Yahoo Finance editor-at-large and anchor Brian Sozzi speaks with HP CEO Enrique Lores on the outlook for the company after its earnings beat, rising costs, the COVID-19 impact on the supply chain and the decision to stop shipments to Russia.
BRIAN SOZZI: Joining me now is HP CEO Enrique Lores. Enrique, always great to get some time with you here. Let's start on the PC side of the business here. Consumer sales in PCs down 1%. Printer sales in the consumer side down 23%. Let's start on the PCs. Have we reached peak PC for this cycle?
ENRIQUE LORES: Well, first of all, Brian, thank you for having me here. We had a very good quarter on PCs. Very strong quarter. PC business grew 15%. Growth was driven by commercial. And what we see in PCs is that we have seen a tremendous growth of the market during the last two years. The market is more than $200 billion bigger now than it was before the pandemic. And we think the market is going to stay now at those levels for the foreseeable future.
BRIAN SOZZI: How much is a PC-- if I bought a PC now, how much more would it cost me than the one last year because of this crazy environment we're in?
ENRIQUE LORES: It's around 10%, 15% higher. Of course, depends on the model because some models have increased more. But I would say 10%, 15% more.
BRIAN SOZZI: Wow. Good thing I bought my PC last year.
ENRIQUE LORES: You need to think about buying a new one, Brian.
BRIAN SOZZI: Yeah. Of course, as the CEO of HP. But Enrique, we keep talking to you throughout the pandemic on the supply chain challenges. It feels as though we've been tracking this with you almost step by step. What's the state of the situation now?
ENRIQUE LORES: I think it's we have continued to make progress in executing the plan that we discussed a few quarters ago. And the results that we show today in PCs clearly reflect that. When we look also at the overall business, this is helping us to improve the mix, to really drive more volume to the categories where we see the strongest demand. And this is really what we have been doing. And we are seeing the results.
BRIAN SOZZI: Where are the shortages most acute? To the layperson out there, is it-- of course, we know the chips in the computer. Those are in short supply. But is it screens? Is it buttons on keyboards? Where are you seeing it?
ENRIQUE LORES: So, overall, we have seen an improvement. For example, on screens, that was a big problem a year ago. Now we are in a much better position. The current shortages are mostly in IECs. They creep in in the low-cost components, for example, USB-Cs, that we need for our connectors. This is one of the areas where we continue to see the strongest impact.
BRIAN SOZZI: The commercial side of the business was very strong, Enrique. Printer sales in commercial up 9%. Also strong in the consumer side of the business too, in terms of PCs. Up 26%. Why that shift? Does that reflect people going back to office settings and they need those more high-powered computers?
ENRIQUE LORES: This reflect both more people going to the office, and also companies and enterprises investing in improving the experience of their employees. Many companies want now to bring their employees back. And they realize that to get that done, they need to offer a better experience. And therefore, they're investing in both PCs and printers too to improve that.
BRIAN SOZZI: What types of printers are consumers-- or what type of printers are enterprise customers ordering right now?
ENRIQUE LORES: They usually buy laser printers. And we are seeing a shift from buying large A3 printers, large A3 copiers, to smaller printers that they can distribute more in the office because this delivers a better experience to employees.
BRIAN SOZZI: I caught your-- as you know, I'm an avid follower of you on LinkedIn and Twitter, Enrique. I caught your post on LinkedIn with regards to Ukraine and Russia. What are you telling your teams right now that are there? And what are they telling you about what's happening on the ground?
ENRIQUE LORES: Sure. Yeah. It is a very difficult situation. And the most important thing for us is really the humanitarian side. We have been in daily contact with our employees there and doing anything we can to protect them, to help them, to go through this situation. At the same time, of course, we are following the regulations and the sanctions from the US. We have stopped all our shipments to Russia. And we really hope that peace will be restored as soon as possible to the region.
BRIAN SOZZI: Let me get that. You have stopped shipments to Russia?
ENRIQUE LORES: We have stopped shipments to Russia. Correct.
BRIAN SOZZI: How big is that business for you? Is that a big needle mover?
ENRIQUE LORES: We will be quantifying in our earnings call that this will have an impact of about $0.03 of EPS in Q2. So it's a relatively small business. Remember, that our EPS guide is between 104 and 108. So this gives you an idea of the relative size. So it's small business, but still important to do it and to follow the regulations and the sanctions that the US administration has put in place.
BRIAN SOZZI: Very much a purpose-driven leader, Enrique. And what is it like for you in this environment when there's so much coming out your teams, really, across the world? Inflation, fears of a recession, now Russia and Ukraine. How do you keep it all together?
ENRIQUE LORES: Well, I think the most important thing is to be very close to the teams, to show empathy, because as you said, we keep going from one problem to another, from a difficult situation to another. And the key thing is that they see us close to them, they see that the role of the CEO is to support in everything that they have to do. And at the same time, I have a lot of confidence in the teams. They have shown how to manage very complex situations in the past. And I know they will continue to do that in the future.
BRIAN SOZZI: How do you think overall this year will be different for HP versus last year?
ENRIQUE LORES: Well, I think the most important thing is that we are making progress in building a more growth-oriented portfolio. This was our most important strategy that we shared in our investor day. And we are really making good progress. This quarter, our growth businesses grew double digit. Some of them grew 20%, 40%, 20%. And we are on the right track for the growth businesses to surpass the $10 billion mark that we shared with investors in October.
BRIAN SOZZI: Lastly, you also raised your full year earnings guidance. What does that include? Does that include more optimistic outlook that the supply chain challenges you were just talking about, does it end? Does it lessen? How do you see it?
ENRIQUE LORES: Well, this reflects the strong momentum that we have and the progress that we are making also in the growth businesses. And this really is why we decided to raise guidance. We delivered a very strong Q1, where we overdelivered by $0.08. And we are raising both the year and the guide for Q2.
BRIAN SOZZI: All right. I promise you I will go searching for a new computer. I may not need one. But I don't know what HP is selling nowadays. So I will go on there, and I will look for a new computer, maybe a printer. Enrique Lores, always good to see you. Stay safe. We'll talk to you soon.
ENRIQUE LORES: Thank you.