately $1 billion in gross annualized run rate savings by the end of our fiscal year 2028 and are actively working to accelerate and scale these initiatives. These important efforts enable our continued investment in key strategic and go-to-market initiatives aligned with our Future of Work strategy.

Now let me move to cash flow and capital allocation. We generated close to $400 million in cash from operations and roughly $200 million in free cash flow in the quarter, in line with our expectations and reflecting typical seasonality. And we improved our cash conversion cycle sequentially, unfavorable linearity, offset in part by higher days of inventory, reflecting rising commodity prices.

On capital allocation, 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. In Q1, we returned over $600 million to shareholders through both dividends and share repurchases. While our leverage ratio remains slightly above target in Q1, we have maintained increased cash balances, reserving sufficient funds to pay down 2026 debt maturities, which enabled us to buy back shares in the quarter. And if needed, as we move through fiscal '26, we can operate with higher cash balances to further reduce leverage with maturities in fiscal '27. As we look ahead, we have contemplated the dynamic memory environment highlighted earlier as well as the associated mitigation actions we are taking. These include expanding pricing actions and implementing additional company-wide cost reductions. And as Bruce mentioned, we are evaluating last week's U.S. Supreme Court tariff ruling and the subsequent developments, but at this point, do not expect to be negatively impacted.

Looking at our outlook by segment. In Personal Systems, we are aligned with industry experts now projecting the PC unit TAM to decline double digits in calendar year '26, reflecting the impact of industry-wide pricing actions on demand. Against this backdrop, we continue to expect to drive revenue growth in our fiscal year through pricing actions, share gains in premium categories and increased attach of higher-margin offerings. We expect above seasonal revenue performance to continue in our fiscal Q2, driven largely by the pricing actions we have taken with revenue growth then moderating in the back half of the year. Considering the continued fluidity of the commodities market, we are modeling a range of outcomes that factor in memory prices that are roughly doubling versus the prior quarter. Given this, we now expect the PSOP rate to be below our long-term range for the remainder of the year, reflecting this additional cost pressure offset in part by mitigation actions.

In print, we continue to expect the hardware market to decline low single digit in calendar '26, yet we expect to drive growth in Big Tanks and industrial print to help offset. We are continuing to execute against our plans to gain share in Big Tank and office and to drive further momentum in key growth areas, expanding our subscription business and driving growth in industrial. While we continue to anticipate Supplies revenue to be down low single digit for the year in constant currency, we expect to drive both pricing and share gains.

For Q2, we expect print revenue to be in line with normal seasonality. We now expect print operating margins for both Q2 and the full year to be near the top end of our long-term range. With our focus on profitable unit placement and incremental cost discipline, helping to offset the impact we expect to have in PS margins. Beyond the segments, we expect both non-GAAP OI&E and Corporate Other to be roughly flat year-over-year for the remainder of the year.

Factoring this all in, we are maintaining our annual non-GAAP diluted earnings per share guidance range of $2.90 to $3.20. Given an increasingly challenging operating environment, and the time it takes to fully implement our mitigating actions, at this point, we expect to be closer to the lower end of our guidance range. We recognize that the environment remains fluid, and we are pulling every lever available to offset these unprecedented headwinds.

For Q2, we expect non-GAAP diluted net earnings per share to be in the range of $0.70 to $0.76. And our second quarter GAAP diluted net earnings per share to be in the range of $0.52 to $0.58. We are also maintaining our annual free cash flow guidance range of $2.8 billion to $3 billion. However, consistent with our comment on EPS, given the environment, we currently expect to be closer to the low end of that range.

In closing, we are making solid progress against our financial commitments. We have a track record of strong execution and remain confident in our ability to navigate these near-term headwinds while also focusing on driving long-term shareholder value.

Before we move to Q&A, we've been talking to you about the strength of our leadership team and particularly given the memory situation, we wanted to make sure you got the chance to hear directly from the leader of our PS business on that topic. So we've invited Ketan Patel to join us for this Q&A session.

Operator, please open the line for questions. Thank you.

[Operator Instructions] Our first question will come from the line of Krish Sankar with TD Cowen.

For Bruce or Kevin or even for Ketan. I understand you're operating well in a tough and fluid commodity environment. I want to find out if you can quantify, what is the memory cost impact in Jan quarter? What is baked in terms of the memory cost increase in April and fiscal year? And along the same path, with your memory suppliers, are you able to secure LTAs for volume only? Or is it volume and pricing? And then I had a quick follow-up.

Yes. Thanks, Krish, for that question. I'll start, and then I'll ask Ketan to add on. In terms of the memory cost in the quarter, we -- it was included in our overall results. And given the fluidity of memory at this point, we're not going to try to quantify that net of mitigation actions. I would say that we have included a significant increase in memory costs in our guidance. We have seen memory costs increase roughly 100% of sequentially, and we do forecast that to further increase as we move into the fiscal year. To put this in a little bit more concrete terms, we did share last quarter that memory and storage costs made up roughly 15% to 18% of our PC bill of materials and we now currently estimate this to be roughly 35% for the year. As we've said, we expect to see that largest impact in the second half and because of that, we also said that we now expect our PSOP margins to be below our long-term range for the rest of the year. But that said, we are working hard to mitigate these headwinds, and we have a combination of product cost actions, company-wide cost actions and price increases to help us recover that entire impact over time. Ketan, happy for you to add anything.

You covered it well, Karen, I'll just add 1 thing, Krish, is that given the volatility of the situation, we have a range of mitigation actions, which we are working on, and we have managed this type of disruption before. And we are using our playbook to ensure how we navigate this volatility with 2 vectors in mind: continue to provide strong value to the customer; and then protect our margins. And this is delivered through, number one, through managing supply and portfolio. We have LTAs, which obviously protects our supply coverage. We also want to leverage part of our broad portfolio with silicon diversity so that we can offer different choices to customers in order to ensure how we do the demand-supply equation matching and also introduce low memory configurations.

Cost actions, Karen has already covered. We keep working across commodity baskets to reduce cost as much as possible so that we don't pass on to the customers. And also, we have a strong design for cost initiatives which includes platform offerings and other decontenting options in order to make sure the customer gets various choices.

And also lastly, it's about pricing actions, driving favorable mix to our strategy and then most importantly, we will be demand shaping to the available supply what we have with optimized platform and config options so that customer gets the best value to choose from. And also offer within their budgetary needs. And that's why this playbook is super important that we are working across various vectors to ensure we are delivering the right value equation for the customer.

Very helpful, Karen and Ketan. Just a quick follow-up. You kind of mentioned PC unit TAM to decline double digits. I'm just wondering, is there a way to quantify it? Is it low teens, high teens, down 20%? And any specific segment which will decline more than the others?

Yes. Thanks for that question, too. Yes, we do expect it to be down double digits, in line with many in the industry. And Ketan, feel free to add.

No, it's pretty much in line. We also believe that the opportunity to grow revenue as we have given the outlook for the rest of the year will be there, fundamentally, because we see momentum on Windows 11 and also mix shift on AI PCs, as Bruce covered that we are at 35% mix now, and it's only increasing every single quarter. And pricing and other actions are only going to drive mix expansion on revenue TAM. So very much we are in line with what industry forecast is.

Our next question will come from the line of Erik Woodring with Morgan Stanley.

I have 2. Karen, maybe starting with you. I don't want to overly focus on memory, but can you just help us understand how you at least approach guiding for the full year, understanding that memory cost beyond this quarter are largely uncertain, but likely to inflate further, meaning what kind of memory price appreciation are you embedding in your fiscal '26 guide today? And then how are you kind of balancing the potential for demand destruction versus protecting margins? And what that all means for EPS? I just love the approach that you're taking given all these uncertainties? And then a quick follow-up, please.

Yes. Thanks for the question, Erik. Obviously, things remain fluid. But I will start with the fact that we're pleased with our Q1 performance particularly with the stronger-than-expected revenue in PS and EPS at the high end of our expected range. And our guide for Q2 calls for continued revenue growth above normal seasonality, with pricing increases and with the continued tailwinds from the Win 11 refresh and further AI PC penetration. So really, as far as the full year goes, I'd really summarize it with 3 key factors that help shape our current outlook. One, we had stronger revenue, particularly in the first half that I just mentioned. Second, yes, we do see increased memory cost, and that's going to be partly offset by our higher mitigations that we've talked about. And third, we -- on print margins, we now expect to be at the high end of our long-term range. So when you take all that together, right now, I would say that we're taking a prudent view, assuming that some of our revenue strength in the first half moderates and our fiscal year EPS is more first half weighted than typical. It obviously goes without saying though that we are operating in this very fluid environment. And we'll be executing our playbook. We're going to be pulling all levers to offset these headwinds. And of course, we'll continue to update you going forward. But at this point, under our current assumptions for memory costs, which do include 100% sequential increase this quarter and some further increases from there. We also take into account price increases that can take time to fully implement and the expected unit demand that we've talked about. So with all of that, we do anticipate being at the lower end of our guidance range.

Okay. I appreciate all that detail, Karen. And then maybe just as a follow-up. I'd love if you could maybe clarify a bit on capital returns. I know that you kind of talked about remaining committed to 100% return of free cash flow to shareholders over time. But I guess you're balancing 2 factors butting up against your gross leverage target that would limit buyback versus your stock at a multiyear low. So just how do you balance these factors and think about returns to shareholders in fiscal '26 with just a little bit more clarification to detail.

Yes. Thanks, Erik. So we do remain committed to returning 100% of our free cash flow to shareholders over time. And we've talked about that as long as our gross leverage remains below 2x, and there aren't higher return opportunities. That said, you've seen us be operating with leverage slightly above 2x right now. And we have basically earmarked cash on our balance sheet to repay debt as it comes due in '26, and we can continue to do that in '27 if needed. All of that combined has enabled us to also return to shareholders. And in Q1, we returned -- we were pleased, honestly, to return about $600 million to shareholders just in our first quarter and over $300 million of that was in share repurchase.

Our next question will come from the line of Samik Chatterjee with JPMorgan.

Maybe for the first one, I know you mentioned sort of -- this is a dynamic environment and you're seeing some level of pull-in in the PS segment. Just -- but just wondering, like, can you just dig into that a bit more, is the pull-in largely on the Consumer side that you're seeing right now? And how are you sort of dilating that versus whether you're seeing any pull-in on the enterprise side as well. Just wanted to understand sort of the thought process there and what it means for the second half in terms of revenue outlook for those 2 segments? And I have a quick follow-up.

Thanks, Samik. And I'm happy to take that. And Ketan, feel free to add. We did see a moderate amount of customer demand pull-in in the quarter, particularly in Consumer. That said, we also delivered stronger-than-expected revenue growth, and that was really driven by several key factors including the strength of the fundamentals on the Win 11 refresh and on AI PC adoption. AI PCs were 30% of our total shipments in Q1. That was up from -- they were 35% of our total shipments in Q1, and that was up from 30% in the prior quarter and honestly, 25% the quarter prior to that. And in enterprise demand, we had good demand, particularly in Europe and in Asia, and it was related to the Win 11 refresh cycle. We believe now that about 60% has refreshed to date. So that means we still have more to go. And we did increase prices along with a shift in product mix toward commercial and consumer premium devices, which contributed to higher average selling prices. So Ketan, happy for you to add.

Yes. So Samik, I'll just add a couple of comments. To our regular operational metrics, we have not observed any major disconnect from customer demand pattern versus market growth, especially on the Commercial side. And Consumer, as Karen said, there was a bit of pull-in in the month of December is what we observe, and we can consistently measure sell-out versus our selling data to look at that. The other proof point is that our channel inventory remains at a very healthy level, which means the customer demand powered by AI PCs and Windows 11 has been strong in the geography just called out.

Got it. Great. And maybe just a quick follow-up. Karen, probably more for you. I know you've sort of talked about the memory impact being greater on the second half for PS margins. But with the mitigation actions you're taking, do you sort of get to a point where you have confidence about seeing more stable PS margins as you exit the year and potentially some recovery towards the longer-term range? Like how would that trajectory look like in the back half? And sort of any confidence that it looks like a more stable trajectory sort of exiting the year on your front?

Yes. Thanks for that question. Clearly, the environment is fluid. And at this point, we do say that we expect our margins for the rest of the year to be below our long-term range. But that said, we are not changing our long-term guidance range for our margins, and we do expect to be back into those long-term range over time. We'll see how quickly we can do it. Obviously, we're going to do it as quickly as we can, but the environment just remains very fluid.

Our next question comes from the line of Wamsi Mohan with Bank of America.

First a clarification, can you just tell us, maybe, Karen, like what you experienced in actual memory pricing impact that you realized in the quarter? Because it sounds like you're saying you're going to see a sequential 100% increase next quarter and it still is going to go up. And yet for the full year, it's going to be up 100%. So I just want to understand like what you actually experienced in the quarter itself in terms of memory price inflation?

Yes. The current prices that are up 100% sequentially are more looking forward. We did have some memory cost increases in Q1, but it was roughly in line with what we had outlined at the beginning of the year. The increases are more going forward.

Right. Okay. And for the full year, you're saying that, that's your expectation is for a 100% year-over-year increase, If I understood that right.

No. We said we're seeing current prices up about 100% sequentially. And that's so Q1 to Q2. And we do expect them to further increase in the latter part of the year. We'll see how much they increase, but we don't expect to have reached peak by the time we're in Q1 to Q2.

Okay. Okay. And then can you maybe just talk a little bit about the memory negotiations you're having with your suppliers? I want to go back to Krish's question on these LTAs. Is that all volume commitments and pricing negotiations still open? And has the frequency of those price negotiations changed at all for you? And is there any chance of being short supply at all as you go through the course of the year?

No. At this point, we have really good relationships with our long-term suppliers and we've been working quite well with them. And we've said that we believe we've got the supply that we need to meet our plans and execute on our strategy at this point. We -- the -- as we look at pricing with our suppliers, we work to lock it in on a rolling basis and really so that we can help both shape demand and think through our pricing strategy around it.

Our next question will come from the line of David Vogt with UBS.

I might have missed this because I jumped on late. Karen or anyone, can you guys talk to the nature of your long-term agreements? And what I mean by that is obviously, I would assume it covers volume and price. But more importantly, I think you mentioned qualifying new suppliers. Can you expand on what that potentially means? Is that local sourced memory in China or in APAC? And how does that factor into sort of your kind of strategy going forward? Is that a permanent source of supply do you think is likely? And then I have a follow-up.

