Good afternoon, and welcome to the First Quarter 2018 HP Inc. Earnings Conference Call. My name is William, and I will be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today's call, Steve Fieler, Head of Investor Relations. Please proceed.

Good afternoon. I'm Steve Fieler, head of treasury for HP Inc., and I'd like to welcome you to the fiscal 2018 first quarter earnings conference call with Dion Weisler, HP's President and Chief Executive Officer; and Cathie Lesjak, HP's Chief Financial Officer. Before handing the call over to Dion, let me remind you that this call is being webcast. A replay of this webcast will be made available shortly after the call for approximately 1 year. We posted the earnings release and the accompanying slide presentation on our Investor Relations web page at www.hp.com. As always, elements of this presentation are forward looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these risks, uncertainties and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K. HP assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HP's Form 10-Q for the fiscal quarter ended January 31, 2018, and HP's other SEC filings. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release. And now I'll hand it over to Dion.

Thank you, Steve. Good afternoon, everyone, and thank you for joining us. Right out of the gate, we're off to a strong start for the fiscal year. A great quarter of double-digit revenue and earnings per share growth year-over-year speaks to our ability to deliver consistent and sustained momentum across our portfolio and across regions. To echo what I've said many times, we're playing our own game, delivering operational excellence, predictable shareholder returns and prioritizing profitable growth. And we're doing this while building the business for the long term and investing in our core growth and future strategic framework. And while our strategy remains consistent, every day, we are improving and refining our business and go-to-market execution. We are engineering some of the best innovations in our history to enhance value for our customers and partners. We're evolving business models to match changing customer needs and market realities, and we're constantly looking for ways to improve our overall cost structure, and it's working. Quarter 1 was impressive across many dimensions. We delivered another quarter of top line growth year-over-year with net revenue up 14% to $14.5 billion and growth across all 3 regions in both Personal Systems and Print. We drove bottom line growth as well in Personal Systems and Print with year-over-year increases in operating profit dollars. We delivered $0.48 of non-GAAP diluted net earnings per share, up $0.10 compared to Q1 of last year. Even when you adjust for the tax rate benefit from U.S. tax reform, we earned $0.44 in Q1, up 16% year-over-year and above our previously guided range of $0.40 to $0.43. And we delivered nearly $1 billion of free cash flow in the quarter and returned 71% of it to shareholders through share repurchases and dividends. As you know, Congress passed the U.S. Tax Cuts and Jobs Act in our fiscal Quarter 1. HP supported tax reform and believes it will make the U.S. more globally competitive and help stimulate the economy. We expect tax reform to benefit HP's stakeholders and are planning for a lower go-forward effective tax rate. We believe this will help us drive higher net earnings, strengthen our balance sheet and increase our near-term shareholder return opportunities. We expect it will also create capacity for us to invest in our business, including incremental investments in our workforce. We intend to use a portion of our annual tax savings to invest back into our nonexecutive employees by increasing their ongoing annual variable performance bonus opportunity. Cathie will walk you through more details on U.S. tax reform in her remarks. Now let me cover HP's segment performance. Personal Systems had a terrific start to FY '18. Net revenue grew 15% year-over-year, marking 5 consecutive quarters of double-digit revenue growth. Let me repeat: 5 consecutive quarters of double-digit revenue growth. And this quarter comes on top of 10% growth in Q1 of FY '17 versus the prior year. We also achieved the trifecta: share gains, revenue gains and profit dollar growth. Congratulations to this team for a stellar job. Performance was strong and broad based across all segments, product categories and regions. We achieved double-digit growth in Consumer and Commercial in Notebooks, Desktops and Workstations, and in the Americas, EMEA and APJ. Personal Systems continues to deliver strong financial results, unrivaled innovation and, ultimately, is shaping the future of personal computing. Underpinning our market success is amazing design, innovation and a consistent focus on leveraging customer insights to create and deliver experiences that amaze. But it's not just us saying we have the most innovative product lineup. At January's Consumer Electronics Show, we took home 77 awards for innovation. And despite being a consumer show, our awards recognized our Consumer and Commercial lineup as we continue to design for OneLife, products at the intersection of home, work and mobile. We