HP (HPQ) Q3 2026 earnings call transcript

Well, good day, everyone, and welcome to the third quarter, 2026, HPE and earnings conference call. My name is Lisa, and I'll be your conference moderator for today's call. At this time, all participants are in a list and only mode. We will be facilitating a question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Alok, do y'all, global treasurer, and head of investor relations. Please go ahead. Good afternoon, everyone, and welcome to HPE's third quarter, 2026, earnings conference call. With me today are Bruce Broussard, HPE's Interim Chief Executive Officer and Karen Parkhill, HPC 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 one year. We posted the earnings release and accompanying slide presentation on our investor relations webpage at investors. 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 HPE's SEC reports, including our most recent form 10K, HPE's use 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 HPE'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 refer 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-gap and EPS refers to non-gap diluted net earnings per share. Please refer to the tables in today's earnings release and their accompanying slide presentation on our website for the considerations and deviations of these non-gap measures to the most directly compatible gap measures.

With that, I will not turn the call over to Bruce.

Thank you, Olok, 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 in our building momentum. Our strategic execution, robust commodity mitigation plan, and relentless 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 tell us how we are managing a 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 timeline, 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, I developed a deeper perspective on HP, poor observation stand out.

First, we need to continue advancing our operating infrastructure to become better connected, AI enabled, and data driven, improving productivity, all delivering better experiences for our customers, hardeners, and employees.

Second, we will continue advancing our devices to the AI leading, by bringing more computing to the edge or context as created. This will enable more intelligent devices that anticipate needs and proactively solve problems.

Third, we need to accelerate our evolution toward integrated solutions across our broad portfolio devices, creating differentiated offerings that deliver greater value to our customers, of expanding really occurring revenue opportunities. And lastly, we provide greater strategic clarity around where we choose to play and allocate capital resources and capabilities against those priorities, the focus and discipline. HP has tremendous assets, one of the most iconic brands in 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're taking action now to strengthen the foundation, sharpen our priorities, and improve 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 of personal systems, while print results were in line with our expectations. We executed on our commitments and accelerated our key growth areas, which collectively grew 46% year over year and faster than our core. We continue to take share and 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 10th 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 this continued strength of our AI PC portfolio, which 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 and 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 the competitive market. We remain focused on pricing discipline and placement of profitable units. We said we would double down on big tank market, and we did gaining another four points of share this quarter.

Industrial printing delivered its 12th straight quarter of revenue growth as customers continued 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. For customers already seeing the cost of cloud-based AI add-up, economics alone makes edge AI compelling. It can also improve security, latency, and strength in data governance.

To make edge AI a reality, we are working with customers and ecosystem partners to build platforms that extend data-centered class AI capabilities to the edge. By enabling GPU sharing through HPZ 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 two often specialized infrastructure, large budgets, and complex setups. We are changing that. With our HPZ GX Fury, we bring data-centered class AI to the desk side so teams can build and run frontier 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 and power those and device models actually need. A leading automotive company is using HPZ 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 unsight 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 healthcare. We are also advancing what PCs can do as devices. In the Adgenic era, PCs are becoming partners that understand their needs and help meet them.

We are reimagining what a personal computer can do with our new OmniBook Ultra-16 powered by NVIDIA RTX Spark. It brings the compute needed to build and run sophisticated AI models and personal ages to a thin, mainstream, mobile PC, and our OmniDS mini desktop combines full-sized performance with a compact design and built-in AI capabilities. In print, we are 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 percent and ink consumption up to 47 percent. Our HP Neo AI companion brings Adgenic AI to industrial print operations and is gaining momentum.

Neo was awarded the 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 ecosystems with built-in remote remediation capabilities and importantly, solving uptime problems for our printer service customers. In Q3, we also signed a three-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 PC's meeting rooms, collaboration tools, printers, and other endpoints. 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 PC's, 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, improve workforce experiences, lower costs, and establish a governance layer.

WXP was named a leader in the 2026 Gardener 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 a customer 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 zero, 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 Z-book 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 HD store, digital support, WXP telemetry, employee productivity, and software development.

Early deployments are already helping teams accelerate engineering and workloads, enhance security analysis, and automate routine tasks while maintaining HP's high standards for data, governance, and security. We are just getting started with OpenAI and expect to share more as we turn our pilots into scaled capabilities that create business value. Let me now focus on 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. The 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 situational response. The 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. With 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 and navigating a dynamic environment. In personal systems, we see opportunity for increasing commercial workloads, AIPC's advanced compute to the broader shift towards hybrid AI and growing need for contacts where use cases at the edge. In print, we will continue to place profitable hardware units, grow big tank and subscription businesses, and invest in an industrial application. Our teams will continue to manage memory storage and geopolitical pressures through pricing, sourcing, supply chain actions, productivity, and portfolio choices.