Yes, David, I'm happy to start and have Ketan chime in. Yes, we did talk about the fact that we are pleased that we have secured the supply that we believe we need to execute our plans for the rest of the year. We have long-term good relationships with suppliers, and we've been adding new suppliers into the mix. So we -- on the price side, we do look at price with our suppliers on a rolling basis, and we lock that in as quickly as we can so that we can help demand shape and focus on our pricing strategy around it. Ketan, feel free to add.

Yes. And all these new suppliers, as we look at various supplier ecosystem, we are also accelerating our engineering efforts to qualify these commodities across our different platforms. So depending on the regulatory and compliance needs of specific country wherever we are able to ship specific commodity. Those are getting qualified in different products across the [ world ] so that we can maximize available supply in the market and create a system to be shipped out to a customer.

No, that's helpful. And just maybe quickly as a follow-up. Can you maybe speak to -- and I apologize if you covered this. Can you speak to your pricing strategy, obviously, I think the industry has been used to having relatively stable pricing in the market, whether it's through the channel or through distributors. Are you tightening up those sort of windows in terms to better match your underlying commodity prices that you're procuring? Like how does that work in the marketplace? And what are your channel partners thinking or feedback around your sort of pricing dynamics to better match your supply to where the market's headed.

Ketan, feel free to take that one.

Yes, I'll take that. Pricing is, of course, a big topic into this environment. But remember, as we have several route-to-market options which we deal with including online business we have, the channel business, enterprise business, public sector, end-user deals and also a lot of contractual business. So each one of them have different durations, which we work on in terms of how the pricing will fully reflect depending on the type of the business with some of the RTMs, which I called out. So times can change from immediately in some cases, through these various route-to-market options and it takes a few months in other cases. So that's how the pricing is getting worked out right now. As soon as we get the pricing information, we apply this across the board through this different RTM, as I called out. More importantly, where we are working on pricing is, we want to be also sensitive about demand elasticity and working with customers in order to find the optimal configuration both of the right platform offering as well as some decontenting required in order to hit specific budgetary needs of specific customers. And we are also driving this through a right level of intelligence using our workforce experience platform management software which actually gives user insights in terms of what ideal configuration is for a particular work use case so that we can demand shape to that specific need and drive pricing accordingly. So that we are not able to -- we are not fully -- if I say this, that if there is a specific cost discretion on the memory, you pass on that cost increase, but overall system increase will be limited because of some of these actions, which I called out.

Our next question will come from the line of Amit Daryanani with Evercore ISI.

I have 2 as well. I guess, maybe, Karen, to start with on the free cash flow generation target of the $2.8 billion to $3 billion. Can you just walk us through how you sort of get that especially in the back half of the year? Because historically, I think free cash flow tends to be back half heavy, but then your profits tend to be back half heavy as -- too. So this time, it looks like profits might be front half heavy. So just walk us through like what are the puts and takes and what enables the free cash flow expansion this year, especially given the trajectory of net income.

Yes. Thanks for the question. You're right that our free cash flow is back-half loaded. That said, we delivered a better-than-anticipated free cash flow just in the first quarter. And as we drive expectations for Q2, we should see decent free cash flow in Q2 as well. For the full year, keep in mind that we're driving greater growth from our PS business through the year, and that has a negative cash conversion cycle. So clearly helps us when we think about working capital. While we do have some increased inventory even in this quarter, you saw the cash conversion cycle improved while we had increased inventory and that was really offset by the increased PS growth.

Got it. That is super helpful. And then maybe I'll stay away from memory and ask you a question on the print side. You folks talked about print margins kind of going towards the higher end of your ranges, I assume kind of in the high end, in the 19% range for the year. Can you just talk about like what are the levers that enable print margins to expand from here, especially if you continue to have some of the supply segment. So just spend a little bit of time on print margins and what enables that growth over there. That would be helpful.

Yes. Thanks for the question. So I'd say you've seen us operate at the high end of our long-term range in print quite a bit lately. And so this is not new to us. It's something that we'll continue to do and drive. With our print strategy, we're clearly focused on profitable growth, and that includes shifting our business model to profit upfront with Big Tanks and also driving increased subscriptions. And you've seen us do that over the last several quarters. We're also focused on gaining share in high-value categories. And of course, we're always focused on reducing our cost structure to remain competitive. So we'll be pulling all of those levers to drive stronger PS margins.

Our next question will come from the line of Ananda Baruah with Loop Capital.

I guess what if I could then maybe a follow-up, but would just love to get any context that you guys can share on the CEO search, what types of folks you're looking for and what the process is looking like? I appreciate it. And I have a quick follow-up as well.

Thanks for the question. A few things on the CEO search. First, we've already established a search committee, and we are in the market, and that's been going on for the last 3 weeks or so. I think in general, the Board is looking for a CEO that can take HP to the for the next level of our strategy, maybe a little more specific areas that we're oriented to. First, the individual that's had a proven track record of delivering value for shareholders and customers. Second is as evidenced by this conversation, being able to navigate through a complex and dynamic environment. And then lastly, to be focused and the ability to have a global and multisegment business experience. As we think about the CEO, we really believe that being able to deliver value, be able to deal with the complexity of the marketplace and then at the same time, to have the expansion and scale that HP deserves.

I appreciate that. And so that includes folks outside of the PC and print industry?

Yes. I would say that the Board is having a very broad view of that as a result of both multiple businesses that HP is in addition to strategy. And in addition, as I mentioned, just the scale of the organization.

That's super helpful. And just a quick clarification as a follow-up. You guys mentioned this is a great -- this is actually a great context, 35% of the BOM for the year for fiscal '26 now anticipated to be memory, up from the 15% to 18% typically. Is that -- as I understand it -- and actually just a clarification, your PS GP dollars is 1/3 peripherals, 2/3 the PC cost. And so I guess the question is, number one, is that -- am I remembering that accurately? Number two, if so, is the 35% -- is it 35% of the 2/3 that's the PC BOM? Or is it 35% of the entire GP dollar basket? And that's it.

Yes. It's 35% of the PC BOM. So hopefully, that clarifies. And yes, we do have we do have 1/3 of our PS margins that come from businesses not reliant on memory. Those include higher-margin attached business, our Workforce Solutions and hybrid systems. And I would say, particularly in the attached business, we have a lot of headroom for higher margin growth from our installed base, and we're keenly focused on driving these more as part of our future work strategy.

Our next question will come from the line of Katherine Murphy with Goldman Sachs.

You noted that you're working to make sure that the overall systems price increase for PCs are limited, but obviously, we'll see some ASP uplift from the function of mix shift in the portfolio to more AI PCs and premium devices. Thinking just about the like-for-like increase on systems, do you have a framework for how much of a price increase customers can digest before we start to see impact on demand? And then I have a quick follow-up as well.

Yes, I'll start, Katherine, and then I'll ask Ketan to chime in. We are increasing prices currently. So yes, our ASP uplift is through mix and higher-margin things, but it's also through price increases that we have been driving. So Ketan, I'll let you comment on those.

Yes. And the demand to price elasticity, constant thing which we observed by customer use case and the customer type. And that's something which we'll keep adjusting to ensure that we are hitting specific demand equation. I think there are 2 tailwinds, which we are most encouraged with. We've spoken about this, which is Windows 11 and AI PCs, but more importantly, they are giving us a lot of confidence that the demand will continue. Because on Windows 11, it is now showing strong data points where you see productivity gains and seamless collaboration across different use cases in enterprises. And that's very, very encouraging. Second, the reliable security, which is very important right now to secure devices, to handle AI-driven cybersecurity threat is also getting tremendously valued by customers. And then, of course, the third is compliance. And now on top of it, AI PCs have started showing the local models on AI PCs started to deliver results with more and more ISVs developing applications, which are using locally and more effectively than ever before. And then HP, we have tied up with more than 100 ISVs to drive this forward. What I mean by this is looking at the overall equation when it comes to pricing, there is a total cost of ownership focus we are going after and making sure that depending on the use case, how much cost savings will come to the customer situation across these various application layers. And that's the key driver of how the pricing equation will work.

And as a follow-up, can you talk about any correlation that you observed between demand in the PC market and the opportunity in peripherals or print? Should we expect any weakness in PC industry unit shipments to weigh on the attach of monitors, keyboard, headsets, et cetera?

Ketan, feel free.

The overall our -- historically, we have seen that post refresh cycles and the 2025 was the year when the Windows refresh started. Generally, the attach our peripherals business follows very well because a lot of budgetary needs in the previous years have been used by PC buying. And that also is a huge opportunity in terms of how we see demand equation is coming along as peripherals need increase. And on top of it, as HP, we have also a headroom of growth in terms of gaining share in this category. That's what is going to drive growth in attach and peripherals for us.

Our next question will come from the line of Asiya Merchant with Citigroup.

Just -- I heard a lot about share gains. Like where does HP feel very confident in those share gains, perhaps certain segments, certain regions? And specifically, I was talking about PCs, but please feel free to elaborate on print as well.

And then just as a follow-up, OpEx I think I was -- it seems like some of the cost saving actions that you guys announced last quarter seems to be flowing through here in the first quarter results. How should we think about OpEx for the remainder of the year?

Yes. I'm happy to take share gains and ask Ketan to comment particularly on PS. I'll take print. I'll let you take PS, Ketan, and then I'll take the OpEx question.

We have been gaining share in print, in Big Tanks in developed markets. We've also been gaining share in supplies, and we continue to be the #1 leader in print with 33.5% of global market share. We're also focused on regaining share in high-value office categories, and we've been driving product innovation and also continued cost reduction to remain competitive to help us regain some of that share. Ketan?

From a Personal Systems standpoint, in calendar quarter 4, value share which we gained was across all key geographies in all 3 regions. So that's very, very encouraging, and that gives us confidence to take it forward. Also, we are not gaining -- we want to gain share for share's sake, as we've called out before, we want to drive to our strategy, and that's shown in our CQ4, calender quarter 4 performance. Premium share, where we were up 1.6 points year-on-year and AI PC share, which was up 1.8 points year-on-year. So we are driving strong growth in the areas which are identified and we will continue to focus and prioritize these categories in this demand supply equation environment to remain true to our strategy.

And on OpEx, we've said that we expect OpEx for FY '26 to be roughly flat year-over-year in dollars. That means that we're very focused on driving expense reductions everywhere that we can to offset the important investments that we need to make. As you know, last quarter, we did announce a transformation program centered around AI enablement, where we said we expect to deliver $1 billion in gross run rate savings by FY '28 with $300 million by the end of FY '26. Right now, we're focused on accelerating that program where we can and intending to drive additional cost actions to help mitigate the increasing headwinds that we're facing.

And our final question will come from the line of Aaron Rakers with Wells Fargo.

Yes. I guess the first question, and I can appreciate there's a lot of volatility going on in the market right now. But I believe last quarter, you had alluded to like a $0.30 headwind for memory component costs. And I think, again, at that point, it was 15% to 18% of the PC bill of material. I guess what I'm asking is the guidance at the low end of the $2.90 to $3.20 range. Clearly, these memory input costs have gone up dramatically. Any way to frame the current views on that $0.30 headwind or how that's evolved or changed relative to the current updated guidance that you've given?

Yes. Thanks for the question, Aaron. Obviously, memory costs are higher now. And at this point, we're not going to continue trying to quantify given the volatility and honestly, giving the myriad of mitigation actions that we're working. We are focused on mitigating as much as possible. And obviously, we've included that current assessment into our outlook.

Okay. And then as a quick follow-up, and I apologize for probably the naive question. But when you talk about seasonality, right, and being above seasonality, I'm just curious how -- when you look at PCs and you look at the print business, how would you characterize or define normal seasonality in the fiscal second quarter?

Yes. I would say just on PS revenue, which is what we're talking about being higher than seasonal, we intend to take share in premium categories and AI PCs and are expecting increasing contributions from our peripherals and solutions business, which are less impacted by memory costs. And obviously, the Win 11 refresh continues to be a driver outside of the U.S. And we're taking additional prices to offset the rising impact of memory. So with all of this combined, we do expect our PS revenue to be stronger than normal in the second quarter. And then we also said that we expect it to moderate -- to still grow, but moderate into the back half.

This concludes our question-and-answer session. I'll hand the call back over to Bruce Broussard, for any closing comments.

Thank you, operator. Thank you all for joining us today. As we've talked about today, HP has an enormous opportunity ahead. We're managing through the headwinds that the industry is facing, leveraging our disciplined execution and mitigation actions while capitalizing on HP's DNA of innovation. We plan to provide more color on this in the coming quarters. I'm confident that our Future of Work strategy puts us on the path to growth in 2026 and beyond, and I look forward to keeping you updated on our progress. Have a great afternoon. Thank you.

This concludes today's call. Thank you all for joining. You may now disconnect.

Great. Good morning, everyone. Welcome back to the UBS Tech Conference. I'm David Vogt. I'm the IT hardware analyst here at UBS. And we're excited to have with us HP Inc. today. And from the company, we have got Karen Parkhill, Chief Financial Officer. We're going to talk for 30 minutes about the business, about what just happened with earnings. And so Karen, thank you again for joining us today.

Thank you, David. It's a pleasure to be here.

So I think many people that are listening and they are in the room understand the HP story at a high level. But maybe just to kind of drill down a little bit into earnings last week. I know you guys just reported. Maybe we can touch on kind of what you're seeing, what you did see from a demand perspective, what you're seeing from a cost perspective, and we can dig into the details there. Maybe just start at a high level of just most recent quarter and how we're thinking about the near-term outlook.

Yes, sure. And I'd love to just give a highlight of our quarter, too. So we just finished our fiscal year this past quarter. So it was our fourth quarter. And I would say amidst a bit of a volatile environment this past fiscal year, we finished the year really strong. We had 4% growth at the total company level, 8% growth within our Personal Systems. That was driven by strength in office and consumer premium.

And I'd say while the print market remains soft, we delivered within what we expected with print. In our key growth areas, we saw strong double-digit growth. Within AI PCs, we now have roughly 30% of our shipments or over 30% of our shipments are AI PCs. And we delivered free cash flow right where we expected at $2.9 billion and returned $1.9 billion to shareholders. And I would say, importantly, we also announced our 10th consecutive annual dividend increase. And that just, I think, reflects the confidence that we, management and our Board has in our future.

