All right, why don't we. It's right about 10:00 A.M. Why don't we get started? Welcome, everyone, to day one of the Global TMT Conference. My name is Erik Woodring. I lead the U.S. IT hardware research coverage here out of New York. Before I introduce our speaker, I just need to read a few important disclosures. Please visit the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And then from the HP side, a statement: 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 investor relations webpage at investor.hp.com. So with that said, I'm very pleased to welcome HP CEO Enrique Lores to our conference. He's no stranger to our conference. He's been around HP for 30-plus years, led the business now for over half a decade. So thank you, Enrique, again for joining us today. Thank you for having me here. And when you say half a decade, it sounds like a long time. I remember the transition, so. Amm. So I want to start maybe highest level and then work down and really just start by getting your thoughts on the world, meaning you have a global business, you travel around the world, you have hundreds of thousands of customers. What are you hearing from customers? How are you thinking about the various factors impacting global growth? And ultimately, what does that kind of mean for HP's business prospects? We'll go from there. Sure. It's a very easy question to start. I think it's clear that we're having a world that is rapidly changing. And probably one of the key things is defining where exactly it's going to go is very hard to predict. What we're trying to do in HP is understand what are the key variables that could happen in our business and build scenarios that will mitigate the impact or will take advantage of the opportunities that will be created because both things are real. One of the key topics these days is tariffs and what are we doing about tariffs. We have been doing a lot of work to first mitigate the impact of having started a few years ago with a strong manufacturing presence in China. And we have been diversifying that. Now, depending on the actions that we will see, we may take one direction or another. It's hard to know. I'm sure you're going to ask more questions about this. Number two. And then the other big opportunity is what happens between the US and China. It could be clearly our business in China is relevant, but we see more opportunity in the US if we go to a more level playing field between the two countries. So I think the key thing is we need to take advantage of the opportunities that will be generated and at the same time build mitigating factors for whatever could impact our business. Okay. Good start. So maybe before we dig into each of the businesses, I have kind of five higher-level questions, five individual topics. The first one, as you alluded to, is tariffs. You've emphasized the flexibility of your supply chain. Most of your notebooks, I believe, are still manufactured by China-based ODMs. And so exactly how are you able to mitigate the impacts of tariffs via your supply chain? And then just how do we think about, obviously, there's a lot of fluidity in the geopolitical environment. If there is this incremental 10% tariff that the administration could levy on Chinese imports, how do we factor that into how you've already talked about the world for HP this year? Yes. I think it's important to understand first what are the changes we have done during the last three years, and this is something I talked about in the conference last year and the year before. I think during COVID, we learned that we needed to diversify our supply chain because when we built it, it was really designed around cost, and we needed to design it around cost, but also around resiliency, and in the last three years, we have made significant changes to make it more resilient. Last week in the call, I said that by the end of this fiscal year, less than 90% of our products or the products that we sell in North America will be coming from China, and I would underscore the less, and this includes notebooks and other types of products. What we have been doing is building factories in other parts of the world, especially in Southeast Asia, but also in other areas to mitigate for that. We have not changed our model. We continue to use ODMs because we think it's a good model for the company. We have been working with them to build factories in other countries to mitigate the impact. Now we have much more flexibility. What this means is if there are tariffs in a specific country, we can move production into other parts of the world and mitigate that. Again, compared to where we were only three years ago, I think we're in a much better position than we were. Okay. All right. Helpful. And then a second big topic is just federal government exposure and a lot of concern, noise going on with DOGE. I realize, again, this is also a fluid situation. But can you maybe help for the audience kind of frame the exposure you might have to Federal Government or related areas of spending and what you're really hearing from those types of customers? Obviously, ongoing, but what are you hearing from them? Sure. So maybe it's important to try to quantify it first. So the U.S. is about a third of the revenue of the company. And the Federal Business is a relevant segment, but it's a relatively small part of the overall business. So from that perspective, the exposure is relatively small. I think what we see when we think about the impact of DOGE, again, has