Great, we'll go ahead and get started. 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 visit HP's IR website at investor.hp.com. With that said, welcome to the HP Fireside Chat at the Goldman Sachs Communacopia and Technology Conference. I have the privilege of introducing Enrique Lores, Chief Executive Officer at HP. Enrique has been at HP for nearly 35 years, and prior to taking over as CEO in 2019, he served as president of the printing business, helped to architect the separation of HP in 2015, and held multiple roles in sales and customer support. My name is Mike Ng, and I cover HP and IT hardware here at Goldman Sachs. We have about 35 minutes for today's presentation, inclusive of Q&A. So if you have any questions at any point during the session, please feel free to raise your hand, and we'll get a mic runner over to you. First, Enrique, thank you so much for participating. No ... and being at our conference. It's a pleasure. Thank you for having me here. HP is a leader in PCs and printing. Would you talk about the three-to-five-year vision for HP? Discuss the areas that you're investing in, the growth opportunities that you see, and also some of the challenges that you might be managing right now. Sure. So as you said, today, we lead both in Personal Systems and Print. Both of them are large markets, where that we expect will continue to grow in the coming years, despite of the challenges that we're seeing in the short term. We have articulated a strategy where our goal is to maintain our leadership in the core businesses, while at the same time, we are growing into five key adjacencies, where we see a lot of opportunity to grow. These adjacencies are really supported by trends and changes that we see in the market. For example, we believe that Hybrid work is here to stay, and it is opening us a big opportunity, what we call Hybrid Systems, enabling people to work from home and from the office. We think gaming is gonna continue to be a big trend, so we have a one of our growth businesses is, is gaming. We also see a lot of opportunities to grow in the industrial space, and one of the growth opportunities we have is both industrial printing and 3D. So really what we have is areas where we see opportunities to grow because the market will grow or our share will grow, that are really supported by big trends in the industry. Great. That's a really good overview. I did wanna have you just describe you know, what happened in the last quarter, and if you could give us a little bit of a postmortem. You know, what are you seeing in the demand and pricing environment now that may have been, you know, different several months ago? You know, how have the, you know, industry recovery trends been in PCs and printing, respectively? Yeah, so we just have had our earnings announcements last week, and for the previous quarter, our Q3, we delivered sequential growth on revenue, operating profit, EPS, and free cash flow. Our results in terms of EPS were in the midpoint of our guide. So we did what we had said we were gonna do. At the same time, given the trends that we see in the market, especially in terms of pricing, especially in terms of pricing for PCs, we decided that it was important to be more conservative in our guide for Q4, and we lowered the guide versus the guide that we had before. Despite this change, we think that the market is going to continue to recover. Our Q4 in the midpoint is still stronger than what our Q3 has been, and Q3 was stronger than Q2, and Q2 was stronger than Q1. So we see an improved trajectory over the year, but we also need to acknowledge that the environment continues to be fluid. Specifically, we have seen, as I said, more pressure on PC prices than we were expecting. We also have seen lower demand in enterprise and China versus what we were expecting, and the combination of all these things drove the change of guide. Great. I'd like to dive in a little bit deeper on what you're seeing and what you're expecting in the industry PC environment and the PC TAM. You know, obviously, the industry enjoyed a tremendous uplift in PC demand in 2021, and we saw a subsequent normalization from that very elevated level in 2022 and 2023. So, you know, what are your current expectations around PC shipments, you know, this year into next? Will the install base be larger than it was pre-pandemic? So if we-- our estimation today is very similar to kind of what other industry analysts are saying, is that the PC market in units in 2023 will be similar to what it was in 2019. It will be, though, significantly bigger in pricing, in revenue or in dollars, because average selling prices have significantly increased, driven by usage and the type of products that are being bought today. We think that when we look at the future, and we will be sharing much more details in a few weeks when we have our Investor Day, the market will grow in units in 2024, so we will start seeing a recovery from where we are today. And this will be driven both by the need of upgrading technology, be driven by AI, the need to upgrade, continue to upgrade systems, the age of the install base. All this is gonna help to drive growth on the category going forward. Great. You were asking also about the situation today and the situation on channel inventory. We have done very well reducing our channel inventory. Except for Chromebooks, we are now back to the level where we should be, and Chromebook is really driven by a pull-up of demand that happened at the end of the quarter. So it's something that will be sold or is being sold as we speak, but our channel inventory has been normalized. We still see high channel inventory in the market, and this is why we expect pricing to continue to be very aggressive. Great. If we could just dive a little