And then we closed out our Future Ready program, which is a 3-year cost savings program where we delivered $2.2 billion in gross annualized run rate savings. That was higher than we had initially committed. We had initially committed $1.4 billion. And we only spent a little bit more in restructuring. So our savings to restructuring, our charges ratio was better than we had initially committed to.

And so then as we look ahead, we did give guidance for the next fiscal year. I would say because of the timing of our fiscal year, we were the first company in our sector to guide for this next 4 quarters. And as we look ahead, we do see some headwinds from the increased -- recently increased cost of memory. And so we prudently included that in our guide. We expect that to -- if prices remain high to impact us in the back half of our fiscal year, not as much in the first 2 quarters, which, again, I think is why you see us being slightly different than others.

We said that we expect the cost of memory to impact us about $0.30 in the back half. That's about a 90 bps impact to our PS margins. And we said we're being prudent in putting it in there. And so if we can do better, we will. We also announced because we see a great opportunity ahead to put AI even more into our company to boost productivity, to drive further product innovation and to improve customer experience and satisfaction. And so we announced that we've got line of sight to another roughly $1 billion in growth annualized run rate savings over the next 3 years.

We're going to continue to build on that program and announce more at our Investor Day this coming spring. But we wanted to give investors what we had line of sight to right now. We expect roughly $300 million of that this fiscal year, and that should also help us offset some of the memory cost headwinds.

Lot to dig in there. I want to start, though, before getting into the details around fiscal '26. Maybe just rewinding the clock for fiscal '25 because on PCs, you've done a phenomenal job navigating tariffs, the potential headwinds that were imposed -- still imposed in some regard, the Win 11 replacement cycle, Win 10 replacement cycle. You've taken decent market share in commercial PC over the last 2, 3, 4 quarters. How are you thinking about sort of the market opportunity as we go into fiscal '26, given those dynamics that you just laid out, obviously, headwinds from component costs where 2/3 of the way through the replacement cycle, I guess, is kind of our view. I don't know if you feel differently. How are we thinking about kind of the shape of the demand curve for PCs, not just in fiscal '26, but maybe longer term, given the consideration that AI PCs are north of 30% of your shipments and what that means for the business?

Yes. So we see continued growth ahead. On the Win 11 refresh cycle, we anticipate that we've got about 40% left to go. We would say from that perspective, a lot of the large enterprises have already switched, particularly in North America, but we see more to go from our SMB customers and across EMEA and Asia Pacific. So we'll be driving that. We expect that to continue through this FY '26 fiscal year.

With AI PCs, we see continued uptake. We expect to have our penetration of AI PCs be roughly 40% to 50% this fiscal year and by the time we reach FY '28 to be greater than 70% of our shipments. So we expect that to continue to help us.

Does the shift AI PC help with pricing next year? Because obviously, it's a better performing machine, better processor NPU. Does that help alleviate some of maybe the pricing dynamics in the market? It gives you maybe more umbrella, if I...

Yes, you're absolutely right, David. Yes, it's a richer configuration, and it does garner higher prices, and we have seen those higher prices already and expect that to continue.

So when I think about -- if I think about '26, so AI PC, high-end corporate, despite some of these higher issues with DRAM and NAND seem to be not manageable, but at least you have a road map to address some of these challenges. I mean is it safe to say that the low-end consumer market or maybe some of the low-end devices is where really the most problematic part of the market is for next year? And if that's the case, when we think about those customers, they're less likely to upgrade to Win 11, I would think. So does that give a little bit more runway into maybe fiscal '27 and beyond because they're not going to upgrade this year because of maybe higher prices?

Yes, it could. Time will tell. We'll see. I would say some of the computers that are -- the PCs that are out there are over 4 years old and can't run with Win 11. So you'll just need a refresh from that perspective. I would say the consumer end, the lower end of the consumer is a little bit more price sensitive. So maybe there's some softness there, but we're seeing strength across the Board in other places.

And you laid out that $0.30 impact from higher DRAM, NAND, and that's a net effect of raising prices to offset potentially inclusive of what that means for demand maybe in the back half. So if I think about kind of the shape of your fiscal '26, I know you don't give quarter-to-quarter guide generically, but it sounds like you -- at least the way we're modeling it and thinking about it, margins are going to be better in the first half in PSG.

Second half, maybe below sort of the target range. But for the full year, I think you might have said this on the call, sort of for the full year, still within the target range, maybe at the low end. Is that how investors should think about it?

That's absolutely correct.

So when we exit fiscal '26 because I'm trying to think long term about this, we still have tariff costs running through this P&L. You have obviously, the higher DRAM and NAND costs. At spot prices, it would feel like '27 becomes a better margin profile for PSG holistically. I know that's multiyear, but with the restructuring costs and the cost savings that you alluded to, I mean, is that a reasonable way to frame kind of the longer-term opportunity that this is sort of a shorter term, not to call the memory cycle short term, but what you're doing to adjust for the higher prices should maybe be alleviated and you've lapped a lot of the higher tariff costs. I doubt there's more tariff costs coming through, but just maybe how do we think about that long term?

Yes. No, it's a great way to think about it. So from a tariff perspective, we absorbed roughly $500 million of tariff -- increased tariff and tariff-related costs last fiscal year because it wasn't a full fiscal year, we're absorbing about $700 million this fiscal year. And then as we think about memory costs, we think about that being a temporary headwind. And so yes, we intend to continue to drive margin improvement as we move through the longer term.

And then when you think about PCs and the rest of the ecosystem on peripherals, like how are they affected by higher memory? I would imagine it's just really an attached solution in many regards. So people buy new docking stations, mice, keyboard, everything. Is it just simply a linear relationship to units from a PC perspective? It's not like they're carrying a lot of DRAM and a lot of these peripherals. So is that just how we think about that part of your business just so people can square?

Yes. The memory really impact PCs, not peripherals, not printing. It's really an impact on PCs. And as we think about the memory cost headwinds, we've got -- first of all, this isn't our first Rodeo. We've had these headwinds before we are well honed in how we deal with them. We've got long-term relationships with our suppliers, long-term agreements. We've got excellent relationships with them. We're also qualifying new suppliers right now. And we've got a strong balance sheet should we need it for more inventory.

We'll also intend to use our vendors and our vendor managed programs on inventory, too. We're going to be focused on our broad array of product offerings and reconfiguring solutions to optimize the memory situation for our customers. We're also driving greater transformation savings to help offset. And then, of course, as needed, we'll focus on price.

You brought up an interesting point. So when you talk about long-term supply agreements, obviously, there's a lot of, I think, market handwringing from the investment community around, quite frankly, the availability of supply. So when you look at your relationships, you've been doing this for a very long time, HP is not a flash in the pan. How long can you reasonably execute agreements out into the future in this type of environment? Is it multiple quarters? Is it a year? Like is there any sort of rule of thumb that we can use to kind of think about how your supply agreements might work?

Yes. No, our agreements are 1 to 2 years in nature.

Even in this difficult environment?

Yes. And we'll focus on maintaining those long-term agreements, obviously. And we're qualifying new suppliers, too. And so we're dealing with the situation exactly how we've dealt with it in the past. And we've got our playbook.

And then on specifications, how are you thinking about what customer response would look like to, let's say, a normal device that they would buy last year for USD 1,500 now obviously has a higher price point. Is it just as simple as, hey, look, we're going to just spend the same dollars on a PC, maybe it has lower specifications. It's been de-spec to some degree? Or do you think depending on the use case when we were talking about this last night, customers really have dedicated use cases for each discrete group within their organization. And so they're a little bit less likely to maybe trade down, if you will, to a more de-spec device?

You know I'd say customers are -- the demand is going to be there. And so we're going to work to configure appropriately for our customers on what they need and price for what they're getting.

Got it. How does AI PCs applications benefit demand? Is it people just buying devices for the future expectation of AI? I guess this is like this is -- I know this is -- it's a difficult question. I'd love to get your perspective from your seat, though, because in our seat at UBS, we have Copilot. I can tell you we don't use it because it's not particularly great. It's more of the Win 11 refresh cycle that drove our upgrades. But are you seeing use cases from your customer lens where like, hey, this new device running, this new processor that HP has launched is the reason why we can make this particular application work for us and make us more productive or creative or whatever the case may be.

Yes. And I think that's what's really exciting because there's more and more coming every day for AI use cases at the edge. Microsoft just recently announced that they're enabling Windows to use AI PCs to drive more and more functionality at the edge. So writing capabilities, voice dictation within Windows. There are security companies, McAfee and CrowdStrike that are doing more and more detection and prevention at the edge with the AI PCs.

Zoom is doing more and more every day. And I think what's really exciting is we are purposely working with hundreds and a growing number of ISVs out there that are developing more and more applications that can be used on AI PCs at the edge. So I think that's what's exciting because there's so much more to come.

Yes. No, I'm looking forward to it. We just haven't had a particular use case to really play with it other than the usual third-party apps right now. So we're excited about it. Maybe just one more on PCs. When I think about the portfolio that you have today, you've done a really good job with AI PC. You've taken a lot of market share. You've done deals in the past. You brought in Polycom. How do we think about what the portfolio needs going forward longer term? Like how do you think about the next 3 to 5 years within PCs given Enrique has been front and center, I think, maybe a thought leader on sort of where AI PCs are going for the last couple of years. Like what's the next point of attach or what's the next vision for the PSG market for you?

Yes. Then I think that's what's really exciting because, number one, AI PCs are really exciting for the future. But beyond that, we're working on what we call the future of work, which is making it easier for employees to get work done and using the Poly acquisition that we bought, the -- to enable real-time connection no matter where you are, home, office, et cetera, and make it just a lot easier.

We're creating a workforce experience platform. And we're going to be doing more and more of that where we're going to, from a financial perspective, drive more and more recurring revenue across HP. And that's a keen focus for us for our future to add more recurring revenue to make us a little bit more stable, more predictable, higher margin. So I think it's an exciting future.

Alright that's a good segue into recurring revenue print. Over a long-term lens, the company has moved away from more transactional relationships to more recurring revenue. It's been, I think, a very solid success story over the last couple of years. Obviously, the macro environment today is a little bit choppy, and that's -- whether that's headwinds from economic weakness in regions, currency translation is creating a little bit of a competitive dynamic issue.

How are we thinking about the trajectory of some of the key underlying drivers of the print business? So like let's start with supply. So I think you've been pretty clear about how supplies is in -- it's a great margin business, but it's largely in secular decline. There are pockets of it like industrial print that are growing faster. How do we think about sort of the shape of that growth curve over the next couple of years?

Yes. So in print, I would say, first of all, there are great pockets of growth. Our key growth areas are doing really well in print. You talked about industrial print. It's been growing for its ninth consecutive quarter now. It's now $1.8 billion in revenue. Our 3D printing business is growing. And as we think about that subscription business, the recurring revenue, our all-in offering for print is growing really strongly right now.

And so we're up to more than 1 million subscribers. So very strong at this stage. The office market and the consumer market remain a bit soft. And we're focused on continuing to gain share. In office, we see the usage of our printers being very stable despite the fact that right now, companies are choosing to prioritize other investments over refreshing their print suite, but we think that's temporary, too.

In the consumer space, you're right, the Big Tank printers are growing. And I'd say we are focused on doubling down in that area right now with increased product offering with greater marketing and just the muscle of HP behind it. And so Big Tank is a real focus for us in the future. As we look at print right now, we do expect the market to continue to decline, but we expect to gain share, and we've increased prices in supplies, for example, that will help us grow or decline less than the market.

When you think about supplies from a supply chain perspective, obviously, tariffs earlier this year were an impact on print as well, currency rates. How do you think about the long-term impact of price, as you just mentioned, versus maybe supply chain, commodity inflation in print? I mean, obviously, print doesn't use a lot of DRAM and NAND, but obviously, there's other chemical compositions that go into supply. Is that -- is basically the point of price increases to offset effectively some degradation in utilization as well as rising raw material costs? Like how do we think about kind of the different vectors in print, maybe separate from DRAM and NAND?

Yes, definitely separate from DRAM. And I would say our basket of commodities for print is relatively stable. So the increased cost that we've had in print has mainly been tariffs. And yes, we've been purposely pricing as we need to for that. We had two price increases last year. One was right after the initial impact for tariffs and one was after the August increase in tariffs. And so we'll see that full year impact of the increased pricing helping us. And we've got our typical annual increases, too.

And so what is this -- okay, so what does that mean for hardware consumption? I mean, historically, hardware consumption generally led supplies. So maybe let me flip it around. What does it mean for -- so where are we given that you're more recurring? Like how dependent is supplies on hardware sales going forward versus where we were 2 years ago, 3 years ago, 4 years ago? Less dependent, I would imagine, given the recurring nature of a lot of the initiatives that you've taken?

Yes. In terms of our portfolio mix, we're less dependent. Supplies in general is based on the installed base.

Right.

And so it is impacted there. But yes, as we have more and more growing subscriptions and more and more recurring revenue, that clearly helps.

Minutia question. So obviously, your print business has a lot of foreign competitors. How should investors think about the dynamic in that marketplace, particularly given what is something a little bit out of your control, like foreign exchange rates with the yen, notably the yen, has an impact on their ability to price aggressively. How do you think about that competitively? What's the response that HP has historically taken? How are you thinking about it as we kind of move forward into your next fiscal year?

Yes, yes. So our Japanese competitors have had a decent benefit with the yen for a while now. As we look forward, we don't expect anything to change much with the yen. But we have been very focused just amidst that environment of maintaining pricing discipline and placing profitable long-term units in print, and that's not going to change.

Okay. All right. So since we have the CFO, I have to ask some financial questions.

Sure.

So we get asked often, when I think about your fiscal '26 outlook, you've taken into consideration supply chain DRAM, NAND, it's like a $0.30 EPS headwind. You've also guided free cash flow to, I believe, $2.8 billion to $3 billion of free cash flow, but that includes cash outlays for restructuring charges. So you're getting -- it feels like you're getting a little bit of a tailwind from working capital, which is very important to the model. How should investors think about across like a longer-term cycle, your cash flow conversion vis-a-vis your net income generation?

And obviously, maybe we strip out restructuring for a second because obviously, that's depressing it. But as long as the PC market is growing, is the expectation that you should have a positive cash conversion cycle and free cash flow should grow with net income, but at a spread above net income effectively?