The 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 print market, and continued 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 and personal systems and key growth areas. Double-digit sequential growth and 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 four-pillar plan to mitigate rising input costs.

These ongoing efforts to secure supply, shape demand, implement targeted cost reduction, and take discipline pricing action, all continue to ramp, and have enabled us to deliver OP rates in line with our guidance, even after excluding the favorable impact of tier-free funds 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.

Ideography, strong personal systems performance, drove constant currency revenue up 22% in APJ, 10% NMEA, and 5% in the Americas, as customers continue to upgrade their devices to manage more demanding workloads. Our growth 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 discipline 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 six and a half percent. 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 83% grew 11% and includes 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% in 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 headwinds. 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 and AIPC's 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. P. S. operating margin of 4.6% 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 a competitive pricing environment.

These headwinds were offset in part by key growth area contributions, including continued momentum and industrial print fueled by increased usage, double-digit growth in 3D, 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 continued 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, by headwinds in the Middle East, all-in print operating margin was 18.1%, up roughly 1.0 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 discipline working capital management and robust personal systems growth, we have driven year-to-date free cash flow of more than two and a half billion dollars, well ahead of our typical seasonality. Through both dividends and share repurchase, we return nearly 600 million to shareholders in the quarter, and over one and a half 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 growth leverage remains under two times and there aren't better return opportunities.

Looking ahead to the remainder of our fiscal year, we continue to expect input cost 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 increase penetration of AIPCs 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 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 in 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 refund 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, OINE, and corporate funds 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 eluded 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 19 cent favorable impact from estimated tariff refunds. For Q4 specifically, we expect eluded net earnings per share to be in a range of 69 cents to 79 cents, including an 8 cent 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 to 3.2 billion dollars 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 AIPC's, workstations, and high-value solutions, with a discipline focus on gaining share and 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 FY27. In print, we will remain focused on protecting operating profits through share gains and profit upfront tank printers, expansion and consumer subscriptions, strengthening our position in office through AI-enabled innovation, sustaining momentum in industrial graphics, and maintaining cost discipline. I will share more in our fiscal 27 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 Kate and 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. Thank you.

And we will now begin the question and answer session to ask a question. You may press star then one on your touchstone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question. Press star one again. We also ask that you please limit yourself to one question and a single follow-up.

Thanks for the question, Amit. You know, 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 PCs, 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 prioritizing profitable growth and edge AI-driven demand rather than chasing a low margin share.

You know, our comments on revenue growth relate to Q4. It's too early for us to be giving FY27 guidance. We'll be doing that on our Q4 call.

Yeah, thanks for the question. You know, 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, you know, 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. You know, 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've signaled at the beginning of the year that margins would be increasingly impacted as we move through the fiscal year.

You know, costs have continued to rise, and we are working through the benefit of the lower cost of inventory on our balance sheets, that we had more in the first half. And now you're seeing inventory that is carrying higher costs working through our P&L in the back half. But at the same time, we've been successfully implementing our mitigation plan. You know, we've secured supply, we've qualified new suppliers, we've reshaped demand and configuration, and we've taken targeted cost actions and reprised with discipline. And as we've 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 take some lead time.

We also expect margin benefit from the areas where we're prioritizing growth in the premium categories and AIPCs 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 FY27 and Q4, 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.

Sure, Mark. I'll start answering that long question, and I'll ask Kate to chime in, if you've got anything to add. I would say first on the PS margin, yes, we were benefiting earlier in the year from that lower costed inventory that was on our balance sheets and flowing through to the P&L. While we still have a mix of lower costed inventory, I would say that benefit is largely behind us. And we now are higher costed 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 cost 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 taking costs out everywhere that we can. We use pricing as the last lever.

So I'll let Kate and add anything.

Thank you, Karen. You covered it very well on a few of the pricing questions. I 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 few months before price changes would be fully reflected for all the customers. And this is all post mitigations which Karen already spoke about. So definitely we will 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 and from demand planning and demand shaping muscle, which we are leveraging through our WXP 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 initiatives, which has led to highly optimized cost for specific products for specific countries, which gives a structural capability to serve customer needs again at the right value and cost.

And that's traditionally around one third of 30% margin kind of opportunity for us. On top of that, we also see the opportunity to continue to add solutions to our AIPCs. And for that is oriented to things like the HPIQ, which will be coming out later this year, device security is another area where we look at. And even in our areas of print law or whatever AI enabled to print, which complements our AIPCs. And so I would say as you look at the AIPCs there, and Pete and Karen have talked about that here, the premium pricing and our significant value to our customers that are complemented by the attach rate that we far more have in the top of that.

We have a number of solutions that we're able to add to the AIPCs that offer it to be more valuable to the customer and frankly more value to us.