an opportunity and a potential negative impact. Starting on the negative, clearly, if there are a reduction of employees and that goes ahead as it seems, there could be a negative impact on the business. On the other side, if the goal is to drive productivity and to make the federal workers more productive, this is going to mean that they will have to invest in technology. And they will have to invest in the technologies that we are building, whether it's PCs, whether it's printers, whether it's equipment for video conferencing rooms and communication. There will have to be investment there. And that's going to be an opportunity for us. So I could argue both ways. And this is why it's very hard to speculate what exactly is going to happen. I don't think anybody, well, maybe a couple of people know, but not many more. Not us. Not us. And again, what we are doing is getting ready for both scenarios. We also have a very competent team managing the Federal Business that we have been growing and developing in the last five years. And we are in a good position to sell them technology to be more productive. And that's the approach we are taking. Third topic. You recently acquired kind of a number of assets and personnel from AI startup Humane. And I think it's a fascinating deal. But I'd love to get a better understanding from you exactly how you intend to leverage these assets. And specifically, kind of what does Humane bring you that you maybe couldn't have done organically or maybe that this accelerates? I think it's more an acceleration. What we have got from Humane are basically three teams: a key portfolio of patents, a key portfolio of software assets that we can now integrate in the rest of the portfolio, and a very competent team that comes from many parts of the industry, really focused on AI. As I have shared many times now, our goal as a company is to drive the definition of the future of work, and we are doing that by integrating AI into all of our portfolio so customers can experience AI at the edge, also by looking for ways for our portfolio to integrate and to communicate in a simpler way, so for customers, the experience for customers will be radically simple, and with Humane, we get assets in both sides. We get modules that will help us to integrate AI, let's say, in the PCs and for the PCs to be able to choose whether they use models that are local or models that will be in the cloud, which is a key functionality that we were developing, and also the ability for our PCs, printers, communication devices to communicate. They also have software that will really help us to accelerate in this direction, so that's really the play, and we are really excited. It's a very talented team that is really going to help us to move much faster in this space. Okay. Great. So fourth topic, overall kind of your fiscal year 2025 guidance and specifically kind of the back-end loaded nature of the EPS guide. It implies you're going to do nearly 60% of annual profits in the second half of the year. You've never done that before, or at least in the last 10 years, you haven't. So first, why is the year a little more second half loaded than normal? And then second, what kind of gives you enough confidence today to guide the way that you have for fiscal 2025? Yes. I think this year is special for two reasons. One on the demand side and one on the cost side. On the demand side, we are seeing an acceleration of demand, especially in commercial PCs, driven by the Windows 11 refresh, and we have seen that acceleration happening over the last quarters, and we think in Q2, Q3, Q4, this is going to accelerate. We need to remember that our Q4 is when the deadline from Microsoft happens, and this always drives an acceleration, so we expect to see an increase of demand, especially in premium categories, because as customers buy new products, we are seeing a tendency to buy more premium products, so that's the demand side. On the cost side, we have also shared that the first half, we are having the negative impact of commodity cost increases. This is impacting our profitability in the second half. We are expecting some relief both on cost of components and also the bigger impact of all the cost actions that we are taking in the company. When we combine the more positive demand and at the same time the better cost, this drives the guide that we gave. Okay. Okay. And we are seeing on both sides. You were asking about the confidence, good trends that support both. I shared last week that we see strong demand on the commercial side. And we are seeing the funnel of opportunities continue to grow. And on the cost side, the work that we see. We announced an additional cost reduction. We also see positive changes on some commodity areas. So both things, we see trends supporting our place. Okay. You kind of pulled forward my fifth and final kind of high-level question, which was the Future Ready program and the cost actions that you've announced. Can you maybe help us understand the incremental $300 million of annualized savings? Where is that coming from? Where did you find that, so to speak? And then at the conclusion of this program, you will have basically taken out almost $2 billion of annualized costs. How do we think about dropping to the bottom line versus reinvestment for growth? Yes. So I think where these savings are coming from are coming from multiple areas. In a company like us, there are always, always, always opportunities to reduce cost. And