HP (HPQ) Q4 2025 earnings review
PC Growth Accelerates, but FY26 Guidance Slashed by Memory Cost Headwinds
HP delivered a strong Q4, with accelerating Personal Systems revenue (+8% YoY) driving a top-line beat. This marks the sixth consecutive quarter of revenue growth, fueled by the Windows 11 refresh and strong AI PC adoption. However, this positive operational momentum was completely overshadowed by a severe warning about rising memory costs. Management guided FY26 non-GAAP EPS to $2.90-$3.20, implying a year-over-year decline at the midpoint, and quantified a $0.30 per share headwind from memory costs alone. In response, the company announced a new $1 billion cost-saving initiative, including 4,000-6,000 job reductions, to mitigate the expected margin compression in the second half of FY26.
🐂 Bull Case
Personal Systems revenue growth accelerated to 8% YoY, with strength in both Commercial (+7%) and Consumer (+10%). With the Windows 11 refresh only 60% complete and AI PCs exceeding 30% of shipments, tangible demand drivers are in place for FY26.
HP over-delivered on its prior cost-saving plan and immediately launched a new $1 billion program. This demonstrates management's commitment to protecting profitability and operational agility in the face of external headwinds.
🐻 Bear Case
The looming memory cost increase is a significant threat. Management expects the Personal Systems operating margin to be at the low end of its 5-7% range for FY26 and potentially dip below that in the second half, erasing the benefits of strong PC demand.
Despite a growing PC market, the FY26 non-GAAP EPS guidance midpoint ($3.05) is below FY25's actual result ($3.12). This signals that the company lacks the pricing power to fully offset cost inflation, leading to an earnings contraction.
⚖️ Verdict: 🔴
Bearish. While the strong performance in the PC division is encouraging, it is not enough to offset the severe and quantifiable margin pressure from memory costs. The guidance for an earnings decline in FY26, coupled with the persistent weakness in the Printing segment, makes the forward-looking picture challenging. The new cost-cutting plan is a necessary defensive move, not a growth driver.
Key Themes
Memory Cost Headwind Dominates FY26 Outlook
The primary story from the call was the significant impact of rising memory costs. Management quantified a $0.30 headwind to FY26 non-GAAP EPS, net of mitigations. This pressure is expected to materialize in the second half of the fiscal year, pushing the full-year Personal Systems operating margin to the low end of the 5-7% target range, with the potential to temporarily fall below 5% in Q3 and Q4. This single factor is the main driver behind the forecasted YoY decline in company profitability.
Personal Systems Growth Accelerates, Printing Remains a Drag
A clear divergence continues between HP's two main segments. Personal Systems revenue growth accelerated for the fourth consecutive quarter to +8% YoY, driven by strong commercial demand for the Windows 11 refresh and AI PCs. In stark contrast, the Printing segment continued its decline, with revenue falling 4% YoY for the third straight quarter. This dynamic positions HP as almost entirely reliant on the PC cycle for growth.
New $1 Billion Cost Program Launched
Immediately after completing its 'Future Ready' plan, which delivered $2.2 billion in savings against a $1.4 billion target, HP announced a new company-wide initiative. The 'fiscal 2026 plan' aims to drive approximately $1 billion in gross run rate savings by the end of FY28 through AI adoption and process redesign. This will involve a workforce reduction of 4,000-6,000 employees. This proactive cost management provides a critical lever to offset margin pressures.
Guidance Contradicts Positive PC Narrative
Despite management's bullish commentary on PC market tailwinds like the Windows 11 refresh and AI PC adoption, the full-year guidance points to a negative outcome. The midpoint of the FY26 non-GAAP EPS range ($3.05) implies a 2.2% decline from FY25's $3.12. This specific data point indicates that expected cost inflation, primarily from memory, will more than offset any benefit from volume growth and mix improvement in the PC business.
AI PC Adoption Provides ASP Uplift
Demand for AI PCs continues to accelerate, representing over 30% of shipments in Q4, ahead of internal plans. Management reiterated that this category shift provides a 5-10% average selling price uplift compared to non-AI models. With the company forecasting AI PCs to comprise 40-50% of shipments next year, this trend is a key driver for revenue growth and premiumization within the Personal Systems portfolio.
Printing Segment Faces Persistent Weakness
The Print business remains a significant headwind, with revenue declining 4% in Q4, mirroring the previous two quarters. Supplies revenue was also down 4%. Management cited a soft market and delayed purchasing decisions. While operating margin was healthy at 18.9%, the consistent top-line decline weighs on overall company growth.
Other KPIs
Stable. HP generated $2.9 billion in free cash flow in FY25. The guidance for FY26 is to remain stable at $2.8 to $3.0 billion. This stability is a positive signal, indicating that improvements in working capital are expected to offset the impact of lower guided earnings. This underpins the company's ability to continue its capital return program.
HP returned $1.9 billion to shareholders in FY25, representing 66% of its free cash flow, through a combination of dividends ($1.1B) and share repurchases ($0.85B). The company also announced a 5% increase in its quarterly dividend, signaling confidence in its long-term cash generation capabilities despite near-term earnings headwinds.
Recovering but under threat. The segment margin recovered to 5.8% in Q4, well within the 5-7% target range, after dipping to 4.5% in Q2 due to tariff impacts. However, the FY26 guidance indicates this will be under pressure again, with management expecting the full-year rate to be at the low end of the range due to memory costs.
Guidance
Reversing. The guidance midpoint of $3.05 implies a 2.2% YoY decline from FY25's $3.12. This reverses the earnings growth seen in prior years and is a direct result of the anticipated $0.30/share net impact from rising memory costs.
Decelerating sequentially, stable YoY. The midpoint of $0.77 is down significantly from Q4'25's $0.93, reflecting normal seasonality. It is slightly up from Q1'25's $0.74, indicating that the memory cost headwinds are not expected to impact results until the second half of the year.
Stable. This guidance is in line with the $2.9 billion generated in FY25. Management expects that lower earnings will be offset by improvements in working capital, allowing the company to maintain its cash generation profile.
Stable trends. The outlook continues the trend seen throughout FY25: a modestly growing PC market driven by the Win 11 refresh and AI PCs, contrasted with a structurally declining Print market. HP expects to gain revenue share in PCs while outperforming the market in Print.