Yes. So we recognize that free cash flow is really important, obviously, for us and our shareholders, and we're going to be definitely focused on growing that at least in line with earnings. And with the positive cycle that we have with the negative conversion for our PC business, hopefully faster. That's going to be the key focus.

And what's -- I know Antonio, Enrique, PC executives we've talked to print executives, they want money to invest, but you've been really good about paying a dividend, buying stock. How do you envision sort of the capital allocation priorities in '26, '27, '28, any change or still more of the same?

Yes. No, I love our capital allocation framework because it's very clear, and it's going to stay. We focus on returning 100% of our free cash flow to our shareholders over time as long as our leverage -- our gross leverage ratio remains under 2x and there aren't better ROI opportunities.

If I look at your new guide -- your initial guide for this fiscal year, based on our math, I don't think you've commented on this. We think your leverage is still below 2 turns of gross based on our forecast for EBIT and EBITDA. So would that suggest you're comfortable with sort of that cash flow usage profile in '26 at this point despite all of the commodity dynamics and other tariff-related headwinds that you're facing? Is that a fair assumption for next year?

Yes, we are. Our gross leverage ratio right now is a little bit above 2x. But we have purposely earmarked some cash on our balance sheet to pay down a debt maturity that we've got this summer that has really enabled us to repurchase more stock and still remain true to what we said with the rating agencies around how we will treat our balance sheet because we like our current credit rating.

And I got this question earlier, and it came through on the tablet. I know you've done select deals. You've done Humane, you've done Poly. Anything that kind of jumps out at you from a market exposure perspective that maybe investors should think about where it's a nice technological feature or add-on effectively in either of the verticals that you compete in right now?

Yes. I would say for M&A, we're going to be disciplined. And we'll -- for any deal that we might do or could do, it will need to be firmly in line with our strategy. It will need to be a good ROI use of our cash flow, obviously, in line with our framework. And recurring revenue is a key theme for us right now.

So the follow-up, which I was holding was, is future M&A, whatever that might look like, directly compared to the repurchase of your stock, meaning so when you look at every decision, is it versus what is the ROI that HP gets from retiring its own shares? Or is it incrementally different, meaning you could go over your 2 turns of leverage -- gross leverage target for something strategically critical to what you're trying to accomplish? I know you're targeted and selective, but...

Never say never. I would say, particularly where our stock is right now, we like repurchasing because a great ROI.

Like Poly is a good example, right?

Yes. Poly is a great example. And some -- there are M&A that temporarily, you can go above your leverage ratio as long as you're focused on paying it back within a short -- getting it back in line in short order.

Yes. So what I'd like to do at the very end of these conversations is ask you, what do you think the market is missing with regards to the HP story, right? You've had obviously, a challenging macro headwind, but you've taken market share. You've done a really good job from an execution perspective, taking a significant amount of cost out of the business. There's incremental costs, as you laid out earlier, coming out of the business. And despite tariffs, despite NAND, free cash flow is going to be very robust next year. So what do you think the market is maybe misjudging you or maybe doesn't quite comprehend with regards to the HP story?

Yes. I would say we are focused on delivering what we say we're going to do. And I think you've seen us do that. We're going to continue to do that. And as we look ahead, we continue to have growth from not just the Win 11 refresh, but the AI PCs and the more premium mix of our portfolio.

As we look at print, we're focused on continuing to operate really well in the environment that we're in there. You've seen us operate at the highest margins that we -- amidst our competitors across that business. That should continue. And we're going to, again, be focused on doubling down on Big Tank placement upfront, that profit upfront to help in the growth area there and help with the margins.

And then as we look ahead, we're going to be driving more and more of that recurring revenue. So I do think that the future of HP is despite the macro environment and the headwinds out there that we know how to operate and deal in, the future is really bright.

I have one final question I want to sneak in that came in. Obviously, you just mentioned, I think it was a response to your statement that you really like your stock here. And you said you set aside some capital to retire debt that's coming due in June. Why not go above the 2 turns of leverage? I mean, is that just because of the cyclicality of the timing of your cash flows in terms of quarter-to-quarter. Obviously, it's hard to predict from outside or looking in? Or is there anything structural about the 2 turns of leverage outside of M&A that keeps you at that level?

We like the 2 turns because we like the credit rating that we've got right now. And as we look ahead, we're going to continue to do the right thing and repurchase stock to return to our shareholders, but we're also going to be mindful of watching the memory equation and making sure that we're doing everything prudently. So we'll see.

All right. I think we're out of time. Karen, thank you very much. Thank you, everyone, for attending.

Thank you.

Good day, everyone, and welcome to the Fourth Quarter 2025 HP Inc. Earnings Conference Call. My name is Regina, and I will be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Alok Juyal, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's Fourth Quarter 2025 Earnings Conference Call. With me today are Enrique Lores, HP's President and Chief Executive Officer; and Karen Parkhill, HP's Chief Financial Officer.

Before handing the call over to Enrique, 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 1 year. We posted the earnings release and accompanying slide presentation on our Investor Relations web page 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. In addition, unless otherwise noted, references to HP channel inventory referred to Tier 1 channel inventory and market share references are based on calendar quarter information. For financial information that has been expressed on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations.

With that, I will now turn the call over to Enrique.

Thank you, Alok, and a special welcome to your first earnings call, and thank you to everyone for joining today's call. Today, we will cover our Q4 performance and 2025 full year results. We will also highlight the opportunities ahead of us expectations for fiscal year '26 and how we are continuing to advance our company strategy.

I want to begin by saying how proud I am of the progress we have made across our priorities, especially as we have navigated a challenging external landscape. We have driven sequential profit improvement the last 2 quarters, demonstrating our ability to quickly respond to the challenging trade environment we began to face in Q2. We also invested in our supply chain making it more resilient to mitigate future risks, which is core to the future-ready plan we laid out 3 years ago. Our performance both for the quarter and the full year underscores the strength of our strategy, the power of our portfolio and the tenacity of our team.

Let's start with our Q4 results. I am pleased to report that HP delivered its sixth consecutive quarter of revenue growth, up 4% year-over-year largely driven by Personal Systems gains in commercial and consumer. In Print, the market remained soft, but we delivered revenue in line with our expectations. Collectively, key growth areas grew double digit year-over-year and delivered gross margin above our core business. Non-GAAP EPS came above the midpoint of our guidance.

We continue to execute our future of work strategy. We are accelerating innovation with AI-powered devices that harness AI at the edge and create better together experiences across our portfolio. We are also empowering CIOs with the tools they need to drive transformation and we are leveraging the power of customer data to deliver meaningful insight. These priorities guide our innovation. For example, we introduced a new edge class device, the AI station powered by NVIDIA, which can run up to 200 billion parameter model. It brings highly performing AI compute to the data, instead of moving this data to the cloud for processing.

We also launched innovations that boost productivity. As for example, the industry's first 49-inch ultra-wide monitor that integrates AI noise reduction. And focusing on solutions, we are making printing smarter and more intuitive with new AI-driven printing and scanning features. These enhancements make printing easier by cleaning web and e-mail layouts, producing unnecessary pages. They also streamline everyday tasks, improving scan quality and auto generating file range.

Our workforce experience platform now uses telemetry from 48 million endpoints to manage 2.4 million connected devices and already remediate more than 12 million IT issues every month. With its new integration with Microsoft Security Copilot, we are bringing generative AI directly into IT management or faster, smarter responses to critical issues. Inside HP, we are adopting our AI power innovations first, leading as a customer zero. For example, by deploying AI PCs with curated applications, we are equipping teams to deliver better results with their productivity up 16%.

Now I will take a closer look at the performance of each business unit. In Personal Systems, revenue grew 8% year-over-year, above our expectations. We drove worldwide PC market share gains, particularly in high-value categories, including commercial and consumer premium and workstations. With 40% of the installed base still on Windows 10 at the end of Q4, the Windows 11 refresh will remain a tailwind for the PC market into 2026. And demand for AI PCs continues to accelerate, now representing more than 30% of our shipments this quarter. In our key growth areas for Personal Systems, strong performance in data science work stations contributed to double-digit revenue growth in advanced compute solutions.

In Print, revenue declined 4%, reflecting market softness and delayed purchasing decisions across all regions. Print units declined year-over-year but improved sequentially. We maintained our #1 share in print. Supply revenue performed as expected, and we gained share. Looking closer at Print key growth areas Consumer subscriptions delivered double-digit revenue growth and is just under $1 billion in annual revenue. We continue to see strong adoption of our all-in plan offering with subscribers up double digits sequentially. Momentum continued in Industrial graphics, which exceeded $1.8 billion in annual revenue. driven by the ninth consecutive quarter of year-over-year growth. We also saw double-digit growth in 3D driven by applications in drone and robotics manufacturing.

In Workforce Solutions, double-digit growth was accompanied by key wins in industries such as energy, technology and services. We added new customers from the world's 200 largest companies a testament to the strength of our sales team.

Turning to our full year performance. Revenue grew by 3% and returning to growth. Our key growth areas collectively grew double digit year-over-year and represented over 1/3 of our revenue for the year. Personal Systems revenue grew 6%, driven by commercial strength. Print revenue declined 4% as market weakness persisted, and we prioritized placement of profitable units. Applied revenue declined 2% in constant currency, and we gained share. Operating profits declined as trade-related cost during the year took a few quarters to be absorbed.

Aligned to our commitments, we executed with discipline in a challenging environment, driving a double-digit operating profit increase from the first half to the second. This reflects our ability to act decisively and accelerate supply chain transformation. HP continues to evolve highlighted by recent leadership transitions that underscore our focus on combining the best internal and external talent to drive our long-term strategy.

I am excited to welcome Ketan Patel as Head of Personal Systems; Manoj Leelanivas as Head of HP Solutions; and Prakash Arunkundrum as Chief Strategy and Transformation Officer to our leadership team. Each brings the rate capabilities, experiences and a proven track record of driving innovation and delivering results. I also want to thank Alex Cho and Dave Cho for their many contributions to HP. The leadership has been instrumental in strengthening our business.

Now let me address the trend of rise in memory costs and its implications for our business. Memory costs are currently 15% to 18% of the cost of a typical PC. And while an increase was expected, its rate has accelerated in the last few weeks. Our portfolio is less sensitive to the commodities market than it was during the last memory cycle. Over 1/3 of the PS gross profit comes from services and peripherals. We expect to mitigate the impact of these cost headwinds in the first half of our fiscal year with our inventory on hand an asset of actions across our portfolio and basket of commodities.

For the second half of the year, we expect Personal Systems margins to be impacted. Therefore, we are taking a prudent approach to our guide, while implementing aggressive actions to mitigate this. They include qualifying lower-cost suppliers and redesigning the portfolio for reduced memory configurations, accelerating our AI-enabled transformation to drive further cost savings and raising prices in close partnerships with our channel and direct customers. From a supply perspective, we are in a good position due to our strong relationships and long-term contracts with key suppliers.

Moving to fiscal year '26. Our plan is built on 4 pillars. First, in Personal Systems, we expect the revenue market to be up low single digit with Windows 11 Refresh, AI PCs and pricing as catalysts. Wel also expect to see a positive impact from the growth of premium devices including workstations and an increase of attach rate from services and peripherals. Our goal is to perform better than market.

Second, in Print, we expect to grow slightly faster than industry projections of low single-digit market decline. We intend to take share by doubling down on big tanks. We are increasing our marketing investments, driving new product and solution introductions are expanding globally our successful all-in subscription offering. We also intend to grow share in office with new products and solutions designed for SMB and enterprise customers, reinforcing HP's leadership in manageability, security and AI. And we intend to strengthen our leadership in 3D printing and further build on the momentum from labels and packaging to maintain our lead in industrial printing.

Third, in Workforce Solutions, we are focused on growing recovering revenue by expanding our software, security and services businesses. We are also scaling our workforce experience platform in key verticals, building on the strong momentum generated in fiscal '25. Fourth, driving an improved cost structure remains a top priority. We have demonstrated our ability to execute major transformations as part of our future-ready program, over delivering on our initial expectations.

And as we look ahead, we see a significant opportunity to embed AI into HP to accelerate product innovation improve customer satisfaction and boost productivity. We have launched a company-wide program led by an executive reporting directly to me. And we have a line of sight to drive approximately $1 billion of gross run rate savings over 3 years across product development, customer service and support and many of our operational processes. This will result in workforce reductions of 4,000 to 6,000 people over the next years. These are some of the most difficult decisions we need to make, and we are committed to treating our colleagues with care and respect.

We are planning to hold our Investor Day on April 23, where we will share the full plan on how AI is transforming HP. We remain confident in our ability to lead the future of work through technology. With a clear strategy and disciplined execution, we are focused on driving long-term value while managing short-term headwinds.

I will now turn it over to Karen.

Thank you, Enrique, and good afternoon, everyone. We are pleased with our results in Q4, delivering another quarter of solid performance to close out the fiscal year. Our teams executed well driving better-than-expected top line growth, fueled by continued momentum in Personal Systems and in our key growth areas. We delivered operating margins within our expected ranges for both businesses. and non-GAAP EPS slightly above the midpoint of our guidance range, underscoring our ability to meet or exceed our financial commitments.

We are also proud of the results we delivered with our multiyear future-ready cost plan. We surpassed our $1.4 billion savings target, ultimately delivering $2.2 billion in cumulative gross annualized savings. And on $1.2 billion of restructuring spend, we delivered a savings to charge ratio of almost 1.8x, well above our initially projected ratio of 1.4x.

On the quarter, we delivered revenue growth of 4% year-over-year, both nominally and in constant currency. In constant currency, EMEA grew 6% and APJ was up 9% on strong Personal Systems performance. Americas revenue was flat in constant currency reflecting demand softness in North America, particularly in commercial. Our gross margin at 20.2% was impacted by a higher mix from Personal Systems and increased trade-related costs which we partly offset with pricing actions and cost reduction.

Contributions from our Future Ready cost program and continued strong expense management drove operating expenses down as a percent of revenue year-over-year. These efforts also enabled our investment in key strategic and go-to-market initiatives aligned with our future of work strategy.

All in, our non-GAAP operating margin was 8%. And down year-over-year but improving almost 1 point sequentially, in line with our expectations. And our non-GAAP diluted net earnings per share was $0.93, representing a sequential increase of 24%.