bit deeper into the discussion around PCs and, you know, be nuanced around commercial versus consumer. You know, last year in fiscal 2022, I think commercial customers made up about 67% of Personal Systems Group revenue. The commercial mix continues to increase, though some of that is due to contributions from Poly. So just on commercial, could you just talk about some of the outlook and trends in commercial PCs and, you know, highlight some of the areas that are differentiated relative to consumer? Sure. I, I would start by saying that our goal in the PC space in the overall company is to grow profitable share. So we really don't care about share of the, the share that we have in the different segments. We care about share that deliver, delivers operating profit. And as a consequence of that, commercial is a very attractive segment for us because has, in general, higher margins than consumer. And this is why, in terms of share, sometimes we comment that we have the number one position in commercial, because reflects our focus on, on operating profit and in, in really driving the, the attention and the focus of the company in this direction. In terms of the dynamics that we see in commercial, it's clearly a very large install base, clearly an install base that has been aging. We have seen a slowdown of the refresh process during the last two or three quarters because companies are being more conservative in managing these investments, but that's an installed base that will have to be refreshed sometime in the coming quarters. At the same time, we see a lot of opportunities to accelerate that, not only with the refresh of Windows that happens periodically, but also because of the innovation and the opportunity that AI is going to be bringing in this space. We are working, as we have said before, to integrate AI capabilities into PCs, to make sure to enable customers to run AI applications locally at the edge. This brings significant advantage for our customers from a speed perspective, from a cost perspective, from a security perspective, and this also will help to drive demand in this category in the coming quarters. Great. Yeah, and as you mentioned, you know, there are some delayed refreshes for the time being. But what are you seeing in, you know, overall enterprise IT spending trends? You know, how does that affect your outlook for, you know, what's happening in commercial PCs over the next 12-24 months? Like, when does it get better? Yeah. What we have seen in the short term is a slowdown of demand. The way it is, we see that is, deals continue to be open, we continue to win them, but then the time it takes to get orders of those deals has been extended. We also think that our demand is being impacted by the slowdown in, of hiring that has happened in many companies, 'cause when people join the company, they need to give them new PCs, new equipment, and clearly this is also one of the drivers of, of the impact. But again, as the years will go, we expect that all this will start growing again, and this is why at the overall PC space, we expect growth in 2024 versus where 2023 is going to finish. Great. That's very helpful. To round out the discussion around commercial, I wanted to ask about Poly. You know, HP acquired Poly in August 2022 for $3.3 billion of cash and the assumption of debt. You know, Poly helps with video conferencing solutions, cameras, headsets, voice, and software to improve workplace productivity. Could you talk a little bit about, you know, how the environment may have changed in the last year and a half? How Poly is performing relative to your expectations? And, you know, really, what's the long-term opportunity and the potential synergies of the Poly acquisition? Sure. I would start from the last question. Yes. Well, the reason why we did the acquisition is because we think that hybrid work is an important trend, and it's a very big opportunity for us as a company. And therefore, it's important to have the complete portfolio that customers and consumers will be requiring to work efficiently from both home and the office. With the acquisition of Poly, we got a very strong portfolio of video conferencing solutions, a strong portfolio of cameras, strong portfolio of headsets and mics, which really complements very nicely the rest of the solutions that we already have. So from a strategy perspective and opportunity perspective, we continue to see the need and the opportunity that this is going to bring to HP. At the same time, there is also a big opportunity to innovate. I'm sure all of you have been in meetings where some people are in the room, some people are connected, and we know how painful that experience is today, and our innovation is gonna be making that much easier, integrating the video conferencing systems with PCs, with mics, and really managing that as one system. So the opportunity there clearly grows in the future. At the same time, as you said, things have changed a lot in the last 18 months. We did the acquisition right before the Russia war started, so this was right before that, and clearly the overall market size in the short term has been impacted. You can just see, look at the results from some of our competitors. Of course, the results of Poly are also being put under pressure. But as I said, the opportunity continues to be there, and from a growth, long-term growth perspective, we really think it is still a good asset we have that is gonna help us to accelerate our growth in these categories. Switching gears to talk more about consumer, which made up about a third of Personal Systems Group revenue last year, in fiscal 2022. Maybe you could just expand a little bit more about the end demand for consumers, some of the key factors that may be impacting demand, whether