HP Inc (NYSE:HPQ) Q4 2018 Earnings Conference Call - Final Transcript

Nov 29, 2018 • 05:00 pm ET

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HP Inc (NYSE:HPQ) Q4 2018 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. And we will now begin the question-and-answer session. (Operator Instructions) And we also ask that you please limit yourself to one question and a single follow-up. Amit Daryanani, RBC Capital Markets.

Analyst
Amit Daryanani

Two questions from me, I guess. The first one, Dion, you mentioned about CPU shortages impacting your growth in the quarter you were in. Can you just touch on how much revenue do you think you left on the table due to these issues? And as you think about the first half, is the impact sort of start to diminish in Q1 and Q2 or does it actually magnify versus what you saw in Q4?

Executive
Dion Weisler

Okay. Thanks, Amit. So you recall at the Securities Analyst Meeting that we said we were cautious for the first half of 2019 with regards to CPU shortages and that's exactly what's playing out. Intel stated again this week that shortages are constraining their customers' growth across their ecosystem and we're seeing that impact across multiple core families of processors and chip sets that have an effect or an impact both to high end and the low end of the range.

We also said at SAM that we expect bigger impact in the first half of 2019 with more variability around revenue, depending on the ability to secure supply in order to meet our robust demand. The demand signal for our products is and remains really strong, even through the market supply constraints that we're seeing. And while the shortages are expected to put a strain on the industry and the ecosystem, this is just something that we have to work through with our suppliers, our partners, and our customers in the short-term.

Executive
Steve Fieler

The only thing I'd add there, as Dion said, our caution is definitely playing out and it's really not dramatically different than our views at the Securities Analyst Meeting in totality. But probably expected more of an impact in Q4 and so would see a larger impact in Q1 than we saw in Q4.

Analyst
Amit Daryanani

Got it. And, Steve, let me just follow-up. You had very impressive free cash flow in fiscal '18 at $4.2 billion. As I think about the fiscal '19 guide of $3.7 billion, and I think you had assumed, at least at the Analyst Day that cash conversion cycle would improve by a couple of days in '19 versus '18, maybe just help me understand what are the couple of levers or headwinds you have that drags down fiscal -- free cash flow down in fiscal '19 or are we just being conservative over here?

Executive
Steve Fieler

Yeah. So may I'll just describe then some of the assumptions. We did have a strong finish to fiscal '18, in Q4 specifically. And as a reminder, we do expect that our free cash flow to grow in line with earnings over time. But as we saw for the full year, and again in Q4, we had stronger Personal Systems volume and we did have an improving our cash conversion cycle. Personal