Now let's turn to segment performance. We delivered better-than-expected top line growth in Personal Systems with revenue up 8% on increased ASPs and 7% unit growth. We outperformed the market in both consumer and commercial and continue to shift mix towards premium categories while maintaining disciplined pricing to help mitigate cost increases.

Key growth areas performed well, including in AI PC where we doubled revenue year-over-year. In commercial, we drove revenue and units up 7% and on continued momentum from Win 11 refresh and AI PC adoption. We also delivered strong performance in consumer, growing revenue 10% on 8% unit growth. We drove higher ASPs and share gains in consumer premium, in line with our strategy to rebalance our portfolio to a more profitable mix. And with holiday seasonality in consumer, we delivered revenue and unit growth of 17% sequentially.

As we had signaled, the actions we started earlier in the year, the leverage supply chain flexibility, reduce costs and maintain pricing discipline gained traction in the second half. As a result, we drove sequential improvement in our PS operating margins, reaching 5.8% in Q4, in line with our guidance. In Print, our results reflect a pricing environment that remains competitive despite higher industry costs and continued market softness globally as customers delay printer hardware refresh decisions. Against this backdrop, we continue to focus on profitable long-term unit placement, increasing lifetime value per customer and cost reduction actions.

We also drove solid growth in key growth areas in the quarter. Looking at the details. Print revenue declined 4% on lower supplies volume and market-driven hardware declines in both consumer and commercial. Consumer revenue was down 9% year-over-year and commercial revenue down 4% as higher ASPs were offset by lower volumes. Supplies performed as expected, down 3% year-over-year in constant currency. We continue to drive market share gains with favorable pricing that partially offset installed base and usage headwinds. For the year, supplies revenue declined 2% in constant currency, in line with our long-term range. And we delivered operating margin of 18.9%, in line with our guidance and at the top end of our range.

Now let me move to cash flow and capital allocation. We generated $1.6 billion in cash from operations and roughly $1.5 billion in free cash flow on the strength of the sequential growth in Personal Systems. Free cash flow for the fiscal year was $2.9 billion, consistent with our outlook, and we improved our cash conversion cycle quarter-over-quarter, driving days payable up through higher manufacturing activity. On capital allocation, we remain committed to returning approximately 100% of our free cash flow to shareholders as long as our gross leverage remains below 2x, and there aren't better return opportunities.

In Q4, we returned close to $800 million to shareholders through both dividends and share repurchase and returned more than $1.9 billion for the fiscal year. While we finished the quarter slightly above our target leverage ratio, we increased our cash balances, reserving sufficient funds to pay down 2026 debt maturities, which enabled us to buy back shares in the quarter. And if needed, as we move through the year, we can operate with higher cash balances in fiscal '26 to further reduce leverage with maturities in fiscal '27.

Our Q4 and FY '25 results reflect strong execution against challenging trade dynamics with continued sequential improvement as promised in the back half of the year. Looking ahead, our guidance reflects the increasing inflationary pressures predicted for memory costs, which we expect at this point to have an impact as we move into the back half of our fiscal year.

That said, we have a proven track record of managing challenges, and this one will be no different. We are prudently including these pressures in our outlook. Yet we remain confident in the strength of our organization and partnerships we've built with our suppliers to deliver the best possible outcome for our shareholders. We are also continuing to invest in driving transformation within the company. And we see a significant opportunity ahead to embed AI into almost all that we do to improve productivity, accelerate innovation and improve customer experiences.

As Enrique said, we have already made excellent progress in identifying key focus areas that are expected to generate approximately $1 billion in gross run rate savings by the end of our fiscal year 2028, and we expect approximately $300 million of those savings to be achieved by the end of fiscal 2026. We estimate associated restructuring charges of around $650 million over the 3-year period, which include roughly $250 million in charges to be incurred in FY '26. We continue to identify additional opportunities as part of this initiative, and we'll share those with you at our upcoming Investor Day.

Now turning to our segment outlook for FY '26. In Personal Systems, we are aligned with industry experts projecting the PC unit TAM to decline in units, but the revenue TAM to grow low single digit. Against that backdrop, we expect to gain share in premium categories, including AI PCs, workstations and new device categories and increase our attach of higher-margin offerings, all leading to revenue share gains. And we anticipate revenue to be stronger in the second half of the year, driven by normal seasonality and pricing as needed against rising costs.

On operating margin, we expect the PS OP rate to stay in the 5% to 6% range in the first half of the year. And as Enrique said, we are already taking decisive steps to manage commodity inflation. However, with higher memory cost increases impacting our back half, we estimate our OP rate for the full year could be at the low end of our long-term 5% to 7% range.

In Print, we anticipate a low single-digit decrease in the hardware market in 2026, with growth in big tank and industrial markets, offset by declines in traditional hardware. We expect to outperform the market as we execute our plans to gain share in big tank and higher-value office categories through new products and solutions and to expand our subscription business and deliver continued growth in industrial. We also anticipate supplies revenue to be down low single digits in constant currency within our long-term guidance range with favorable pricing and continued share gains. And we expect Print revenue by quarter to be generally in line with historical seasonality. We expect Print operating margins for the year to be in the upper half of our 16% to 19% range. while we continue to focus on profitable unit placement and disciplined cost management.

Beyond the segments, we expect corporate other and OI&E to be roughly flat year-over-year. And as is typical, we expect corporate other expense to be more heavily weighted in Q1 due to the timing of our stock compensation expense. With all of this, and including an estimated $0.30 impact from projected memory cost increases net of mitigations. We expect FY '26 non-GAAP diluted net earnings per share to be in the range of $2.90 to $3.20 and FY '26 GAAP diluted net earnings per share to be in the range of $2.47 million to $2.77 million.

For Q1, we expect non-diluted net earnings per share to be in the range of $0.73 to $0.81. And first quarter GAAP diluted net earnings per share to be in the range of $0.58 to $0.66. On FY '26 free cash flow, we expect to deliver between $2.8 billion to $3 billion. As typical, we expect the second half to be stronger than the first, consistent with our earnings and recognizing that our first quarter is typically lower, given the timing of our incentive payment.

Before closing, over the past year since joining HP, I have had the opportunity to not only learn and understand our businesses more deeply, but also reflect on key drivers of growth and value ahead. Across both Print and Personal Systems, we have a relatively small but growing base of services, subscriptions, software and products as a Service that are contractual in nature. And as we look to the future, we intend to drive greater growth in this important base of higher margin, more stable recurring revenue. So expect us to highlight this even more for you as we continue to focus on strengthening our company and increasing the value we offer to our investors.

Lastly, we are pleased to announce today that we are raising our quarterly dividend to $0.30 per share. This is the tenth consecutive annual increase since our separation in 2015 and reflects the confidence we and our Board have in our long-term outlook head. With that, I would like to hand it back to the operator and open the call for your questions.

[Operator Instructions] We'll take our first question from the line of Wamsi Mohan from BofA.

I guess to start, your free cash flow guide for next year is flat year-on-year despite the margin pressures you alluded to from increased memory pricing. What are some of the elements offsetting these headwinds in cash flows? And does the $2.9 billion in free cash flow include any cash restructuring charges? And I have a follow-up.

Yes. Thanks, Wamsi, for your question. We obviously remain focused on driving value to our shareholders through strong free cash flow. And like we're doing with our earnings guide, we're taking a prudent approach to our expectations there. particularly the recently projected increase in memory costs. So at this point, we expect our free cash flow to be relatively flat, as you said, with slightly lower earnings, and that's offset by improvements in working capital primarily due to the favorable cash conversion cycle we have with the expectations of our growing PS business. We also expect CapEx and restructuring costs to be down slightly year-over-year. And I would just say on free cash flow, as always, if we can do better, we will.

And yes, it includes the restructuring -- the funds of the restructuring activities. .

Yes. And we expect for the year the restructuring cost to be roughly $250 million.

Okay. Okay. Great. And then maybe Enrique, like we've seen plenty of memory cycles in the past. This one, it's fairly unprecedented in rate and pace of change. And I'm just wondering, as you think about the various strategies you're going to deploy to navigate this, how do you think about price elasticity in a somewhat weaker consumer market? How do you think about despecking? And any other sort of strategies that HP could deploy in terms of being able to raise price without sort of impacting the demand elasticity, if that's at all possible? Like what are some of the things that you're looking at executing to limit this impact to what you pointed at about $0.30 or so?

Thank you. So as you said, this is not the first time we go through a situation like that. So the team have plenty of experience handling the situation. I think the first thing that helps us in this situation is our scale. And by using our scale, we have today a good supply position, thanks to the long-term agreements and the relationships we have with many suppliers. And we are doing that also to qualify additional suppliers to mitigate this even further. We also can use the breadth of our portfolio to make sure that customers get the right configuration and to the scale in those cases where it's possible to balance company profitability with experience from customers.

Something unique that we have this time is something that I have been mentioning before, we see the Workforce Experience platform. This is a tool that we deploy to our commercial customers that allows AI to monitor the performance of individual users. And by using telemetry data that we have been capturing over time, we can make recommendations from what is the optimum configuration per customer, but this will help us significantly for those customers when we deploy the tool to make sure that they get the right solution and the right memory configuration.

And then what we have seen in the past in these situations from a demand perspective, and usually the more low-end categories, those that are impacted and by managing our portfolio and shifting demand to the areas where we think we will have more product available and better configurations is an important way for us to manage that. And then finally, of course, pricing will be another tool to mitigate the impact, and we will use this as soon as we can, given the contracts and the different relationships that we have.

Our next question will come from the line of David Vogt with UBS.

This is Brian Luke on for David. Just on the topic of higher memory prices, you talked about a number of actions you could take. Staying on the topic of pricing, now would you consider price increases across the entire portfolio? Or would you consider them more tactical in nature? And would you be able to quantify any price increases you'd be considering going forward? And then I have a follow-up.

Yes. I would say we are going to be looking at it case by case, country by country, category by category. But the impact on memory cost is significant. So I would say, it's going to happen across the board, but more selectively or higher or lower depending on specific situations.

Got it. That's helpful. And then in regards to the Windows 11 Refresh, you talked about us being roughly 60% the way through according to check, that's roughly in line, and you expect it to be a tailwind going forward in fiscal year '26. Do you expect it to be a tailwind for longer than that time period? And would you expect tariff considerations to be having an impact going forward?

So you read it right. We estimate that about 60% of the installed base have moved to Windows 11. We have seen the conversion happening faster in the enterprise space and also in North America. But the biggest opportunity now is going to be in SMB and in Europe and in Asia. And this is very consistent with previous processes. In terms of the tailwind, if you think about what has been the conversion during the last quarter has been about 10 points, but this can give you a prediction of for how long we think this is going to last for sure for the first half of the year, but probably beyond that.

We also have the catalyst of AI PCs being a continued uptick as we look ahead to -- we had about 30% or more than 30% of our shipments being AI PC in the fourth quarter, and we expect that to be higher next year, 40% to 50%.

Our next question will come from the line of Amit Daryanani with Evercore ISI.

This is Irvin Liu dialing in for Amit. I wanted to understand the rationale behind the company cost savings initiative that was announced today. Since you recently completed the -- you already recently leaded a Future Ready program. Was this new initiative more of a response to higher memory costs? Or should we view this as kind of a broader cost savings program in nature?

Yes. I actually started to talk about this in the last earnings call. So this was way before the memory cycle started. And this is really driven by the opportunity that we think AI is going to bring an to accelerate product development, improve customer satisfaction and also boost productivity. Two years ago, we started to do some pilots on how AI could help us to drive these things. And during the last 2 quarters, we have been shifting from pilots to specific initiatives in areas where we can have significant impact. What we have learned is that we need to start from redesigning the process. And once the process once we know how the process could be done using AI, using agent I can really have a very significant impact.

And this is why we think that really over the next years, this can have a very significant impact across the areas I mentioned before, faster product development, customer satisfaction and also productivity. And we have quantified productivity around $1 billion over the next 3 years. And this is really what we have deployed now and what we are working with the teams to deliver on.

Our next question will come from the line of Samik Chatterjee from JPMorgan.

This is Joe Cardoso on for Samik. Maybe I just wanted to follow up on kind of the PS momentum or PC momentum you're thinking about or seeing going into 2026. I was curious if you could just flesh out the conviction here, particularly as we're cycling past the bulk of the wind teen refresh. I know, Antonio, you talked about 60% or 50% plus of the installed base moved over. And so there's some headroom there to continue but interestingly enough, when you guys talked about the forecast for next year, it seems like pricing was a bigger contributor for the next year relative to this year, where I think units were bigger. So I'm just curious like where you guys are seeing that dynamic play out? And what's kind of the conviction behind it? And then I have a follow-up.

Yes. So the conviction comes from the same drivers that we have seen driving demand during the last few quarters. We have a installed base of PCs that need to be refreshed of all the PCs that were bought 4, 5 years ago. We have the opportunity driven by the change to Windows 11, and we have being that tailwind helping during the last quarter. As you said, the conversion has been run to 60% of the today. So we have still close to 40% of the installed base to be converted especially in SMB and especially outside of North America, and this will be a tailwind now for several quarters.

And we also see the opportunity to continue to improve the mix of AI PCs that has exceeded the expectations that we had for the year. So all these will be positive drivers. On top of that, our strategy is going to continue to be focused on premium categories as it has been during the last few quarters where we have made very significant progress, both in commercial customers, consumer customers and workstations, and we also have an opportunity to continue to drive attach of peripheral attach of services. So all these kind of will help us to drive revenue growth faster than unit growth in '26.

Got it. And then maybe a follow-up for Karen. So just curious if you could share any thoughts on how you're thinking about seasonality for next year. seems like a lot of moving pieces with the company cycling past the tariffs of this year, maybe the bulk of the Windows 11 refresh this year. and then kind of entering a dynamic memory pricing environment, just to kind of name a few of the things that are going on, obviously. Anything we should keep on top of mind relative to maybe first half, second half dynamics relative to revenues? I know you talked about the margin implications as you kind of cycle past some of the inventory that you built on the memory side. But any other moving pieces we should think about as we're thinking about our models for next year in terms of some of the different dynamics we should be considering just given that we've been in somewhat of a volatile or moving pieces environment?