that's, you know, macro, hybrid work, the refresh cycle, notebooks versus desktops, that sort of thing. Sure. So overall, I would say similar to commercial, the overall demand in consumer is also impacted by macro. But as we said a quarter ago, we are seeing the demand strengthening in the second half of the year, and it started to follow normal seasonality, which we expected it to follow. In fact, in Q3, if anything, consumer demand was slightly stronger than we were expecting. So that recovery in consumer has started to happen. And some of the dynamics are similar to what I was covering for commercial. We see opportunities to, or the need for consumers to use PCs more to communicate and to work. And something that we monitor closely is the time people spend in front of PCs, and that amount of time is growing, which indicates the higher need to use PCs and therefore the opportunity for demand. Also, this quarter, we have seen a recovery of the gaming business, which is one of the important segments within consumer. And that also, from a margin perspective, is relevant because configurations tend to be richer in gaming than in other parts of the market. Great. And maybe you can just comment on, you know, demand from other verticals beyond gaming. Like, what are you seeing in education and in healthcare? You know, are there any nuances in terms of verticals that have seen more stability and strength? I mean, 2, 2 segments or 2 verticals where clearly we are seeing strong demand coming back is education. We saw growth of education or recovery of the education opportunity in the last quarter. And another vertical where we see, in many countries of the world, growth is in the defense space. More governments are investing in those categories, and therefore there is an opportunity for us to grow. You mentioned that AI was an opportunity to, you know, pull demand through, as channel inventory normalizes. I was just wondering if you could talk a little bit more about the growth in AI and generative AI applications, and how that could be, you know, a driver of PC demand. Do you see that more in the commercial space or consumer space or both? Yeah. If we think about where we see the AI demand today, it's clearly happening in the cloud, and you are seeing many companies really growing very aggressively in that space. We see an opportunity to grow because of AI will also be run at the edge, and what we are doing is integrating into our computers AI processing capabilities, whether are TPUs, GPUs, neural processors. Next generation of PCs will be integrating those technologies, and this brings three important advantages for our consumers. This brings an important advantage in terms of latency. If you are running an application and you need a fast response time, running that application in the cloud will slow you down. And, for example, in gaming, and most of the key gaming companies are gonna be introducing games with built-in AI capabilities, those applications will run much more efficiently in the edge in PCs. Second big opportunity is driven by security. Today, if you are an SMB and you want to run an application that will combine your private data with AI, you need to upload that to the cloud, and many SMBs are not gonna have the funds to create their own instance in the cloud to be able to run it there. If you run the application locally, you will be able to do to take advantage of your private data. And finally, is cost. Running AI applications on the cloud is significantly more expensive than doing it locally. And both for big service providers, but also for companies, the opportunity of reducing that cost is going to be very relevant. What we are doing is developing the technology and, at the same time, working with all the key ISVs and the key applications that are building those to make sure that our systems will really deliver great performance in these new solutions. Great. That makes a lot of sense. Changing gears to print. You know, clearly there are some secular tail headwinds that make the category kind of challenging. But there's also a lot of HP-specific initiatives that have gained a lot of traction: HP+, Instant Ink, Big Tank. Could you just expand on those a little bit more? Talk about some of those initiatives that you put in place to help drive you know, strength in print. And then if you could just categorize the printing industry as a whole, that'd be helpful as well. Sure. So I think, the printing business overall is going to be a stable market for the foreseeable future. Within the overall market, though, there are different trends, different segments. There is one segment, which is home printing, where that has been declining during the last years and that we expect to continue to decline. Another big segment is office printing. It declined through the pandemic, but now is stable or slightly growing. And then we have what we call industrial printing that we expect will continue to grow in the coming years. So a lot of our work has been to make sure that we can grow in the segments where there is growth, and industrial printing is a good example. Then that we look for opportunities to optimize our profitability in the segments where we don't see growth happening, and this is what we have been doing in the home space. This is why four years ago now, we launched what we call the HP+ category or the HP+ business model, where we are trying to change the model, the business model and make more money on hardware, which and not reduce our dependency on supplies. And we have seen very fast growth of this category during the last four years. We have also focused in capturing, offering more value per customer to customers, and then capturing more value over the life of our customers. And we have been driving a significant