introduced convertible PCs, such as the latest 15-inch Spectre x360, and new innovations like HP Pavilion Wave that brings Amazon Alexa to a powerful compact desktop. And we showcase continued leadership and security and manageability with products like the updated EliteBook 800 series. In gaming, we continue to be well positioned to capitalize on market opportunities with our OMEN lineup. We announced enhanced streaming in these powerhouse products, including the incredible OMEN X big format gaming display with NVIDIA G-SYNC. And as the market accelerates with a service-led economy, our Device as a Service solutions continue to gain traction. Last week, we announced DaaS offerings to Apple devices to support our multi-OS leadership. Device as a Service supports our customers with the ability to drive efficiencies, free up capital and IT resources, and improve employee experience with technology. Our focus on providing incredible experiences to our partners and customers contributed to market share gains. In calendar Quarter 4, the PC market grew both in units and revenue. We outpaced the market growth in every region, extending our #1 unit market share to 23.5%, up 1.7 points year-over-year. As we've said before, market share continues to be an outcome of great innovation and operational excellence, not an objective. Much like Personal Systems, the Print business is off to a fantastic start. In Q1, we grew revenue and operating profit and placed more good units. And we did this irrespective of the addition of our Samsung Print transaction. Total Print revenue was up 14% year-over-year with growth across Consumer hardware, Commercial hardware and Supplies. We're seeing growth across all regions and broadly across the business. As I've talked about, we are reinventing how the world experiences Print, and the business is more relevant than ever. Supplies revenue grew 10% year-over-year, marking another quarter of substantial progress and supporting our confidence in the Four Box Model to drive health in the Print business for the long term. Let me highlight a few areas of Print progress as part of our growth strategy. Graphics revenue grew year-over-year largely driven by Indigo and PageWide presses. Managed Print Services revenue grew year-over-year as businesses continued to shift to contractual printing. In IDC's most recent report on the smart multifunction print market, HP was the recognized leader for both A4 and A3 across laser and PageWide. IDC recognized HP as the #1 vendor in both capability and strategy. And in A3, we're gaining market share both year-over-year and sequentially. In Quarter 1, we added an important new functionality to our A3 PageWide products for the Enterprise with low-cost color, maximum uptime and best-in-class security. And we're excited to have closed the Samsung Print acquisition as of November 1, 2017, that we'll now call S-Print going forward. We have now created a larger Print family, which will help us address the $55 billion A3 market opportunity along with adding capabilities and revenue in A4. The integration efforts and key initiatives are on track. We're joining teams, combining our product portfolios, onboarding new partners, rationalizing SKUs and streamlining processes. Q1 also marked more milestones for our 3D Printing business. Earlier this month, we introduced a lower-cost color solution that, for the first time in the industry, creates engineering-grade prototype, functional parts in black or a full spectrum of color, including white. This opens up a whole new TAM, and importantly, we're now the only 3D printing provider that enables both prototyping and industrial final part production on the same underlying technology platform. We also introduced a future collaboration with Dassault Systèmes, a world leader in 3D design software to unlock new voxel-level possibilities for product developers. And we continue to grow within our key verticals and add new customers, such as FedEx and the U.S. Marine Corps. Overall, I'm very pleased with our Q1 results and the vitality of our business. But as always, we have more work to do. We are never satisfied, and we'll continue to build on HP's strong foundation and incredible opportunities ahead. Every day is a new opportunity to embrace change, accelerate our thinking and deliver for the market and for our customers. We're leading in the core with sprinkles of magic across our portfolio. We've entered adjacent markets with disruptive IP and strategies where we can provide differentiation and accelerate industry shifts. And we're investing in our future, creating categories with potential upside for decades to come. We're also investing in lending our voice to what makes HP an important company in the world, from sustainability and the environment to diversity and inclusion, we believe it's not just what we do but how we do it. Deep in our DNA, we believe in leveraging the power of the company to benefit societies and the communities in which we operate. These efforts underpin our business focus and our corporate values. This is a very exciting time to be at HP. Thank you, and I'll now turn the call over to Cathie to provide more details on our performance and our financial outlook.

