HP's second quarter results were mixed. Revenue was slightly lighter than analysts were expecting. It comes amid a backdrop of slowing PC sales. HP CEO Enrique Lores expects PC demand to pick up in the coming months. Lores also anticipates benefiting from AI, telling Yahoo Finance Live that AI will "radically change" how we use PCs.
- Computing giant HP managed to deliver better than expected quarterly earnings, despite the continued downward trend in PC demand. However, with the growing presence of artificial intelligence, HP says consumers and businesses are poised to see big future changes to their computers. Here to discuss this and more, we have HP CEO Enrique Lores in the flesh at our studios in New York City. Good to see you.
ENRIQUE LORES: Very good to see you, Brian. thank you for having me here.
- So talk to us about the state of the PC business, any signs of a bottoming here.
ENRIQUE LORES: Well, what we shared on Tuesday during our earnings call is that we expect the second half to be better than the first half. We have been going through a significant inventory correction during the last two quarters, which means really that end user demand has been stronger than shipments. And therefore, now we are starting to project an improvement of the business quarter over quarter.
- We're living very much still in a strange world. Parse out PC demand for us. Is demand more coming from consumers or people going back to the office and they need more high power computing?
ENRIQUE LORES: Future demand is going to come from both places. What we have seen in the last two quarters is weakness in both sides. But now as the channel inventory will be corrected, we expect to see stronger demand first on the consumer side because we think it's going to be following normal seasonality. And in the second half, we have back to school, we have the holiday season, where are traditional periods of time where consumers buy PCs.
- This week, Walmart's annual meeting is going on. And they're talking about consumer demand and a more cautious shopper. Are you seeing more promotions playing out for back to school? Is that something in your forecast?
ENRIQUE LORES: We haven't seen that too much for back to school. We have been seeing that during the last two quarters. But now as we look at the second half, we actually expect stronger pricing because demand will be there and the inventories will be at a normal level.
- I love what you talked about on your earnings call, Enrique, about how AI is going to change the computer. How will my computer change? And what does it mean for your business? It's, first of all, it's going to be very positive for our business. What this means is computers will be able to and will have to process a large language models in the PCs, which means the PCs will have to have processors to run that.
And what this is really going to be mean is that for us as potential users, it's going to radically change the experience that we have using a PC. If you need to build a spreadsheet, the PC will build it for you. You will be able to dialog with a spreadsheet to try to get more information.
- I don't need any more spreadsheets. No more spreadsheets. I just can't do it. I can't do it. I don't want this AI stuff. But talk to us, what does this mean-- is this a major reset cycle for PC demand? I remember we were talking in Davos, and you said, Brian, "a refresh cycle is coming." That was this year. And it appears like it might be coming. Is that this year because of these new chips or is it a next year thing?
ENRIQUE LORES: I think it's going to happen partially this year because many of the PCs in the enterprise are old and require need to be changed. But it will accelerate dramatically as AI would be present in PCs because really it's going to redefine the experience that customers have and what is possible to do with our equipment.
- Can you get the chips you need? We have heard from Nvidia, which is just in many respects leading the charge here on these AI, these generative AI chips, saying, "we can't make enough to satisfy demand." Can you get the chips you need to sell the computers you want to sell?
ENRIQUE LORES: For the type of products that we are going to be building, it is not going to be the current chips that are used for AI. Is a new generation of chips that we're working with all the key silicon providers to build. And we expect that there will be enough volume and capacity for those.
- How does this, as someone that started HP as an intern, right?
ENRIQUE LORES: Yes.
- How does this AI movement change jobs? If you're an intern starting at HP now, how will your career trajectory look like or just look differently than maybe yours?
ENRIQUE LORES: I think it's going to change significantly, where people spend time. And many activities where that today takes one day to get done are going to take seconds. And it's going to be really shifting the world from doing things to interpreting things, to really working with the output, not so much in creating the analysis, for example, if you are an analyst.
And I think it's also going to have a big impact in the type of activities that we will maintain within the company. Those activities that we think AI robots will be more efficient at doing. And this really will have also a positive impact on the company from a cost structure perspective.
- Friday is jobs day. And, you know, I can't help but to think the changes to the labor force because of what's happening in AI. Do you see a major need to upskill workers, you know, given this change in technology that appears to be happening in a rapid pace?
ENRIQUE LORES: I think we all will have to learn the new technology. We'll have to be proficient at it because this will be the only way to continue to add value and to create value. And this is true at all levels of the company. I will have to learn. You will have to learn all the--
- I don't want to get left behind.
ENRIQUE LORES: Hey, exactly.
- Is that-- when you talk to CEOs around the world, I know you're very much a traveling, globally traveling CEO, Enrique, are they allocating more money to AI and taking away from other places? And how do you see that playing out?
ENRIQUE LORES: I think it's consistent with what we have seen during the last years. More and more technology overall has become a big part of what all of us invest in our companies. And AI is just going to accelerate that trend even further. But when I look at me as a CEO and what are my priorities, where do I need to invest, clearly upgrading technology, making it more secure, bringing the new technologies is one of our top investment priorities.
- I was thinking, I joked around with you before this. The last time you're on our studio, it was March 5th, 2000, right at the start of the pandemic. Markets were under pressure. Your company was very different. How far, how different is your company today compared to three years ago? And where do you see HP the next five years?
ENRIQUE LORES: We, am really proud to say that HP today is a much stronger company that it was three years ago. We have made significant improvements, building a more growth-oriented portfolio, driving and leveraging many of the trends that we see in the industry, hybrid work, sustainability, security have really helped us to reposition our portfolio.
We have done significant changes, improving our digital infrastructure that helps us to be more efficient. We have aggressively reduced our cost, which helps us to be more competitive. We have invested in talent. So we have made a lot of progress. But the good news is that we have seen a lot of more progress to make to continue to build a stronger HP going forward.
- So the job isn't done yet.
ENRIQUE LORES: The job isn't done and the opportunity ahead of us for the company is fantastic. And AI is going to be to make it even stronger.
- Well, good to see HP in better shape, and the markets in better shape than in March 2020. Enrique Lores, HP CEO, always great to get some time with you. Appreciate it.
ENRIQUE LORES: Good to see you, Brian. Thank you.