when we find them, we execute. When we launched Future Ready, we were targeting multiple areas. And now in some areas, we have found more than we expected. And we have driven that. And it's a combination of more savings in the IT side, but simplifying applications. As we have consolidated some groups, we have also increased the target that we have for headcount reductions. We have simplified management structures in some areas. All this drives the savings that we have announced. In terms of where do we see these savings, if you look at the margin of our businesses compared to where we were when the program started, we are now operating at better ranges than where we were before, and this is really driven significantly by the savings that we have done. This has allowed us also to invest in additional areas, to invest in growth areas, and if we think about the $300 million that we announced, it's a combination of mitigating some of the cost increases driven by tariffs and at the same time some of the incremental investments that we are doing, for example, Humane. This is where you will see the impact of both. Okay. Okay, so let's get into the segments. Let's start with PCs. You kind of gave us a high-level overview of refresh demand Windows 11, but can you just maybe in one level deeper, walk us through kind of the underlying drivers of PC demand as you see them today, and just, again, help us understand commercial versus consumer. Commercial seems more positive. Consumer seems like a tough world. Just help us understand how those two add up to how you're thinking about the world in PCs? Yes. I think the key drivers of demand on the PC side are three. First of all, the install base has aged over the last years. There was a lot of demand four, five years ago during COVID. These products are starting to be old, and they need to be refreshed. Second, the stop of support of Windows 10 and the transition to Windows 11 is always a catalyst for renewal and for additional sales, and we are starting to see that. The refresh cycle started slower two or three quarters ago, and it's catching up, which is what we were expecting, and if you look at the demand that we saw this quarter, it was really in line with expectations that we had, and we expect it to continue. And finally, the third driver are AI PCs that are starting to increase their penetration. Clearly, if someone is thinking about buying a new PC, they should be buying an AI PC because over the next years, key software applications will be taking advantage of the new capabilities, so that's especially thinking about the next year is really the product that should be bought, and these three drivers are really going to be driving demand. We see stronger demand on commercial than consumer, and this was clear in our results in Q1, and we expect this to continue going forward. Okay. At earnings, you increased your expectations for Personal Systems growth this year, kind of mid single growth to high single digit growth. Talk about the underlying factors that give you enough confidence at this point to increase that guide, and that includes touching on things: units, pricing, share shift. How do we get from mid to high single digits now? Yes. I think it's a combination of first, the comments about demand that I was making before. We expect demand to continue to improve during the coming quarters. Second, when we look at the performance we have had, especially in commercial Windows, which is the category where we are focused, we have been growing share now for two or three quarters. And we expect this to continue. And third, we have also seen a positive evolution on the pricing side. If you look at the growth of units versus growth of revenue, revenue is growing faster. And this is because more premium categories, ASPs, are increasing. This is also supporting that. So the market is going to be doing in units, it's going to accelerate its growth. ASPs are going to do better. And we expect to grow share, especially in commercial. A little bit of all three, so to speak. Yes. Okay. And again, you've been very vocal about the growing penetration of AI PCs. And I think maybe where I get pushback on AI PCs is the application layer isn't ready for us today. Why do you need an AI PC? The point that I think you're making is they will be coming. And so we will see customers future-proofing their PC. Can you just walk us through how you think about the evolution of both kind of your AI PC product launches, but then also the cadence with which we should have those killer apps that warrant the AI PC? Yes. I think, let me start from our portfolio. We have been increasing the number of AI PCs in the portfolio steadily since the summer last year, and now in Q1 is when we started to ship products of what we call next-generation AI PCs, both with AMD and Intel. Until now, we had only Qualcomm, and now we expect that the penetration of both will continue to increase in the coming quarters. What we tell our customers, and I think it's starting to resonate, if you are going to be upgrading your installed base, you need to think about what applications are going to be ready during the next three or four years. If you look at it from that perspective, every new PC that is bought today should be an AI PC because all key software companies are developing their apps to take advantage of the ability to run local models, large language models locally at the edge. Because for them, it is a significant cost saving. Any