Thanks, Dion. We delivered strong results in Q1 with impressive revenue growth and year-over-year increases in operating profit dollars, free cash flow and earnings per share. Before getting into specific Q1 performance, I want to first provide some context on tax reform and its impact on our results. There are many broad and complex elements to the Tax Cuts and Jobs Act that require extensive tax analysis, much of which is ongoing as government authorities share further clarifying publications. We expect additional details to be available in the months ahead, so on today's call, I'll highlight the largest impact areas and provisional adjustment. I'll then later summarize the combination of these impacts in our financial outlook. For starters, we recorded a noncash tax-related accounting gain of $1.1 billion in our Q1 GAAP-only results. This $1.1 billion gain is a net number, inclusive of the expected repatriation transition tax charge and other net accounting benefits. Under the new tax code, U.S. companies are required to pay a repatriation transition tax on offshore earnings that have not been previously repatriated to the U.S. We booked a gross repatriation charge of $3.2 billion with payments to be made over the published 8-year schedule. However, the actual cash payments will likely be much lower as we expect to reduce the overall liability by more than half once existing and future credits and other balance sheet attributes are used. We've also recorded a net $4.3 billion accounting benefit in the quarter, which more than offsets the gross repatriation tax. This provisional adjustment is a result of reversing previously accrued-upon earnings from foreign subsidiaries, which are netted against revaluing our deferred tax assets and liabilities at a lower 21% U.S. tax rate. In Q1, we also saw a positive impact on our effective tax rate. Our non-GAAP tax rate was 15% compared to our previously provided guidance range of 21% to 22%. The 6.5 point tax rate delta generated approximately $0.04 of non-GAAP diluted net earnings per share in the quarter. With this context in mind, let me now cover the Q1 results. Net revenue was $14.5 billion, up 14% year-over-year as reported or 13% in constant currency. And our performance remained strong across businesses and geographies. Regionally, year-over-year, Americas grew 10%, EMEA was up 13% and APJ grew 18%, all in constant currency. Gross margin of 17.8% was up 10 basis points year-over-year, driven by improved rate in Printing, partially offset by higher commodity cost in Personal Systems. Gross margins were down 30 basis point sequentially in line with normal seasonality. Non-GAAP operating expenses of $1.6 billion were up 17% year-over-year or 5% sequentially driven by the addition of S-Print along with incremental R&D and go-to-market investments to support growth. Net OI&E expense was $66 million for the quarter. With a non-GAAP tax rate of 15% and a diluted share count of approximately 1.7 billion shares, we delivered non-GAAP diluted net earnings per share of $0.48 or $0.44 when adjusting for the previously estimated 21% to 22% tax rate compared to the 15% recorded. Non-GAAP diluted net earnings per share primarily excludes restructuring and other charges of $31 million, acquisition-related charges of $42 million, amortization of intangible assets of $20 million, partially offset by nonoperating retirement-related credits of $56 million and the related tax impact on these charges. Most significantly, we recorded a provisional $1.1 billion net gain for the adjustments resulting from the U.S. tax reform. In Q1, GAAP diluted net earnings per share was $1.16. Turning to the segments. Personal Systems net revenue remained very strong, delivering $9.4 billion, up 15% year-over-year as reported or 13% in constant currency. The results continue to be broad based, reflecting our innovative product portfolio and global execution. By customer segment, Consumer revenue was up 13% and Commercial revenue was up 16% year-over-year. By product category, Notebooks were up 14%, Desktops up 17% and Workstations up 11% year-over-year. Personal Systems operating profit dollars grew year-over-year and operating margin was 3.6% in the quarter, which is down 20 basis points sequentially and year-over-year. We saw industry-wide increases in component costs again in Q1 driven primarily by DRAM, which continues to put pressure on margin. We now expect to see increased component costs throughout FY '18 and, therefore, are mitigating via pricing, supply chain scale and leveraging our balance sheet, driving positive mix shifts and currency favorability. Together, these actions should enable us to offset some of the commodity cost increases. Before turning to Printing, let me add a little more color on S-Print since our financials include a full quarter of results. As a reminder, last quarter, we updated our full year FY '18 guidance to include the operational impact of the acquisition. We estimated $1.4 billion of revenue and added $0.01 of non-GAAP net earnings per share to our full year outlook. We highlighted that, as expected, S-Print's hardware and Supplies revenue base was in decline driven by low-end A-4 products. We also describe that S-Print would be in investment mode during the first half of the fiscal year, putting pressure on overall Print margins before becoming profitable during the second half. It's important to reemphasize that we intend to integrate the business across the globe as quickly as possible. This is fundamental to our value-creation plan and includes rationalizing SKUs with 25% of Samsung-branded SKUs already reduced by the end of Q1, combining the respective Samsung and HP-branded products into an integrated portfolio for our collective sales force, and transitioning the S-Print installed base into the HP sales model. The faster we integrate, the quicker we create value, and this is exactly our plan. A direct result of this integration strategy is that we are unable to accurately size organic versus inorganic hardware units or revenue results. Said differently, depending on the actual tradeoffs already being made in the field, the additional $1.4 billion of acquisition revenue in FY '18 may indeed come from either Samsung or HP-branded SKUs. From a reporting perspective, we have included all S-Print hardware in Commercial hardware revenue and units since the integration is being led by our office business. As a result, there is no impact to Consumer hardware revenue or units at this time. In the future, we may realign these SKU-level results depending on the organizational ownership at that time. Now getting back to Printing performance. Revenue was $5.1 billion in the quarter, up 14% year-over-year or up over $600 million. We're very pleased with this growth with or without the impact from S-Print. Total hardware units were up 14% year-over-year with Consumer units up 7% and Commercial units up 73%. In calendar Q4, overall Print unit share was 38%, down 2 points year-over-year. Moving to Q1 Supplies performance. Revenue of $3.4 billion was up 10% year-over-year, which includes approximately 6 points of S-Print supplies. We do not anticipate breaking out S-Print's specific Supplies results in future quarters due to the integration progress that has already been made and, specifically, the impact that hardware unit placements in Q1 would have on future