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HP Inc. (HPQ) fell short of 2Q26 EPS expectations, marking its third EPS miss in the past four quarters as the PC, laptop and printer maker faces moderating demand and escalating tariff-related costs, particularly in its Personal Systems segment. Alongside the Q2 earnings shortfall, HPQ also downwardly revised its FY26 EPS guidance to $3.00-$3.30 from its prior outlook of $3.45-$3.75, fueling a sharp selloff in the stock.

The soft guidance is mainly driven by softening demand in the PC market and the anticipation of tariff-induced cost pressures, most notably including the 10% U.S. tariff on Chinese imports. That tariff is significantly raising component and logistics costs for the Personal Systems segment, as reflected by a 1.5 percentage point drop in the segment's operating margin to 4.5%.

• To counter these pressures, HPQ is accelerating supply chain diversification, shifting production to Southeast Asia (e.g., Vietnam and Thailand) and Mexico, while implementing $1.9 bln in annualized cost savings through its Future Ready program and selective price adjustments. Executives expect these measures, including optimized sourcing and operational efficiencies, to fully offset tariff-related costs by 4Q26, though near-term margin pressures and execution risks remain.
• In Q2, the Personal Systems segment achieved net revenue of $9.0 bln, up 8% in constant currency, propelled by a 9% increase in commercial PCs and a 6% rise in total unit shipments, driven by a Windows OS refresh cycle and strong demand for AI-enabled PCs, which HP projects will account for 25% of its PC portfolio by FY26 end.
• In contrast, the Printing segment reported a 3% revenue decline in constant currency to $4.2 bln, with Consumer Printing and Commercial Printing both down 3%, driven by reduced hardware demand and a 5% drop in supplies revenue as customers deferred upgrades. Printing’s operating margin, however, remained robust at 19.5%, up 0.5 percentage points yr/yr, supported by disciplined cost management and a focus on high-margin unit placements.
• From a longer-term perspective, HPQ highlighted its Future of Work Strategy, which aims to position the company for growth by leveraging AI innovation, hybrid work solutions, and operational efficiency. Key components include accelerating AI PC adoption through new product launches like the next-generation AI PC portfolio, enhancing workforce experience platforms to support hybrid work, and integrating AI capabilities via the Humane acquisition to strengthen its ecosystem. The strategy also emphasizes portfolio optimization, process automation, and cost reduction to fund investments in growth areas.

HPQ’s weak FY26 guidance, driven by tariff-induced cost pressures and softening PC demand, underscores near-term profitability risks, but its aggressive supply chain diversification and $1.9 bln Future Ready cost-saving program offer a credible path to mitigate tariff impacts by 4Q26. Meanwhile, the company's focus on AI PCs and hybrid work solutions strengthens its long-term positioning.