software company that today is offering AI to their customers is seeing a significant increase of cost in the cloud. They need to, and they look at the ability to do that at the edge as a significant saving for them. This is why most of them are working on that. These applications are going to be available in the coming quarters, in the coming years. So that's the key driver why every customer that is buying now PCs, thinking about the next three, four years, should be buying an AI PC. It's something that we have decided in HP. We have decided that every new PC that we buy in the company is going to be an AI PC for every employee. So that's a sign of how serious we think this change is going to be. You do have an insider information advantage being in PCs. Yes. As I said to an investor before, of course, there will be HP PCs. And of course, there will be AI PCs. That's great. And then just on the pricing front for AI PCs, I think we've talked about kind of 5%-10% more expensive like for like. Is that still the right way that we should be thinking about AI PCs more broadly? It's 10%-20% like to like. Okay. Okay. We expect two years from now the penetration to be about 50%. This is where it's at, the average will be 5%-10%. Okay. Okay. This is what we see in the market today and what we expect will continue to be. Right. This is driven by both the new capabilities that these PCs will have, but also because configurations are richer. It's not only that you will have a CPU, you will have a TPU, you will also need more memory. This also will drive prices up. Right. So 10 to 20%, 50% penetration, get you that 5%. Exactly. Okay. Perfect. And then last question on personal systems, just I know there's a lot of focus on kind of traditional PCs within that business. There are other products within personal systems that perhaps don't get as much attention. You do identify them as kind of some of your key growth areas. Can you maybe just give us an update on some of those maybe smaller businesses, businesses that get less attention? How much of personal systems do they represent and how are they performing now? Yeah. We haven't shared externally what the size of the businesses are. But if you think about how we have evolved the portfolio in the last three years, this has been areas where we have been investing both organically and inorganically. When we think about investment in Poly, it's helping us to have a very strong position in headsets, video conferencing systems, which have better margins and that can be sold as an upgrade or as an additional sale every time we sell a PC. We also talked in the call last time about workstations and retail point of sale, which are verticals where margins are better, where we have a strong leading position. And we're now driven by AI. We expect also to see significant growth. Commercial, for example, workstations are growing faster than commercial PCs. It's a more premium category, so margins are better. As we continue to see growth in the data scientist space, we think that all this is going to continue to grow. We have a very strong position not only on the hardware side with the portfolio workstations that we have, but we have developed over the last years a portfolio of software tools to enable customers to develop their models. A customer, a company will take our workstations, our tools for them to develop models based on their data. That's a unique differentiation that we have that is helping us to grow that category relatively fast. Okay. And I did lie. I actually had one more personal systems question. But around margins, 5%-7% remains kind of the target operating margin. You're kind of telling us there'll be at the lower end of the first half of the year, the higher end of the second half of the year. We've touched on it a bit. But is that purely a function of improving commodity costs or at least moving through the commodity cycle? Or what are the most important factors we all need to think about that would get you to the higher end of that range versus the lower end? The most important one is commodity cost and cost in general of product that is going to help us to improve, and also it's mix of premium products. As I was saying before, we expect the mix of products to continue to improve, and this will have an impact on the second half. Okay. Let's turn to Print. We are five years removed from the start of the pandemic. Just based on your pipeline, what you hear and you see when you talk to customers, can you help us understand kind of where we are in the evolution of Print demand, whether that's hardware and supplies? Just where do people stand when it comes to kind of the normalization of return to office and refreshing product? Just where do we stand on the Print Market environment? I think I would differentiate the situation between the home and the office market. On the home side, we continue to see a stronger market than we were expecting before the pandemic, and in fact, last quarter, home was even stronger than we were expecting. So the segment has been even more resilient than we were expecting, which is positive. The office side was slightly weaker than the original plan. Clearly, the pandemic had a strong impact on that category. It's basically 20% smaller than what it was before. We think that with the push to return to office, we're going to see growth back in the category, but at the same time, because of competitive dynamics, because of most of the competitors being Japanese, we