HP Inc (HPQ.US) reported its first-quarter fiscal 2026 financial results and guidance on Tuesday. The company indicated that its second-quarter profit guidance may fall short of market expectations, influenced by U.S. tariff policies and rising memory chip prices. Full-year earnings for fiscal 2026 are projected to be at the low end of the previously forecasted range.

For the first quarter ended January 31, HP's revenue increased by 6.9% year-over-year to $14.4 billion, with adjusted earnings per share of 81 cents. Both figures surpassed analyst expectations of $13.9 billion in revenue and 77 cents per share. However, due to a complex operating environment, the company expressed a cautious outlook for future performance.

HP stated that, given the increasing fluidity of the business climate, it now expects fiscal 2026 performance to be at the low end of its earlier guidance range of $2.90 to $3.20 in earnings per share. For the second quarter ending in April, the company forecast adjusted EPS between 70 and 76 cents, compared to the average analyst estimate of 75 cents.

Following the announcement, HP's stock fell more than 7% in after-hours trading. Over the past 12 months, the company's share price has declined by 48%.

HP is facing multiple challenges. In response to U.S. tariffs, the company has shifted most of its product manufacturing for North America outside of China, but volatile trade policies continue to create pressure. Meanwhile, although PC demand has improved as customers upgrade old equipment and seek new AI capabilities, supply shortages and soaring prices for memory chips have emerged as significant obstacles.

Chief Financial Officer Karen Parkhill stated, "We have just completed a quarter characterized by a dynamic environment with rising memory costs. We are maintaining our full-year outlook but expect final results to be nearer the low end of our guidance range." She added during a conference call with analysts that memory prices in the current quarter have approximately doubled compared to the prior quarter and are expected to rise further.

HP noted that memory-related issues are likely to persist throughout the fiscal year and may extend into the next. In November, the company indicated that memory and storage costs accounted for about 15% to 18% of its PC bill of materials; it now expects this proportion to increase to 35% in the current fiscal year.

In the first quarter, HP's adjusted operating margin was 6.9%, below the average analyst expectation of 7.4%. To counter cost pressures, the company has implemented price increases, onboarded additional suppliers, and modified some product designs to reduce memory usage. These measures have shown progress, including the certification of new suppliers.

HP has also initiated a multi-year cost reduction plan aimed at saving $1 billion annually by 2028, though the plan includes expenses related to restructuring.

Despite cost pressures, HP's PC business performed strongly in the first quarter. Revenue from the Personal Systems segment, which includes consumer and commercial PCs, grew 11% to $10.25 billion, exceeding analyst expectations of $9.76 billion. Consumer PC sales increased by 16%, attributed to continued momentum in AI PCs.

Industry analyst Woo Jin Ho suggested that better-than-expected PC sales in the quarter were partly due to customers advancing their purchasing plans. He noted that the full-year forecast "suggests demand and margins may deteriorate in the second half due to the memory crisis."

In contrast, revenue from the Printing segment, which includes office printers and services, declined by 2% to $4.19 billion.

Earlier this month, payment company PayPal appointed HP CEO Enrique Lores to a senior executive role. HP has appointed board member Bruce Broussard as interim leader while it searches for a permanent successor. Broussard commented during the call, "We have a strong track record of navigating commodity super-cycles and periods of uncertainty."

Preliminary data from market research firm IDC suggests that global shipments of smartphones and PCs are expected to see low double-digit percentage declines in 2026. Analysts point out that rapid AI infrastructure development by technology companies is consuming a significant portion of global memory chip supply, which could impact demand for consumer electronics, including smartphones and PCs.