shift of our business model to subscriptions. This is what we call Instant Ink, that has had very strong growth during the last years. Building on Instant Ink, now we are starting to add additional services. A few quarters ago, we launched also a paper program. So if you are an Instant Ink customer, now you can also get paper delivered at home, and that's another way to offer more value to customers and for us to capture more value from them. This clearly showing how we are gonna be managing this category going forward. Great. Could you talk a little bit about the competitive environment within Print? You know, what are you seeing from a pricing perspective and anything that HP can do from a company-specific initiative to address some of the competitive concerns? Sure. I think the major dynamic we see in Print from a pricing perspective is actually driven by currency. Many of our key competitors are Japanese, and if you look at the exchange rate between dollar and yen, yen is at probably one of the lowest positions it has been in a very, very long time. And therefore, this gives them a strong short-term cost advantage. So what we are doing is, first of all, as I said before, our goal is not to grow share. Our goal is to grow profitable share, and especially in the case of printing, is to reduce the number of unprofitable customers. 'Cause when we sell a printer, we are making an investment, and if this customer is not using this, that printer in the future, we are losing money with that customer. So we are really focused on reducing that. As a consequence of that, we are really being very careful of how aggressively we price our units and how aggressively we go after some of the very low-end products, which many of our competitors are focused. We also announced last week that we see an opportunity to accelerate some of the cost reductions that we had been working on for some time, to be able to respond more aggressively to this situation, and it's part of what we are doing to see how can we reduce our cost structure so we can compete and make money in more opportunities. Great. How do you think about some of these company-specific initiatives like Instant Ink and Big Tank and paper, when you consider the margin profile of the printing segment? It's obviously a segment that has done really well in margins. You know, are margins potentially structurally a little bit higher because of all these initiatives? Just, you know, how are you thinking about that? We see both tailwinds and headwinds. If I think about pricing, we think it's gonna be a headwind for some time. Also, the fact that we expect the supplies business to decline is going to be another headwind. On the other side, the work we are doing with business model, changing the business model, is going to be a tailwind for us. The more we shift our business to subscriptions and contracts is gonna be another significant tailwind for us. Because when we look at profitability per customer, we make more money per customer when it's a customer in the subscription program, especially if we start adding additional services. And then some of the growth businesses, like industrial, are also accretive from a profit perspective. So we see this balance of headwinds and tailwinds. Overall, our plan or our estimate is that the range, the operating range for Print will be in the 16%-18%, lower than what it is today, but aligned to the guide that we have been providing for a long time. Great. That's very clear. Just while on the topic of things like cost savings, HP has demonstrated a tremendous amount of discipline in managing cost structure, and, you know, you're embarking upon the Future Ready restructuring plan. Could you just talk about the you know, momentum of these initiatives? How much more opportunity is there for HP to manage costs through, you know, potentially a down cycle? Do you see more incremental savings beyond what you've laid out for Future Ready? Yeah. First of all, we are making very good progress executing the plan that we announced last year. Our goal is... It's a three-year program. The goal was to deliver 40% of the savings this year, and we are on track to deliver that. At the same time, having been in business for a long time, I know there are always opportunities to reduce cost and to reduce cost in the right way. It's not about cutting investment, it's not about, really, damaging the future. There are always opportunities to do things better. And during the last months or quarters, we have seen all the opportunities that, for example, AI is going to bring. Some of them we had in the plan because we had an aggressive part of the plan coming from digitizing the company in a more efficient way, but there are also areas that we are now working on that we think will be bringing more value, more savings in the future. Great. If I could just talk about the consolidated business for a moment. I was wondering if you could just describe whether you're seeing diverging of performance across different regions. You know, and this is both PCs and Print. You know, are some regions doing better than others? You know, what are you seeing, you know, from a geographical- I would say overall, the demand that we see is soft across the board. If I want to go one level below and see or discuss some of the nuances, in the case of PCs, we have seen some recovery in Europe and North America during the last quarter. At the same time, we have seen clearly a weaker market in China than we were expecting, and that's probably the biggest difference that we see. In the case of print, the dynamics I was explaining before about aggressiveness from our competitors are happening worldwide, but we are seeing some recovery, especially of the office business, compared to where it was a