supplies. Overall, our Supplies results reflect our sustained efforts around stabilizing supplies and an easier year-over-year compare. We believe that the Four Box Model remains a good predictor of our Supplies performance, and we continue to operate below our channel inventory ceiling. We're in the early days of A3 but remain confident and optimistic about the opportunity ahead. An important marker for success of A3 and for our S-Print acquisition is making steady progress towards our goal of achieving at least 12% market share of A3 hardware units by the end of fiscal '20. In calendar Q4, we achieved 7.9% total share, including both S-Print and HP. We also continue to make progress in our contractual offerings, including good momentum with Instant Ink, where we are growing our global subscriber base. Print operating profit dollars grew $87 million year-over-year, and operating margin was 15.8% in the quarter, down 20 basis points year-over-year and 80 basis point sequentially. The largest driver of the margin decline is the impact of adding S-Print. We expect that our Q1 operating margin rate will be the low for the year. Now turning to cash flow and capital allocation. Cash flow from operations was $996 million and free cash flow was $977 million in the quarter. We finished Q1 with a $1.2 billion net debt position, which includes the approximately $1 billion in funding for S-Print. Cash conversion cycle was minus 27 days, which weakened 3 days sequentially driven by an 8-day decrease in days payable outstanding, offset by a 2-day decrease in days sales outstanding and a 3-day decrease in days of inventory. We have been deliberately building our owned inventory and accounts payable balance steadily in FY '17 and specifically in Q4 as we leveraged our balance sheet to address rising component costs and to support growth. In Q1, we typically adjust these balances down for seasonality, and we shifted more this year, given the higher beginning balances. During Q1, we had a total capital return of $692 million through $462 million in share repurchases and $230 million in cash dividends. With tax reform, our long-term capital allocation strategy remains unchanged. However, we will now have the opportunity to more efficiently access our global cash and run the business with lower levels of cash on the balance sheet. We are still finalizing the specific timing and quantity of repatriated cash, and we'll update you more in the months to come. In addition to supporting operating cash needs, our priorities for using this cash are, first, ensuring that we maintain our existing investment-grade credit rating. We plan to reduce our gross debt levels, taking into consideration our resulting net debt position after repatriation, the tax repatriation, cash liability and share repurchases. Second, opportunistically returning capital to shareholders with a focus on incremental share repurchase. Third, investing in our nonexecutive workforce as Dion described. And finally, we're not changing our disciplined and returns-based approach to capital allocation, including M&A. Looking forward, keep the following in mind related to our financial outlook: In Personal Systems, we now expect that the overall cost of components driven primarily by memory will continue to increase throughout FY '18. This headwind and any net impact on repricing will ultimately depend upon actual market demand and competitive dynamics, including offsets from gross currency benefits. In Printing, we expect that Samsung-branded supplies continue to decrease due to declines in the historical installed base. Overall, we expect that total Supplies revenue, inclusive of both legacy HP and S-Print, to be up 5% to 7% in constant currency for the aggregate remainder of FY '18. Looking forward to FY '19, we expect the overall Supplies business to be flat to slightly up in constant currency. In addition, we expect to opportunistically place units with a positive NPV. For the full year, we expect to deliver our productivity initiatives as guided at SAM. We also continue to look at opportunities to take cost out of the business, especially with the close of S-Print, overall commodity cost environment and the opportunity to expand the TAM of positive NPV units. We'll also continue to leverage our balance sheet if we see attractive economic opportunities to do so. We have factored in the various tax reform implications in our full year non-GAAP outlook. We estimate our go-forward effective tax rate to be 16% plus or minus 2 points, which is improved from our previously guided FY '18 tax rate between 21% to 22%. This generates a full year diluted net earnings per share benefit of approximately $0.13, of which $0.04 has already been earned in Q1. Importantly, the 16% rate plus or minus 2 points is a full year outlook. We are likely to see more quarterly variations to the rate just like we saw in the lower Q1 15% rate, which is now expected to create a sequential tax headwind in Q2. Partially offsetting the $0.13 full year diluted net earnings per share tax benefit is an approximately $0.03 diluted net earnings per share investment during the remainder of the year to fund the higher variable performance bonus opportunities for nonexecutives, which will be recorded in the segment's operating results. Therefore, the net U.S. tax reform benefit is approximately $0.10 per share for the full year with approximately a $0.02 benefit in each remaining quarter in FY '18. From a GAAP-only perspective, our guidance now includes an incremental noncash $20 million charge per quarter for amortization of intangibles related to the S-Print acquisition. We have not assumed other GAAP-only adjustments related to the U.S. tax act other than the onetime $1.1 billion accounting gain already recorded in Q1. However, our tax analysis is ongoing and tax guidance is still being regularly clarified by government authorities, which may impact our go-forward tax model or accounting and, therefore, result in future adjustments. With all that in mind, we expect Q2 '18 non-GAAP diluted net earnings per share is in the range of $0.45 to $0.49, including the $0.02 net benefit from U.S. tax reform. Q2 '18 GAAP diluted net earnings per share is in the range of $0.42 to $0.46. We are raising our full year fiscal '18 non-GAAP diluted net earnings per share by $0.15, including the $0.10 net benefit from U.S. tax reform. The range is now $1.90 to $2. And our full year fiscal '18 GAAP diluted net earnings per share is in the range of $2.53 to $2.63. Before transitioning to Q&A, I want to update you on prospective changes to our earnings calendar. We're looking to move our earnings calls in future quarters closer to the date of quarterly or annual reports with the SEC. The changes in the number of dates will depend on the specific quarter, and we'll continue to announce our earnings call dates about 2 weeks prior to each call. I know there are a few new and somewhat complicated topics that we covered, so let me briefly summarize our quarter. We had impressive revenue growth and year-over-year operating profit dollar expansion across both segments with or without S-Print. We continue to make progress executing our core growth and future strategy. And we're investing in the business for the long term and, at the same time, committing to return capital to shareholders. With that, let's open up the call for questions.