I just add on top of what Bruce mentioned, the AIPC is a strong performance also for us this quarter. It's contributed 46% of our mix in line with our 40 to 50% forecast for that 526. 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, the 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 role of this species and customer fleets will continue to expand. So this will be margin-accredited to us and that's what we'll continue to focus in terms of the AIPC mix, as well as workstations which are critical categories for growth.

Yeah, thanks for the question, Stephen. We now see roughly 70% of the wind 11 refresh complete. That's been a good catalyst for the last couple of years and we are seeing it still drive a small and medium business demand. I would say that said, the wind 11 catalyst is really being increasingly augmented by a rising demand for AIPCs, AJI and Agenic workloads requiring more capable PPCs. So we honestly see these tailwinds to shape the market in the coming years and we're proud to have an increased penetration of AIPCs today as part of our shipments, as as Kate just mentioned, and a growing part as we look ahead.

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 will follow. Thanks, Womsey. You know, 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.

I think that, so Womsey, thank you for the question. Clearly, this is the AI 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 a customer, especially on token economics, which is a big topic right now, as you start deploying workloads in a customer environment.

So that's a significant value which customers are seeing. On top of it, they also see advantage of keeping sensitive data closure to where it is generated, reduce 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 high 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 suite of devices and also to broader enterprise workflows. So that's how we see the current up next.

Thanks, Mike, for the question. I'll answer the free cash flow and I'll have Kate and to take the second one. In terms of free cash flow, we are pleased with our performance slide 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.

Kate, you want to take the second question? Yeah, on top of the comments which I had on the AIPC and the workloads, I would say that there are clearly unique needs which we are addressing right now through our PC's bring to spare for our services and meeting room solutions for modern work. Simon, seriously, our solutions like WXP are allowing great control for IT and administrative admins to monitor support and user which is becoming a big need in the world where you will have humans and agents operating together. And currently our AIPC is our most capable for running AI models locally. And as Bruce mentioned, we have debated all of this in a first local first AI model to HP IQ and also both security solution which HP is implementing is unique and in protecting at a biased level intrusions.

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.

Simon, I'll just add a little bit there. I would say that we are seeing a number of different areas and I think that a large one we're seeing as Keaton mentioned was developer customer service who are also seeing in a manufacturing where our workstations are able to be incorporated in the manufacturing line where our quality control they can use it for quality control and other NEI 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 as a result of some very powerful use cases per from these sub-sectors that we're focused on but in addition in the broader areas like Keaton has talked about.

Yeah I'm 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 AIPCs and work stations 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 etc. So it's all of these things combined that give us high confidence that we can drive improvement from here.

Thanks so much. Yeah I would say on the print margins in FY27 I'll start by just confirming that we remain comfortable with our long-term operating profit range of 16 to 19 percent for print and that still holds for our fiscal 27. You know 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 a competitive environment. But as we look more broadly to FY27 we will remain focused on protecting operating profit through share gains and profit upfront tank printers through expansion and consumer subscriptions and by strengthening our position in office through some AI and enabled innovation that we've been bringing to market along with sustaining momentum and industrial graphics and of course always maintaining cost disciplines.

So hopefully that helps.

I'll take that question and Kate feel free to add if you want. I would say you know all of 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 mixed played a role as we drive more premium share more more AIPCs 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 cost and and that also played a role too.

Kate and anything you would add. Yeah 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 can do to take share and to your other comment around the non-hardware business contribution yes the attached businesses which is combination of our very first collaboration solutions services such as WXP and others have contributed one third of the overall PS Cross profit and that's in line with what we have been forecasting that those are the businesses which will continue to focus.

I would just only add that there are two demand vectors let's look at 2027 as Karen mentioned previously the growth catalyst being the shift towards AI workloads and hence some of those categories around AIPCs and premium PCs and workstations so that's going to be 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 two different demand signals coming through.

Yes so just on your question on print margins for next year when we talk about our long-term 16 to 19 percent range that is without or excluding any one-time 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.

Yeah 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 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 FY26 we see it decline in low-single digits in constant currency but our long-term view of supplies hasn't changed.

And I guess what I'm trying to get like an actual sense of is is there is there increasingly a much more is there more appetite natural appetite for higher prices as distinct from memories memory pricing increases as we go to 27 to 28. Yeah I think that question thank you for that and yes we definitely see the 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. Customers in their environment are now as they 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 like to your point yes we see demand shifting to those higher end devices too as part of the natural mix.

Yes there are two meaningful conversations which are going on right now as customers bring these workloads. One this increasing cost of 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 conversations and the second big one is as they deploy agents more in their environment how to govern those agents more securely and drive the right level of enterprise manageability I think those are the top two 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 to start 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 at the edge creates incredible opportunities in HP as well positioned to lead in this area as we talked about with our strong portfolio our network reach custom brand we're 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 to place an 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.