year ago, driven by more people coming to the office. Okay, great. And maybe just one more on printing. You know, you talked about the strength that you're seeing in industrial. You said it was margin and creative. I'm just wondering if you could talk about some of the secular drivers there, you know, the strength in the 3D printing business. You know, how do you think about the magnitude of that industrial and 3D opportunity? Sure. So I think, first of all, they are long-term growth opportunities, but also in the short term, as the overall industrial segments have been impacted, these are segments that this quarter were impacted by macro. So I want to make sure that's clear. I think the growth of these categories is driven by the opportunity of doing or building digitally products, whether are physical products or documents, that until now were done using analog technologies. And really, it's driven by the continuous development of technologies that we do. We continue to build presses that are able to print faster with lower cost, and therefore we are able to capture more jobs that until now were done using analog technologies. And this is also driven by expanding into more segments. We are growing in the label market. We are growing in the flexible packaging market, which are areas where, until 2, 3 years ago, the penetration of digital was, was very low. This is why we-- this is-- there is still a large number of pages that are printed using analog technologies, so as from a long-term perspective, the opportunity is, is there. Great. I do want to leave time for audience questions, so maybe I'll just sneak one more in. But if you do have a question, just raise your hand and we'll get a mic runner over to you. On capital allocation, you know, I was just wondering if you could talk a little bit about your appetite for M&A. You know, what opportunities do you see to, you know, further strengthen your, your product portfolio and, you know, areas you can invest in inorganically going forward? Well, I would say that at this point, our focus from an M&A perspective continues to be the integration of Poly. It was a relatively big M&A, and we want to complete the integration, complete the work, and, and this is really where we are focused. At the same time, if we see opportunities to accelerate our growth in some of the growth areas, we will, we will use our M&A dollars to do that, but we do that always in a very disciplined way. For us to buy a company, needs to first be aligned to our strategy. Second, we need to be convinced that we can execute from an operational perspective. And third, it needs to be an attractive opportunity opportunity from a financial perspective. So we really look at every opportunity with, with these three angles. In terms of capital allocation, our goal, as we have said many times, is to return to shareholders 100% of our free cash flow over time, unless M&A opportunities arise, and always that our leverage ratio is below 2, which is what we think we need to be to maintain our investment grade rating. This is the strategy we have been executing for 4 years now, 3 years, and the strategy that we will continue to execute in the future. Great. Excellent. Any questions from the audience? Oh, there's one over there. If we can get a mic runner over to the... Hi. Would you say that adding AI capability to your PCs will require a TPU, DPU, neural net? I think you... Those are the three you mentioned. You're relying on an external semiconductor provider, I assume. When will those products be ready and actually going into production? And will they be capable of running the big AI models that are driving all the attention today? Thank you. So yes, we are not working only with one vendor. We are working with multiple vendors, and their configurations and architectures are slightly different, but the concept is very similar. What we have said publicly is that the products will start to be available in the second half of next year. So by this time this year, we should have products already in the market. And they are gonna help us to, again, drive, refresh, and create more demand, but also will be helping to increase the average selling price of PCs, because the configurations will be richer. So this is why we are so excited about the opportunity this is going to be bringing. Any other questions from the audience? Well, Enrique, I guess as we wrap up the session, you know, maybe you can just talk about, you know, where you're most focused on and the key initiatives that you're trying to drive forward over the next, you know, couple of years, and what you're most excited about as you think about, you know, what HP could become and the vision over that same time period. I think it's a combination of what we have discussed today, is to continue to drive growth on our, what we call our growth categories, our growth businesses, where we really think that we have very tangible opportunities to do that. At the same time, in some of our core businesses, we were just talking about AI and the impact it's going to have in our PC category. This is really gonna help us going forward, and at the same time, continue to drive our efficiency programs, both to be able to fund growth and at the same time to deliver what our investors are expecting us to do in the bottom line. So doing both growth and cost is where my focus is, and I would say it's a very exciting plan. We will be able to deliver great solutions for our customers and at the same time deliver strong financials for our shareholders. So it's... We're excited about what we can do. That's, that's great. That's an excellent way to cap off the session. Enrique, thank you so much- Thank you ... for being up here. It's been such a privilege to be able to host you. Thank you.