[Operator Instructions] Our first questioner today will be Amit Daryanani with RBC Capital Markets.

I have 2 questions, I guess. Maybe the first 1 to start with, when I think about the 4% organic Supplies that you guys talked about in Q1, could you just maybe help connect that with the expectation that fiscal '18 will be flat to slightly up in Supplies, what do you guys see in the Four Box Model, I guess, that gives you pause that the trend you saw in Q1 doesn't sustain on an organic basis in Supplies?

Sure, Amit. But let me just make sure it's clear what I said in my remarks because, what we said is that in -- for Q2 to Q4, we expect that the Supplies growth in constant currency would be 5% to 7%. That includes the Samsung-branded Supplies impact. And the way we came to that number, and this is really helping all of you have a milestone at which to measure us against, and that's that we took the base plan for HP core for FY '18 that we talked about at the Security Analyst Meeting, which was basically flat to slightly up in constant currency. And we layered into that, on top of that, the S-Print Supplies before the integration begins -- began, okay. And the result is that when you look at that on a year-to-year basis, it's 5% to 7% for Q2 to Q4. As you appropriately talked about in Q1, we were up 10%. We have about 6 points of Samsung-branded Supplies in Q1, and that's probably the only quarter in which it's a real clear inorganic piece that we can calculate. I'm sorry, are there other people hearing that? Hold on, you guys. We have music coming in. We're not quite sure why.