Thanks, Joe. Happy to talk about that. So I did mention that we anticipate our revenue to be stronger in the second half of the year, and that's really just driven by normal seasonality as well as pricing as needed against the tariffs and the rising costs. When I say -- when you look at our margins, we expect our print operating margins to be in line with seasonality, where we see Q3 typically lower seasonally than the rest. And on PS, as we talked about, we expect our PS operating profit rate to stay in the 5% to 6% range in the first half of the year. But then with higher memory cost increases in our back half, we expect -- we said we expected our full year rate to be at the low end of our long-term 5% to 7% range.

So given that we could see Q3 and Q4 temporarily below that 5% range. But as you know, we're working to minimize that and ultimately mitigate the full impact. So if we can do better, we will. When you think about it from an EPS perspective, we typically have EPS more stronger in the back half -- but with the impact of memory in the back half of this year, you can think about EPS being more evenly weighted through the year. Hopefully, that helps.

And maybe let me add a couple of comments on the memory side. As we said in our prepared remarks, we expect the major impact of the memory cost increases to impact the second half of the year. In fact, almost no impact in the first half given the inventories on hand that we have I think it's important to have in mind that we are one of the first companies that are guiding for the full year and the impact we really see on the second half, we don't see it in the first half.

Our next question will come from the line of Michael Ng with Goldman Sachs.

I was wondering, Karen, Enrique, if you could just expand a little bit about the comment around the growing base of services, subscriptions and software that are more contractual in nature. Was that a comment more about Workforce Solutions or Print subscriptions? I appreciate the highlight. Just if you could expand on anything that you're thinking about in the future, that would be helpful and how you would want to grow that type of business.

Yes. It's a comment across the board. So we have seen very solid growth, for example, in the consumer subscription side of Instant Ink [indiscernible]. We mentioned that business is approaching $1 billion, which is really a significant milestone for these type of businesses. We have also seen very solid growth in the workforce solutions space, especially in PCs, PCs as a service that has driven very significant growth during 2025 and that we expect to continue to see in 2026. And also our software businesses are having very strong performance, and I will let Karen make a few comments.

Yes, I would just add that we're excited to drive even greater growth in value in the future with revenue that is less cyclical and more stable and higher margins. It's really an important focus for us as a company. And it means that as we innovate products and develop new business models around them, we'll be focused on driving more recurring revenue. And when we think about doing our capital allocation to, this is going to be a priority focus for us. But I would say it's not something that's going to change rapidly overnight. We see this as an important gradual transition, and we'll just continue to highlight it for investors.

Great. And if I could just follow up around the headwind from memory of $0.30 on EPS net of mitigations. What do you think the gross impact is and what's your confidence level on the mitigations? Could it be better or worse? And then just as a quick follow-up, are you also seeing similar kind of tightness on PCB and kind of inflation related to that?

Sure. So let me start the quantification. We have shared enough numbers that you can calculate. We have shared that the cost of memory is between 15% and 18% of PCs from there, you can calculate the gross impact that you will see is significantly bigger than the $0.30 that we are quantifying. And we have fairly high confidence in the actions that we have put in place. In fact, we mentioned that we have been conservative in the guide for the full year and that based on the actions I described before, if we can do better, we will be better. But given that we are guiding the full year and we expect to see the majority of the impact in the second half, we thought it was important to be present at this point.

In terms of other components, when -- this is the area where we see the biggest impact, memories and storage, the rest of the space, we are confident, and we don't see any shortages at this point. And as I said before, even in the memory and to pace, we are in a good position from a supply perspective. given the relationships and the contracts we have with our suppliers.

Our next question will come from the line of Asiya Merchant with Citigroup.

This is [ Mike Cadiz ] on half of Asia merchant at Citi. So my question is on AI PC penetration. So despite you hitting the 25% to 30% penetration ahead of schedule. How do you think that tariffs and now the elevated commodity costs have affected the expected trajectory towards the 50% in the coming years where you telegraphed?

So we continue to be very optimistic about the penetration of AI PC. And as I mentioned before, as we will be prioritizing premium categories to -- we will be working on the memory situation next year. The penetration of AI PCs, as I said before, is about 30% and today as at the end of the quarter and is really driven by the additional value this be bring compared to the installed base and the fact that our customers want to be ready as soon as applications start taking advantage of the capabilities of these products.

Last quarter, I mentioned the work that we are doing with software companies to leverage those, and this work has continued, and we have continued to make progress with the announcement that Microsoft made last week on the consumer side, the ability to manage PCs with voice. I think are going to be exciting, very exciting for our consumers. They have improved the tools that they have for other companies to take advantage of GPUs and MPUs in the devices. We have made progress with other software companies like Adobe in leveraging those assets with more local vendors like Rakuten or in Japan to take the models and the systems that they have in the cloud and bring them to the edge, an announcement we made a few weeks ago.

And we have also worked with smaller companies that drive very specific value, for example, in helping sales teams to be more efficient or in helping product managers to present better, all these are helping to drive adoption. And something we think very relevant is that we have deployed these solutions internally in HP with not only the PCs, but with accurate set of applications, we have seen up to productivity improvement, and this is a very important value proposition for us, but also for our customers.

And then as my follow-up, for both PC and Print, would you mind talking about the customer and market reception to the pricing actions that you've taken and whether or not it's different between consumer and commercial? And how you perhaps balance that with maintaining margins and share as well?

Sure. The majority of -- I mean, if I look at Print, we have done projections both in the consumer and commercial space. In the commercial space, probably because our -- most of our competitors are Japanese and they continue to have a very significant help from yen. We can see these changes happening across the board, and this is why we lost some share in Q4. It didn't happen in consumer. You didn't have any supplies where we grew our share, especially in supplies where we grow our share. And in the PC space, our price increases have been smaller because the impact of tariffs so far has been smaller. And therefore, we haven't seen a strong reaction one way or another. Prices have grown year-on-year, quarter-on-quarter, but less than what we have seen in other spaces.

And even with this pricing environment, you're seeing us have strong revenue performance, both last quarter and for the full year. We expect that to continue.

Our next question will come from the line of Erik Woodring with Morgan Stanley.

This is [ Maya Newman ] on for Erik Woodring. Maybe just to start to build on some of your comments regarding your mitigation tactics for the memory cycle and your supplier relationships. Could you quantify how many weeks of memory inventory you have on hand? And are suppliers willing to sign long-term agreements? And kind of just overall, where do you believe HP is most differentiated within the supply chain or has the greatest competitive differentiation versus years to weather this number cycle? And then I have a follow-up.

Sure. I'm not going to share the specifics of the week of inventory we have. But I said before that given the inventory we have today, we are fairly well in a fairly good situation for the first half of the year. So this helps you to understand that it's not going to have a short-term impact. In terms of long-term agreements, we have long-term agreements with our key suppliers and the scale, the depth of our relationships are key assets when we go through situations like this.

As you know, also, after COVID, we made a lot of work to improve our operational processes within supply chain, both in terms of supply and margin in terms of forecasting, and they will be very useful downwards. We need to go through to this situation because it's not only about getting the memory. It's also about getting other supplies that will work with memory like processors and it's about aligning demand to that. We did a lot of work during the last quarters of Cove to improve that. And the team is very experienced how we had to manage the situation.

Got it. And then last question for me. If we take a step back and think about your overarching strategy in print, how should we think about it going forward? I understand we'll probably get more details at the Analyst Day, but it's obviously a secularly declining [indiscernible]. So you're also seeing operating income decline in print as well on a dollar basis, which I mean a lot of actions around pricing, big ink, toner subscriptions, the graphics market are meant to protect. Is this a business where we should expect operating income growth? And if so, how do we get there on a sustainable basis?

Yes. As we said, we will talk more about this in our Investor Day in a few months. But the strategy that we have been executing during the last year is not changing. Our goal continues to be to capture more value per customer and reduce the number of unprofitable customers, which we have been doing during the last year. Our shift or our doubling down on being is a consequence of that strategy as well. We see a big opportunity to grow profitable units in that space, while at the same time, continue to accelerate and continue to drive the transition into subscriptions in this space.

And we have been making very good progress both on the supply side and are also integrating printers in our all-in program. In the office space, we see an opportunity to grow our share in profitable units and the new portfolio that we will be launching during 2026 and the work that we continue to do in cost will help us to achieve that goal. And then finally, on the industrial space, both especially in the graphic side is a business that has been growing during the last 9 quarters, and we expect it to continue to grow during 2026.

Our final question will come from the line of [ Mark Newman ] with Bernstein. Mark, you might be on mute.

Apologies. Yes, just following up a bit on the memory price environment. thanks very much for clarity on the $0.30 impact just clear though, you mentioned that's mostly on the back half. So presumably, it's -- do you think if you just do the math, $0.30 on or so annual earnings. So your impact is more than 10% in the back half. Considering, of course, you can pass through a lot of that with pricing. It seems like that should be less given you have quite a few months to correct pricing. So just wondering if anything I'm thinking about wrong there. This seems like it may be conservative from you on the $0.30. But let me know if I'm thinking about that wrong. And I also wanted to ask, does it have an impact on mix given how significant many prices have moved, I cut specs change average specs of what you sell change? Could that also impact the AI PC dynamic considering the AI PCs typically have higher specs?

Yes. Thanks for the question, Mark, and let me just talk about the $0.30 in the guide. I would just say, we remain focused on taking a prudent approach to our guidance. And particularly as we start a new year, we're setting our guidance at a level that we have a high confidence in meeting and hopefully exceeding. I'd say we're taking that same prudent approach this year with the rising cost of memory but we've already been implementing actions to mitigate. And I would note that we have a proven track record of managing challenges like this, and we are confident in the strength of our organizations and the partnerships that we've built to deliver the best possible outcomes. So while we have included that $0.30 in the guide, if we can do better, we certainly will. And your math is roughly right.

And then finally, in terms of configuration, as I said before, we are going to be prioritizing those units where we see more margin for the company. And what we have seen in other cases is where volumes are more impacted, but more in the entry space, where customers are usually more sensitive to price. And as Karen said before, we decided to take a conservative approach. We are guiding now the full year. We think the impact will be mostly on the second half and we are taking a lot of actions to mitigate that impact. But given how fast things have unfold during the last few weeks. Again, we thought it was better to be prudent at this age.

And that will conclude our question-and-answer session. I'll turn the call back over to Enrique for any closing comments.

Perfect. And thank you, everybody, for joining today's call. We remain confident in our ability to lead the future of work through technology, and I'm really proud of the progress we have made across our priorities. We finished 2025 strong growing profit from the first half to the second. In 2026, we intend to grow faster than the market. We have a significant opportunity to embed AI in everything we do and transform the company. The memory headwinds that we have been talking today, while material, are also temporary and we are taking action, and we have managed, as we said, also such challenges before, and we have a lot of experience on how to handle that.

So with a clear strategy and disciplined execution, we are focused on driving long-term value while managing these headwinds. Again, thank you for joining today. And for those of you in the U.S. We wish you a very happy Thanksgiving holiday. Thank you.

This concludes today's call. Thank you all for joining. You may now disconnect.

Thank you, everybody. Welcome to the HP fireside chat at the Goldman Sachs Communicopia and Technology Conference.

I have the privilege of introducing and hosting Karen Parkhill, who's the CFO of HP. Karen joined HP in 2024 from Medtronic where she had served as CFO since 2016. My name is Mike Ng, and I cover HP and IT hardware here at Goldman. We have about 35 minutes for today's presentation.

So first, Karen, thank you so much for making yourself available to us. It's such a privilege to have you here on stage with us.

Thank you, Mike. Great to be here with you.

Well, to start things off, maybe we can just do a brief recap. HP reported earnings 2 weeks ago. We saw strong PC refresh demand, a little bit of softness in print -- maybe before we dig into some big picture strategic questions, you could talk about some key takeaways that you'd like to highlight from the quarter.

Sure. Thanks for that opening questions. We had a really good third quarter. We delivered our fifth consecutive quarter of growth across the company and our sixth consecutive quarter of growth in our PC segment. The PC momentum has really been driven by the Win 11 refresh and the increase of AI PC shipments across our space. And we expect that momentum to continue through the end of this fiscal year and into next fiscal year.

We did see in Print it performed as we expected. We did see a little bit of softness in the office space, but we expect that to be temporary. And within both businesses, we performed with our margins within the ranges that we've given despite the impact of increased tariffs that we've been rapidly working to offset.

Great. Maybe just following up on that. You talked about continuing to expect growth in PCs. The company said that they expect mid-single-digit year-over-year growth in industry PC unit shipments for the rest of the year. Maybe you can talk a little bit about what's driving that industry outlook? And how does the macro environment take into consideration when you give that type of forecast?

Yes. So when we look at the overall PC market. We do expect that mid-single-digit growth in line with the industry experts. And I'd say it's driven by 3 important parameters. One, we've got an aging installed base that is being refreshed. And with that installed base, we've got more and more laptops out there, and those have a shorter lifespan. So that's helping as well.

Two, we've got the Win 11 refresh. And I'd say we've still got plenty of opportunity left. We'd say about 50% of the installed base out there has been refreshed, and so we still have plenty of room to go. And then third, we've seen an increasing mix of AI PCs across the shipments. And we had said originally that we expected to have 25% of our shipments be AI PCs by the end of this fiscal year and we actually saw it a little bit earlier in the third quarter, 25% of our shipments are slightly more than that in the third quarter were AI PCs. And we still expect 50% of our shipments to be AI PCs within the next couple of years.

And with AI PC, that brings a higher price and higher margin as well. It's a premium product.

Right. So the AI PC penetration hitting that 25% target earlier than expected, which has been great to see I was wondering if you could talk about whether or not the prospects and the implementation of tariffs have affected that. Did we see much in terms of demand pull forward because of the threat of tariffs, not only for the AI PC penetration, but just for the environment overall.

And are there any specific customer verticals where tariffs may have had an outsized impact just in terms of demand pull forward [indiscernible] in that?

Yes, we look at all of our data and trends to be honest, Mike, and we see very little impact of demand pull forward right now. And we said that in our second quarter, and we said it the same in our third quarter. So while I know that there's been talk about demand pull forward, really, our data doesn't show it.

Okay. HP recently took some price actions in both the PC and the Print portfolio, to offset higher commodity costs, some of which are related to tariffs. Could you talk a little bit about how those pricing actions have been received by the market? And any areas, whether product or customer types that are more price sensitive and how HP is exposed to some of those segments?