see currency having a strong impact in the market. Right. So let's talk about that. Because over the last handful of quarters, we've talked about the more aggressive print pricing environment. What gets this behavior to stop? It is as simple as yen dollar. Do you expect it to persist for some time, and what can you do to maybe defend your position, defend that pricing aggression to make sure your standing in the market remains just as strong as it's been historically? Yeah. I think one is the key driver is currency. We don't see any other driver in the industry that justifies this change. What we have been doing is managing our cost down very aggressively. A few quarters ago, we said we are going to start growing share. We are going to reduce costs. We have done that in the more premium categories. Now we need to do it at the entry level. But that's clearly the plan that we have and what you should expect us to do. Okay. More of the same. Okay. And then if we move away from maybe the transactional part of print to the contractual part, I remember the original pivot that you guys announced a handful of years ago. You're now selling products that have more than 50% of shipments with some form of attach, whether that's Big Ink, Big Tank, HP +. You're launching a consumer-facing subscription for hardware as well. Just help us understand this transition from kind of transactional to contractual. What inning might we be in in terms of penetrating your installed base and your customer base? And really, what is there left to go beyond what you've already done? Yeah. I think if I look back at the last three, four years, this has been one of the most successful things we have done, and it has been a very positive transition both into what we call profit-upfront models, models where we make money more with hardware, but also the whole evolution to subscriptions and consumables. If I talk, for example, about the consumer side, we have no more than 13 million subscribers that buy ink from us. We announced last week that we have 1 million subscribers now that buy paper. And as I said in the call, this is not cheap paper. This is convenient paper. So, which means people pay for the convenience of getting paper delivered at home and not having to go to buy paper at a store. We have also launched another very attractive model for us, which is the full printer as a subscription. We launched it with traditional printers three, four quarters ago. This quarter, we launched it with Big Tank, which is another way to differentiate our offering. This is showing us that we can offer convenience. Customers are willing to pay for that. Customer satisfaction is the highest in our full portfolio because they really value the subscription programs. Our goal is to continue to accelerate the penetration of those models. That's on the consumer side. On the office side, we have also made good progress. There is where I think we have more opportunity to grow because our share continues to be in the 10%-15% range, lower than what we have in other categories. Okay. Quickly touching on print margins. Your target operating margin for print is 16%-19%. You increased the high end of that range recently. But you've been doing basically 18%-19% for the better part of four years. Should we think about your performance relative to your long-term target as just conservatism in the model? And really what I'm trying to get at is there's some concern that there could be over-earning in print. Help us understand why there isn't necessarily over-earning, why your print margins can kind of remain where they have been. Yes. I think we are keeping this wide range in case we see opportunities in a quarter or a couple of quarters to invest in placing more profitable units, especially when the yen changes. That's why we want to keep that flexibility. Otherwise, because of the combination of cost, because of the combination of the transition to new models, also the fact that we have been growing share of supplies, we have been operating at that range. And unless what I said before happened, we will be in the 18%-19% range. Okay. Let's maybe pivot a little bit. Remain on print, but for a long time, we've talked about the value of print market consolidation. Obviously, two of your competitors are kind of joining forces today. I guess maybe my question is, do you believe that there's further print industry consolidation that can happen or that needs to happen? And what would be your appetite if we stay on the print side as it relates to M&A? Sure. I think we continue to think that there is going to be consolidation in the industry. So we have not changed our view there. We have seen it happening in different ways during the last couple of years. Japanese vendors have been establishing some partnerships to leverage R&D, to leverage supply chain, to minimize their cost structure. We saw the announcement of Xerox and Lexmark a quarter ago or during last quarter. So basically, the trend that we see there, our approach has been to drive our cost structure down, both internally and also working with Canon, which is our key supplier in many areas. And I will say what I have said multiple times. We think that we can create more value using our M&A dollars to drive growth. But we will never say never. If there is the right opportunity at the right time, we may do it. But it's not our priority at this point. Okay. Okay. Very helpful. Let's pivot a little bit to free cash flow generation. The