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The return of HP Inc. experienced a big slowdown on Wednesday as something called "online" caught up with its printing supplies business.
HP
HPQ, -0.21%
Wednesday revealed that one of its biggest money generators, the sale of printing supplies, was facing new pressure due to Internet sales, which reduced previously juicy margins, in particularly in certain overseas markets. HP seems to have been surprised to see customers buying their print supplies online, where they say they have less market and prices are not good for HP.
"We are now embarking on a new battlefield called" online, "said CEO Dion Weisler, reminding some older listeners of the memories of the late '90s.
"We need new weapons to fight on the new battlefield," he said later. "You know, we can not bring a musket to a drone fight."
The computer and printer giant announced lower-than-expected financial results for the first quarter of fiscal year, mainly due to an unexpected 3% revenue decline in the supplies sector. The decline in HP's inventory after the numbers dropped significantly worsened as a result of the company's conference call, which ultimately resulted in a nearly 13% decline in after-hours business.
While HP is renowned for its hardware, such as printers and computers, the printing supplies segment is the most profitable engine, thanks to high-margin sales of products such as ink and toner than businesses and consumers need to make their printers work. The printing industry reported a net profit of $ 410 million before tax, for sales of $ 9.6 billion, compared with $ 821 million for the first quarter, while printing profit raises to $ 821 million. on revenue of $ 5.0 billion.
HP said that the supply business was weaker than expected and had the largest decline in the EMEA region (Europe, Middle East, and Africa), where it fell 9%. The company stated that all business customers purchased supplies online and that it held a significant share of the market, which was lower than traditional retailers and in-store retailers.
"The increase in online shopping has also led to a growing market of alternatives," said an HP spokeswoman. "We are implementing action improvement plans, including online programs and targeted marketing, to address this."
HP's problem seems to be that it comes up against cheaper ink and toner options from manufacturers and aftermarket suppliers, rather than HP brand inks and toners. .
"Online purchases of ink / toner competitors are not a new phenomenon that has suddenly become a problem during the last quarter, but HPQ was not aware of the share level of competing online products." until now, "said David Ryzhik, an analyst at Susquehanna International Group, in an email. "In other words, they overestimated their own market share because they did not have as much visibility on" downstream "use until recently."
According to HP forecasts, the supply slowdown is expected to continue for the remainder of the year due to pricing and high inventory issues. HP said supply revenues would be down about 3 percent this year, after already saying the revenue would be flat or slightly up in 2019.
HP has already had problems with counterfeit ink and toner that its printers can now detect. Weisler said HP was using it to discourage counterfeits and protect its intellectual property and to encourage services such as its managed ink program. Some comments at Wednesday's call gave the impression that HP's printer business is waking up in the era of e-commerce. Being the leader can also become complacent, which has had an unexpected impact on recent progress in his recovery.
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