Released on December 1, 2020, 2:25 PM EST
During the COVID-19 pandemic, some stocks benefited from the stay-at-home trend. The stocks of companies such as Amazon, Zoom, Shopify and Peloton that are involved in providing online services are soaring. Other stocks obtained from online conversions provide a way for people to work online, such as HP and Dell.
Due to the trend of working from home and virtual schools, the demand for laptops has skyrocketed. However, technology stocks still face challenges. How does the COVID-19 pandemic affect HP's business? What is HP's sales prospects?
Currently, due to the coronavirus pandemic, most offices are closed, or the company's working capacity is significantly reduced. This trend has had a negative impact on HP's corporate PC and printer departments. However, the situation is more complicated than it seems. Although the demand for corporate printers has declined, there is a general shortage of ink.
One of the reasons for the shortage of ink may be the shortage of ethanol. In addition to solvents and printing inks, ethanol is also used to produce disinfectants and sanitary products. Due to the COVID-19 pandemic, these products are in great demand.
During the coronavirus pandemic, HP has benefited and lost from home trends. This is because it sells directly to consumers and also has a commercial sales department. Due to the surge in demand for personal computers and laptops from people working and studying at home, personal computer manufacturers such as HP and Dell have increased their income. Although HP's consumer division performed strongly, its commercial sales performance was poor. This is due to the closure of offices and schools. Some of these needs have shifted to consumers.
On November 24, HP announced its fourth quarter and fiscal year 2020 results. The company's laptop sales to students and remote workers offset the decline in office equipment sales. In terms of net worth, the company has benefited from the conversion of homes. Hewlett-Packard CEO Enrique Klores said when discussing the results with Yahoo Finance: "I think we have performed well in many of the company's businesses. It is clear that the pandemic has strengthened our business on the consumer side. And help us in this direction."
Due to the emergence of new technologies, some industries are in a long-term decline. The demand for printers is one of these market segments. Overall, the demand for printers, especially for HP, is declining. The transition to digital documents is real and is accelerating. Former HP CEO Dion Weisler admitted that demand is in a long-term decline.
In a speech in 2019, HP estimated that the compound annual growth rate of its total addressable market for home printing would decline by 4.5% from 2019 to 2023. It also forecasts a compound annual growth rate of only 0.4% in its total addressable market for office and media printing. The COVID-19 pandemic may worsen the growth momentum of companies.
As businesses and consumers are using PCs and mobile phones to view and share content, it is not surprising that the demand for printers has decreased. Traditionally, the printer business has been HP's cash cow. The company used to earn much more revenue from printer consumables such as ink cartridges than from selling printers. Printing consumables is a very profitable business. With the phasing out of printers, pressure on HP's operating profit margins will increase. Over time, the decline in printer sales will offset the increase in personal computer sales.
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HP's general revenue forecast for fiscal 2021 is $57.6 billion, which means a year-on-year growth of 1.8%. The sales growth forecast for fiscal year 2022 is even lower, at 0.30%. In fiscal year 2020, HP's revenue was 56.6 billion U.S. dollars, a year-on-year decrease of 3.6%. Sales of home PCs and laptops may temporarily offset the business decline caused by the coronavirus.
HP is entering areas such as 3D printing to offset the long-term decline in its printing and personal computer businesses. We will have to wait to see if the company's efforts are successful. Currently, HP's long-term sales prospects are bleak. Investors should treat this stock with caution.
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