PC market broadly underperformed last year. Your free cash flow generation was still extremely strong. And underlying that, you had very strong improvement in days payable. I feel like this is a CFO question, but I'm asking you in that, are you seeing a structural shift in kind of vendor payment terms that allows you to have maybe a more sustainable negative free cash flow, negative cash conversion rate? And maybe second to that, just help us understand then the drivers that get you to your $3.2-$3.6 billion free cash flow guide for this year. Yes. So the changes that we did on payables, we expect them to be permanent. We don't expect them to go back. And we continue to think we have opportunities to improve our working capital to help on the free cash flow generation. You have seen that our inventory levels are at relatively high levels. This has been intentional. We have been both doing strategic acquisitions of components to mitigate the cost increases. And also because of tariffs, we have increased the inventories that we have of finished goods to mitigate the tariffs whenever they are put in place. All these will be reversed. It will be changed as we don't see the need to do that and will help on working capital. When we think about the year, what we expect is the free cash flow guide that we have provided is the result of the earnings that we will generate and also of improvements in working capital driven by some of the things that you just mentioned. Okay. Okay. Similar to what we did a year ago. Right. Okay. Maybe going back to the topic of M&A, but not being specific into any one end market or segment, investors kind of often ask if there are adjacent markets that HP could get into via M&A to kind of help either diversify or accelerate your growth profile. As you sit here today, any end markets that are particularly attractive, be that hardware, software, adjacencies, just what would be your response to that type of question? I think my response is look at what we have been doing in the last two, three years. And this will be a good proxy of the type of things we have been doing in the past, we will be doing in the future. For example, with the acquisition of Poly, we clearly moved into an adjacency that is really close to the businesses and the markets that we have. And that helps us to offer a more complete solution to our customers. And also it's accretive from a margin perspective because margins of peripherals are better than margin on PCs. So these type of moves, of course, are things we consider and we look at. And investors should expect us to continue to move in this space. Okay. Maybe last high-level question for me, given time here. You know what? I think back to SAM 2023, you outlined a path to high single-digit EPS growth. The midpoint of your guide this year is just a shade below that. And maybe my question is, what would have to change or what would have to happen to start compounding EPS maybe at that rate or above that rate? What would allow you to kind of accelerate that rate of growth more sustainably? I think first of all is demand. I think when we think about what we said two years ago, what has happened, demand has been softer. Now we are seeing it picking up. So this will clearly be an impact. Also, as we grow the mix of more margin-accretive businesses, also this will be another driver. And I would say these are the two major areas. I think it's important to also look at from a margin perspective from each of the businesses. We are within the ranges that we have provided. And they were significantly higher than the margins that we had before. So when we were talking before about the impact of some of the cost reductions we have made, it's clearly visible in the margin of both businesses. They have significantly improved versus where we were only three years ago. Personal systems used to be three and a half to five and a half now. Now we talk about five and a half as you are in the low end and not the super high end of the guide that we had. Exactly. So this is where we see the impact of the work. We're just about out of time. I'd love to kind of give you the final word. Help us all out in the audience here understand kind of why they should be excited about the HP story, why you're excited about the HP story, and maybe anything that's underappreciated, you believe, in the market today. I think the key thing is all the changes that we're seeing on the technology side are opening a lot of opportunities for us to have a much more relevant space in the market. The company is now focused on defining the future of work. And when we combine that with the opportunities AI is bringing to transform the full technology stack, the changes that we see, for example, in the semiconductor space with more companies competing for the space, which gives us more relevance, and also the demand that we expect to see driven by the PC refresh, all these things create a lot of momentum and a lot of opportunity for us to create value. And something we haven't talked that I think is also relevant, our capital allocation continues to be very user-friendly. We have a very solid dividend that we provide per year. Also, unless there are better opportunities to use capital for M&A, we will continue to return 100% of free cash flow, which we know is something that investors are expecting from us. Absolutely. Beautiful. We're out of time, Enrique. Thank you so much for joining this morning. Thank you. Thank you, Erik. Awesome.