Yes. So obviously, with the increased cost of tariffs, we've been taking very decisive action. And that includes optimizing and moving around our supply chain first and foremost, and it includes cost reduction everywhere that we can. And then it does include increasing price. So we've been taking decisive action across both of our segments, both Print and PCs to increase price. And I would say our competitors are facing the same cost pressures and dynamics. So while it remains a competitive pricing environment, I do think that our customers do understand the need to increase prices. And so we're seeing our discipline across those price increases and us maintaining it.

Okay. Great. And going back to 1 of the key drivers of PC refresh, which is the Windows 10 end of life, that's supposed to occur, I guess, next month in October. I think the company has shared that slightly over 50% of the installed base has converted to Windows 11 to date. Maybe you could talk a little bit about the pace you see for the remaining roughly 50% to convert to Win 11 how many of those customers may potentially pay for some sort of license extension so that they don't refresh imminently, but how do you see that all playing out?

Yes. I would say the good news is that we're at 50%, and there's more to go -- and I'd say the pace of the refresh started up lower than I think we anticipated, but we've seen some pickup in the last couple of quarters. And now it's on pace, I'd say, with prior refreshes that we've had and seen. I'd say it's starting more strongly with the large enterprise, but moving down, obviously, to the small and medium businesses and into the consumer. And so I'd say there's more to go. And that, I think, is one of the -- but not only drivers of growth momentum, not just for the end of this fiscal year but into next.

Right. The aging installed base probably being the most important one of the 3 that you mentioned.

Yes, yes, and AI PC pickup.

Yes, yes. Okay. Maybe if we could double-click on Personal Systems margin, which is the segment that houses PCs. Last quarter, PS EBIT margins of 5.4% return to what you guys have talked about as the long-term range of 5% to 7%. How do you think about the drivers of margin improvement in the quarter, but also the key drivers of sequential improvement next?

Yes. So with the impact of tariffs that hit mostly in the second quarter, we took some really decisive action to offset that impact. And so as expected, we drove that sequential increase in our PS margins back into our target range of 5% to 7%. We expect those actions that we've taken to gain further traction in this coming quarter. And so we expect continued sequential improvement in those margins. And as we look ahead, we're focused on maintaining those margins within the 5% to 7% range.

That's great. And on the AI PC piece, as you mentioned, these are PCs with more content, comes with higher ASP, presumably more margins. They made up 25% of shipments last quarter. Could you maybe just talk about the magnitude of ASP or price increases you expect from AI PCs and what are really the key drivers of that?

Yes. So AI PCs are premium products. And so they do carry higher price and higher margin with them. We've said that we expect an ASP uplift to the overall PC category of 5% to 10% with AI PCs by the time we reach the 50% shipments within a couple of years, and we're on track for that and just expect that to continue.

Okay. Great. And maybe you could talk a little bit about like the demand driver for an AI PC. I think some people just wonder like why anybody would need that at this point -- how much in terms of software workloads happen on device relative to in the cloud? Or is this really more about future proofing, right? And if you're an enterprise, right, like you want to get the thing that will last you over the test of time, so to speak.

So AI PCs are a little bit about future proofing right now with enterprises because we see CIOs making that decision to refresh their installed base with AI PCs because they don't want to be outdated in a year or 2. But I'd say more and more, we're seeing more applications being developed that are going to be able to run at the edge, it's faster, it's more secure, it's cheaper because it doesn't require the increased cost for network and cloud. And so we're seeing it today.

We've got software from Adobe and Zoom that are running at the edge on the AI PCs. We've got CrowdStrike today that is using the higher NPU of AI PC to scan the memory and be able to operate more effectively and faster for its customers. So there's examples today, and there's more and more examples that are being developed as we speak, that are rapidly coming to market. And so AI PCs are the wave of the future, and that's the key reason why we expect 50% of our shipments to be AI PCs in the next couple of years.

Somebody has to pay for the cost of compute. So if you can put it into the device, all the better. Shifting gears, maybe we can talk a little bit about Print. HP has done a very good job of increasing the value-added services and home printing, right? And I think about some of the subscription services like HP+ and Instant Ink and Instant Paper -- maybe you can elaborate a little bit on the HP home print strategy and where you see this business evolving to in the long run?

Yes. Yes. So obviously, the home print business has been declining a bit. And we've been focused on operating at the most effectively and most profitably that we can. We've been focused on increasing the amount of big tank printers that we sell as part of our mix, and we expect that to continue. We've been focused on increasing our subscription base. We've got Instant Ink. Instant Paper all-in subscription, and we have 13 million subscribers globally right now, and it's ramping at a rapid pace. And we've also been focused on increasing pricing to offset the costs that we've seen, particularly in tariffs and of course, reducing costs everywhere that we can across our Print business.

Great. Maybe going back to some of our earlier discussion points around office print, some of the softness -- you may have seen in the quarter, if I recall correctly, it was some of the enterprise customers that may have deprioritized some of the print investments because of things like PC refresh, investing in AI when does HP expect commercial demand and print to stabilize and improve? And do you see the risk of potentially investments in enterprise print being crowded out by some of these things for some foreseeable time.

Yes. Thanks, Mike. I would say while we did see a slight decrease in office demand this past quarter, we do believe that's temporary. We did see companies, particularly larger enterprises choosing to prioritize other investments over print right now. But we don't expect that to be something that's long lived.

In fact, when we look at our usage data across Print, it's very stable. People are using the Print services. We expect that to continue. And eventually, you're going to need to refresh your installed base of printers -- and then as we look at the back-to-office momentum that is continuing around the world, we're expecting more and more enterprises to upgrade their print fleet as they welcome more employees back to the office period.

Could you comment a little bit about the competitive environment in Print there's been some pressure for some time, particularly from foreign competitors. How does HP balance market share and margins given the competitive intensity in Print?

Yes. Yes. print does remain a competitive environment. I would say competitors always make us better, too. So that's good. But despite the competitive environment, we're very focused on maintaining our discipline and running the business for the right profitability. And that's why you see us operate at the higher end of the margins across the Print space.

So in some cases, we may choose to seed some share in certain geographies to maintain our discipline around the competitive environment. And that's just how we're choosing to operate, I think, very smartly.

Okay. Great. Kind of relatedly on Print supplies, the company talked about higher supplies volume next quarter after a 4% year-over-year revenue decline this past one. How would you characterize the short- and long-term dynamics across printing supplies? And any color you can provide around just supplies mix and some of the nuances in toner versus ink that might be helpful for people to think about.

Yes. So on the supplies front, just in the recent quarter and this quarter, there's seasonality to it. And so we typically see lower supply sales in the summer months. And then we see it ramping as we move out of the summer and into the holiday season. And so that's just very typical, and it's what we saw last year and what we expect this year.

I would say longer term with the supplies business, we do expect a low single-digit decline because we do have a declining installed base. But again, we're focused on operating that business very effectively and focusing on optimizing the profitability with the hardware placements that we're doing and the supply is on top of it. And when we see headwinds like tariffs, we are going to increase prices. And we've done that, and we're maintaining our discipline.

Okay. Great. One of the key growth areas of HP is the managed services business, which continues to show very strong growth. Maybe you can expand about -- expand on some of these key growth areas for what traction have you found most meaningful from these categories? And do they drive margin improvement? When should analysts and investors see more of these growth areas contribute to top and bottom line results.

Yes, yes. So our key growth areas are designed to grow faster than the core, and they are higher margin. And so we like our key growth areas, and we've seen good growth come out of them for a while now. And this past quarter, we saw strong double-digit growth both quarter-over-quarter and sequentially in those areas.

And in the PS side, it's our AI PCs, it's our workstation business. It's our hybrid business. In our Print business, it's our subscriptions and our services and our industrial print and 3D printing, and we're seeing good growth from all of those areas actually and expect that to continue.

Great. Maybe just 1 last 1 on Print. One thing that's been remarkable is HP's ability to continue to grow Print margins certainly over time. And there's just been an incredible focus on managing costs within the segment. Could you just elaborate on some of the margin and cost opportunities within print and how much more runway there is to keep managing costs tightly into the segment to stay in those long-term margin ranges? .

Yes. I would say we are really good at execution and at discipline. And that's one of the key reasons that you see us operating so effectively at the higher end of the margins across the Print space. And I would expect that to continue.

As we look ahead, we see further improvement to our cost base. With the advent of embedding AI in almost everything that we do to make us more effective and more efficient, we've got more runway there. So think about it in our call centers and how we service our customers and how we credit -- look at credit and collections for our customers lots of areas that we have opportunity to both redefine our process and embed AI tools into those processes to enable us to be better and more cost effective.

I mean I think that's a natural segue to talk about the company-wide cost program, the future-ready savings plan, where HP has talked about exceeding the original $2 billion of gross annual savings by the end of this year. Once the program is done, do you see further opportunities across the organization? And where do you see those savings sitting in terms of the pockets of the P&L?

Yes. Thanks, Mike. First of all, I'm really pleased with that program and with the progress that we've made and the momentum that we had. The original cost savings target was $1.6 billion, and we've increased it twice to $1.8 billion and the $2 billion and we're well on track to deliver over $2 billion in cost savings by the end of this fiscal year. So pleased with how we've delivered that.

And those cost savings have enabled us to withstand and offset a lot of the headwinds that have come our way as well as invest in the future growth opportunities for the company. So it's been a really important program. I'd say as we look ahead, there are more opportunities. And it relates to this notion of embedding AI into practically everything that we do, and again, changing our end-to-end processes. So we do see more opportunity. Expect to hear more from us on this both on our fourth quarter earnings call and at our upcoming Investor Day this spring.

Great. Looking forward to getting the update there. Just on the other component of cost that's been very top of mind, tariffs. HP has done, I think, a very good job of mitigating the impact of tariffs on the P&L. I believe all products sold in North America were assembled outside of China last quarter. So could you talk a little bit about the company's efforts in mitigating the impact of tariffs, production ramps elsewhere oftentimes, leveraging existing partners and suppliers that you're using already? And also how you think about pricing as well in that context.

Yes, yes, for sure. So I've been really impressed with the speed at which and decisiveness with which our team has been operating in this tariff environment, I'd say we've done a nice job and are continuing to offset the decent impact that we've had from tariffs. And it's impacting each of our businesses a bit differently.

In the PC business, the tariffs that we've been dealing with are mainly the China tariffs that we've been moving quite rapidly to move our manufacturing and our supply chain outside of China. And by this past quarter, nearly all of the demand that we've been fulfilling in the United States has been manufactured outside of China. We've moved it to Thailand, Vietnam, Mexico, and the federal business that we have, we produced in the U.S. And so I'd say impressed with the speed at which we've moved around our supply chain.

In the Print business, we've been optimizing our vast supply chain and manufacturing network to offset the reciprocal tariffs that we've been dealing with in Print. And we've also been focused on driving our cost down everywhere that we can and then increasing price where we need to. And so we've been focused on offsetting the impact across both of our businesses.

And we've said that we've made continued sequential traction. Q2 into Q3, you've seen that improve in our margins. We expect further traction into Q4. And should we have more tariffs that come our way, we're going to handle it the exact same way we've handled it so far.

Could we talk a little bit about the working capital strategies that you've deployed either in anticipation of tariffs through strategic purchases or to support supply chain resiliency, which I think has been particularly top of mind for companies just given the disruptions in the supply chain and shortages that we've seen in the last several years, what's your philosophy around those types of strategic purchases? And how do you think about that in the context of your overall free cash flow?

Yes. So as we focus on offsetting tariffs, we use everything at our disposal. And increasing inventory in the short term has been something that we've done to help offset tariffs. And we've done it, yes, through strategic buys and through increasing our inventory to manage the moving supply chain and manufacturing network that we've been doing. And so you've seen increase in inventory, but we've offset that with improvement in working capital elsewhere and expect to do that for the full year. So while you've seen that increase in inventory we have a negative cash conversion cycle in our PC business. And as we ramp that growth, that clearly helps. We've also been focused on accounts payable, improvement there. And we're still expecting to deliver the free cash flow that we -- of $2.6 billion to $3 billion for the year.

Great. I do want to leave a minute or 2 for audience questions. But before I open it up, maybe I'll ask a little bit about M&A. The company recently acquired Humane including their AI-powered platform, CosmOS and intellectual property. Could you talk a little bit about just the M&A strategy that HP is pursuing? How do you think about acquisitions more broadly?

Yes. Thank you. Yes, we're really pleased with the acquisition of Humane that we made a few quarters ago. Not only did that enable us to have the platform of CosmOS, but it also gave us a very experienced software engineering team -- and we've been using that team to bolster our own team to really focus on developing the connectedness across our devices for the future of work. And so really pleased with that team and the traction we've been making there.

As it relates to M&A in general, we're going to be focused on M&A that fits our strategy to drive the future of work -- and we're going to remain very disciplined about it. We want to -- we have a very firmly stated capital allocation framework that says that we're going to return 100% of our free cash flow to our investors as long as our gross leverage remains under 2x and unless there's higher ROI opportunities.

So when we look at M&A, we're very focused on ensuring that it is a much higher ROI opportunity that drives the long-term value creation for our shareholders and you can just expect us to maintain that discipline. We're also focused on ensuring that whatever we acquire, we can execute really well against.

Right. Great. Why don't I see if there's any audience questions. I think we've got 1 back there. If you could just get a mic over to that gentleman, please.

Is there a sort of scenario or road map that can see the Print business return to growth over some sensible time horizon?

Yes. We've got pockets of growth in print right now and look at our industrial print business, which is roughly about 15% of our base, and it's been growing double digits, and it grew double digits this past quarter both year-over-year and sequentially. And that's the kind of business that prints labels for industries like the labels on our water bottles. And so that's a good growth.

We're also seeing good growth in our subscription business. I mentioned already, we expect that to continue. And so overall Print, while we see pressure, particularly in the home print segment and a bit of a declining installed base. We're going to be focused on managing that incredibly well. as you've seen us do. And we do think we have continued runway there to maximize profitability across that business.

Excellent. Well, to close things out, maybe you can just tie it all together for us, talk about some of the key priorities and strategic goals that you and the rest of the management team are focusing on over the next 1 to 2 years and how that ties into the long-term vision for the business.

Yes. Thanks, Michael. We see really good continued momentum, as I mentioned, in the PC business. And again, it's driven by installed base by Win 11 refresh by AI PCs. We expect that growth to continue the rest of this year, in the next fiscal year. So we've got good momentum, and you can expect us to continue to operate with discipline, particularly on preserving and improving our margins despite headwinds that come our way like tariffs, we're going to be focused on offsetting any of those headwinds as quickly as possible while continuing to invest in our future. We are very focused on shareholder value on paying back to our shareholders and on creating long-term intrinsic value of the company. So expect that to continue.

Well, Karen, it's been such a pleasure and such a privilege to have you on stage with us. Thank you so much for your time here today.

Thank you. Appreciate it, Mike.

Welcome, HP Inc. We have Enrique Lores here. Welcome to the all the investors to Citi's Global TMT day 1. It's already been a busy morning. It almost feels like the afternoon. I do have some disclosures to read on behalf of HP. So just bear with me.

Today's discussion includes forward-looking statements involves risks, uncertainties and assumptions which are further described in HP's SEC filings, including Form 10-K and 10-Q, HP Inc. assumes no obligation and does not intend to update any such forward-looking statements. For more information, please visit HP's IR web page at investor.hp.com.

With that, welcome, Enrique.

So you guys just reported, it was just last week. So we're asking all our companies a little bit about end demand. You sit here in calendar third quarter. What has changed from a demand perspective across your various end markets, let's say, compared to the start of the year when there was just so much uncertainty or tariffs? Just how would you characterize how the markets have performed relative to your own earlier expectations, let's say, 6 months ago?

First of all, thank you for having me here. As we said in the call, demand overall performed in a very similar way to what we were expecting. We have continued to see growth in the PC market. And we have seen [indiscernible] operating performance as we were expecting. In the case of PC, it's probably the biggest difference is that the consumer market was stronger than what we had anticipated, and this was reflected both in the market size, but also in our results.

And in the case of [ Grint ], again, overall also was as expected, but the office market was softer than what we had anticipated. So 2 small changes, but overall, similar performance than what we expected at the beginning of the year.

Okay. And then as you look, you guys at your typical analyst event, do share some long-term targets, both for PCs as well as [for print]. Given where we are in the cycle in terms of PC refresh, just help us understand where we are? Can you talk about the puts and takes towards that kind of growth expectations that you have for both PCs and print individually? Yes.

We will have our Investor Day at the early 2026, so then we will provide again some guidance for the coming years. What we have shared at this point is we expect PCs to grow -- to continue to grow mid-single digit through 2025 and to also grow 2026. And we expect the print market to slightly decline in '25 and to perform in a similar way in '26. These are at this point, the 2 trends that we have shared.

And again, we will be providing a much more updated you in a few months when we have our Investor Day.

Okay. And then let's just dig into PCs because that's been an interesting one. We've talked about AI PCs. Clearly, HP has been one of the market share leaders. When it comes to PCs, you guys see a lot of that, and you obviously -- you guys are also global. So just trends that you're seeing in PCs. Like is it really just the end of life that's driving refresh? Or are there other factors that are in place to kind of talk about the piece of growth that you're talking about, both mid-single digits this year and even into next year?

I think there are multiple factors driving growth of PCs One is if we look backwards in the last 5 years, there was a big increase of sales during COVID, and we are starting to refresh of the -- we're starting to see the refresh of these units happening now. .

On top of that, we are going through the transition from Windows 10 to Windows 11, and this drives traditionally has driven an increase of demand, and we are seeing it this year. And on top of that, we see the transition to AI PCs. And so let me talk a bit about each of them. In the case of Windows 11, the transition this time is going slightly slower than we have seen in previous transitions, but it's happening.

Our estimate is that we are slightly above 50% of the transition having been completed, which means this is going to continue to help us to grow in -- for the rest of '25 and at least early '26. So that's how we see this happening. In the case of AI PC, we see demand continue to grow. Our goal was to have 25% of our [indiscernible] AI PCs by the end of this year. We have done 1 quarter ahead of plan. So the transition is going slightly faster than we were expecting, and we think this is to continue through '26. Both have -- both changes are helping positively, and we think they are going to have an impact not only this year, but also at least in '26.

Okay. And then just to remind investors, when you talk about AI PCs or actually first, just the PC segment growth, mid-single digits? Is that units? Is it revenues? Is there an add-on because AI PCs drive higher ASPs revenue should be more than units.

Thank you. So yes, we -- when we talk about growth, we always talk about units. Well, Thank you for asking. Revenue growth is higher than unit growth, both because we see more growth in premium categories as AI PCs and also the growth of other elements that are driven by PCs like [indiscernible] or like services also helped to to have faster growth on revenue than units. But that's an important comment. .

Okay. And then just we had CDW just before you. And obviously, they are more in commercial, SMBs, education, public, which includes state and local, just -- are you seeing any differences or anything you can comment on, on PC refresh or even AI PC adoption across the various verticals?

Sure. I think several things. One is, we saw overall -- in North America and CDW is mostly an [indiscernible] comment, so to be aligned with them. We have seen strong growth across all commercial segments, government, enterprise and SMB. Probably the only exception has been education where the market has been softer than previous years. That's probably the biggest change. .

In terms of adoption and the transition to Windows 11, we are seeing faster adoption in the enterprise than in SMB. And this is something that traditionally happens. So it's not new, it's how these transitions happen, which means there is more opportunity in SMB in the coming quarters than what we have seen until now. But again, it is aligned to the models that we have.

Okay. And then what about from a geo perspective, geographic perspective? Is there any change or any differences you observe in AI PC adoption or Windows refresh across different geographies?

Not many differences. Performance in Europe has been very strong as well. Probably the only difference, which is not new, is the relative weakness that we see in China, given where the overall economy is.

This quarter, we have seen more positive impact of some of the consumer demand activities that the government has put in place. There have been significant investments in subsidies for consumer products that have driven demand, but when we look at the economy, we continue to see significant weakness that we don't see this significantly changing in the coming quarters.

All right. And then just a little bit on how you're thinking about pricing as it relates to not just commodity components, but also tariff related, just remind investors how you're looking at those tariff-related costs both in terms of migrate -- the actual cost but also in terms of migrating your supply chain to become -- and logistics related to that? How you're looking at pricing for your PC products as a function of [ air ] direct and indirect costs.

Maybe let me explain some of the changes that we are doing because of the changes in tariffs and then I will talk about pricing. During the last 3 quarters, we have significantly accelerated the changes that we have done in our supply chain.

We started this process 2, 3 years ago after COVID to build a more resilient supply chain. And what we have done is to accelerate this change. Our goal was to produce oil products for North America out from China by the end of the year. We accelerated that, and we are done. So by during Q2 -- during our Q3, we completed the transition, and we have moved manufacturing from China to Southeast Asia to Mexico and a bit to the U.S.

This gives us now a much more flexible supply chain than what we had before. We have the ability to move and to build product in many other areas of the world and optimize to mitigate the impact of the new trade situation. In terms of cost, of course, this creates some increase of cost that, first, we are mitigating by looking for opportunities to reduce cost of products or cost of structure.

We have accelerated our structural cost reduction plan, and we are going to deliver on the more aggressive [indiscernible]. And of course, in some cases, also we increased prices to compensate for that. With [indiscernible] this in Q2, we also did it in Q3, and this will have more impact over the months because it takes time to -- for us to change prices and for these prices to have an impact.

Okay. And then PC is a fairly competitive market. How do these price increases impact the way you're thinking about margins obviously positive? But how are you thinking about the share gains? Is this an opportunity? If you raise prices, I believe Dell has not. The [indiscernible] would have like how do you think about market share despite for the price increases?

Two things, our strategy has not changed, and we continue to be focused on profitable growth. Our goal is not to grow share for the sake of gaining share, is to drive profit and to drive growth. And what we see in the market is fairly consistent usually in the PC space when cost increases prices change and whether it's a higher lease price or whether it's lower discounts, all companies move and our expectation is that the market will be moving in this direction. Because there are many ways to control pricing, these are not only what you're doing on the spreads. .

Yes. Okay. When I just see -- if the audience has any specific questions. I have a whole list here. This is meant to be open fireside. So if you do have a question, please raise your hand, so we can bring the mic to you. No. We can continue. The AI PCs is interesting. I mean people want to know where are the use cases that you're seeing that's driving the need for an actual AI PC. I mean people talk about copilot, but copilot runs a lot in the cloud as well. So I know you guys have talked about being more efficient with tokenization, being reduced battery power, increase privacy, increased security, if you do AI on the PC on the edge itself. So just walk us through perhaps the use cases that you're seeing, that's really driving adoption of AI built into the devices itself.

[indiscernible] 2 different type of use cases. One is, let's call it, new applications, like what you mentioned, copilot or copilot [indiscernible] or some of the applications we have developed like AI companion that led customers to influence in locally. By doing [indiscernible] in locally, it is cheaper, as you said, it is more secure and also faster.

So that's one set of applications. The other set of use cases is driven by the same applications you use in your [indiscernible] PC but that take advantage of the new capabilities at PC have. In the call last week, I mentioned some examples, for example, [ CrowdStrike ] is now using the NPU capabilities to scan the memory in the PC locally faster, looking for virus, looking for anomalies.

That's capability that they can do only [indiscernible] AI PC that will bring significant advantage. Adobe and Zoom are developing their applications to take advantage of both the [indiscernible] and the GPU capabilities in AI PCs. So they can ran some inference in locally, which in the case of Adobe, for example, will reduce their cost in the case of Zoom, helps them to do some of the work that they were doing in the cloud.

They can do it locally, and they can do it with higher quality. And this is going to be a big driver of demand. So it's not only what new things you can do is more and more the same software applications you have been doing that -- you have been using traditionally [indiscernible] will [ from ] faster, better or at lower cost because you've seen AI PCs.

And this is our key message to our customers. If you're an enterprise and SMB, you expect the life of your PC to be 3 or 4 years. And if you are buying a PC now, you want to make sure that the PC will support the new capabilities that [indiscernible] will bring in the coming years. So you should be building an AI PC -- you should be buying an AI PC not a traditional PC.

Right. Just, enterprises or SMBs need to change things on the back end as well. So it's not just the edge itself. But are you seeing investments that they need to do to enable these applications that you're talking about to do things faster. It doesn't require...

It doesn't require changes.

It's independent because I know there's always investments going on there as well. But -- okay. All right. Just help us understand, you've talked about AI PCs carrying higher ASPs, obviously, but at the same time, they carry higher bond because there is more -- there's obviously an NPU in there as well now. So how does that -- how do you guys think about your margin trajectory and the targets that you have for margins as it relates to -- as you start to see more AI PC adoption?

We have not shared the specifics on margins on AI PCs. What we have offered is that we should be looking at the AI PCs as premium PCs. I mean this way, everything that you said for AI PCs is [ true ] for premium PCs. They have more expensive processors. They have more memory, they have better connectivity, this drives cost up, but also this drives price up, [indiscernible] better margins. This year, our expectation with AI PC. .

Okay. Is there something that's you need to the way HP is driving AI PC adoption that could drive sustainably higher market share than you've had in the past?

Well, in AI PCs today, we have higher share than what we have in the traditional categories. And there are many things that we are doing differently. I would highlight 3. One is the work with software companies. This is something, I think, fairly unique that we have been doing for some time that is now helping helping to drive adoption.

Second is, today, we have the AI PCs with the fastest and the strongest performance. So we are the only company that have 55 [ TPUs ], AI PCs, which is a strong differentiator. And third is security. Security has been for a long time, a key HP differentiator. In the case of AI PC, it's even more critical, and we are going to continue to invest on that front to make our AI PCs more secure than anybody else has in the industry.

Okay. Anything on the chip side of things? Because I know there's a lot more chip suppliers now are planning to enter the PC. Traditionally, it's always been Intel. And of course, we have [ AMT ], now we have, whether it's Qualcomm, I know NVIDIA has talked about, some presence there as well, not just in the supercomputer, but more in the mass adoption side of things. So just maybe help us understand how does the change in chip landscape impact your offerings or the SKUs? Or is there going to be more of them? Is it going to be more concentrated?

This is a very positive change for us. In a world where there are multiple microprocessor vendors, we have an opportunity to have a more differentiated offering and also to have a much stronger ability to negotiate that what we had when there is one sold to our [indiscernible] and 1 microprocessor. That was the situation 5, 10, 15 years ago. So that's a positive change. The -- I would say, the market is very dynamic, and we have seen AMD having a very strong offering in the AI PCs, probably in the [ x86 ] side, they have the strongest offer today.

And we have seen Qualcomm introducing ARM technology with very strong AI capabilities. And in both cases, we are leveraging those investments and creating a portfolio of products to drive and to support this new deal technology. In the case of Qualcomm, you're going to see us introducing a very complete portfolio of products in the coming months. The [indiscernible] will be attractive both for SMBs and for consumer. And with both AMD and Intel, we have a very complete lineup on both commercial and consumer products.

Okay. And then HP has always also been really good on the commodity side of things in terms of purchasing ahead. Obviously, you guys have a big business. So just any outlook on some of the commodity components as we look into the back half of this year.

Yes. We -- this year, we have seen an increase of commodity costs compared to where we were in [indiscernible]. And we think year-on-year, this is going to continue in the second half. We think especially [indiscernible] of memories both driven by the transition to new generations and also by just pure cost increases, we expect to see cost [ increases ]. To mitigate those, we do strategic wise. We have increased our inventories to make sure we mitigate the transition, but we see -- and we expect this cost to increase in the second half. .

And in what happens usually in space is this is affected in price. So when we talk about pricing increases, it's not only driven by tariffs, it's also driven by commodity cost increases.

Yes. And just if you can remind investors, as it relates to tariffs, I know PC is imported into the U.S. right now qualifying or Section 232 tariff exemption. Any change to that relative to -- I know you guys update your slides at the -- in the earnings call as to the impact of tariffs.

We -- I mean we -- what we do is we forecast based on what is -- what has been already decided. And this is why we are very clear on what are the assumptions that we're using. As you know, the 232 investigation is still open. We don't have a clear date on when it's going to be defined.

When it will be defined, we will see how do we need to adjust our plans. I think the key thing is during the last quarters, we have shown that we know how to respond. We have now much more flexible supply chain that we had before, we can continue to reduce our cost and we will. And eventually, if in some cases, we need to use prices to pricing to compensate, we will. But we need to wait until the [indiscernible] the final decision is made.

Any impact from pull forward? Like are people just buying ahead or that [indiscernible] people are just like we're buying what we need and sort of [ pain ] for making sure our capabilities are in place for the next -- until the next [ week ] for cycle?