That sounds to be coming from the main speaker line

Yes, maybe. Okay, sorry about that. So in Q1, 10% year-over-year Supplies growth, 6 points with Samsung-branded Supplies. And again, this was the first and only quarter we're really going to get a clean view of Samsung Supplies because those Supplies in Q1 really came from the preacquisition installed base. As I mentioned in my prepared remarks, we have had SKU rationalization of about 25% of the S-Print SKUs have been reduced. And so going forward, some of what would have been originally considered part of a increasing install base for S-Print hardware is now really going to be HP. So there's not a clear cut. But in Q1, there wasn't that list that's with 4% of organic Supplies growth year-over-year.

So let me just add, Amit, that we have really high confidence in the Four Box Model and the team's ability to drive improvements in each element of each of the 4 boxes. I think, Enrique and the regional presidents -- Nick, Christoph, Richard -- and the teams did a great job in stabilizing Supplies earlier than expected last year. I have confidence in the team's ability to deliver a successful integration of the S-Print business going forward so that our total Supplies business is flat to slightly up next year and the Four Box Model is delivering as predicted.

Got it. And if I could just follow up on the Personal Systems side. Again, overall revenue number is fairly impressive here, especially given the tough compares you guys have. Can you just maybe -- -- when you look at the performance there, what is enabling that? Is it share gain? Or is it end demand in PCs doing better? And I guess, your confidence that there isn't a channel build that's happening at this point in that segment.

Well, I'm happy to kind of give you the bigger picture. And Cathie, if you want to give some tactical data points for the in-quarter numbers to the team, that would be helpful. I tend to remind folks every quarter this is still a massive $334 billion market, half of which is traditional hardware. And while 1 in 5 have an HP logo on it, I always remind our sales folks that 4 out of 5 potential customers are missing out on experiencing HP's magic. And so I like this market. I've always liked this market. I've been pretty consistent about that. I think we got the best portfolio in our history. It keeps on getting better, which is why we grew at a 7-point premium to the market last quarter, and I think we've shown that we can consistently do that. And while share gains are not the objective, we see upside in the outcome of engineering experiences that amaze. We're playing our own game. We're shifting our portfolio towards more profitable parts of the market, and we're taking share where we want to, and we're not taking share for share's sake. Our channel inventory continues to be well managed. I'm very confident that our strategy of innovation, of cost management, the team's ability to execute positions us well, not only for today but also well into the future.

And Amit, if you look at what's going on in the market from a PC perspective, we are starting to see some signs of improved PC growth, both in calendar Q3 and in calendar Q4. We did see growth in units and revenue, although I will say the analysts are predicting that units will be down in traditional PCs this year with revenue roughly flattish. Some of the dynamics that are going on, our ASPs are up. They're up because we've been repricing -- we and the market -- the rest of the market have been repricing for commodity cost increases. But they're also up because we're getting a really nice mix shift to higher-end products, higher price, better margins. And so that is also helping with kind of revenue versus units. But we have seen some signs of life in Personal Systems.

Our next questioner today will be Steve Milunovich with UBS.

You had a good cash flow quarter once again. And yet, you didn't raise the $3 billion-plus target. Was free cash flow above what you expected? And why couldn't we expect a higher number for the full year?

So we're very pleased with the free cash flow this quarter. And it is pretty atypical for us to update our free cash flow guidance on a quarterly basis, so we are still at, at least $3 billion. That being said, there is -- we are starting to see some upside in that number. But keep in mind that free cash flow is really driven by earnings, obviously, but also what happens to the cash conversion cycle and also the business mix. And when we look at those components, we still -- we feel very confident in the at least $3 billion in free cash flow for the year.

Okay. And then I think you were looking for an improved Personal Systems margin as you go into the second half, figuring the comparison's improved. And maybe at the time, you were thinking that DRAM prices weren't going to rise. Should we still see an increasing Personal Systems margin in the second half? And to what degree does this new view on DRAM impact that?

So let's start first with kind of our expectations around commodity cost, and they have changed. So if we go back to the Security Analyst Meeting, we really thought that they would start to level off, and we're kind of at the levels that they would stay at. And we have seen continued increase in fiscal Q1 for us, particularly in DRAM. And we now expect that to continue throughout the year. In terms of margin, we definitely saw ASP increases, again as a result of pricing that we've taken over the last year, mix, positive mix and currency. But that just wasn't enough to offset the commodity cost increases that we've seen, and so we are basically down 20 basis points year-on-year and quarter-on-quarter. But one of the things I will ask you to just think through, mathematically, if we were able to offset 100% of our commodity cost increases but not generate any incremental profit on these commodity cost increases, it would be dilutive to margin. And the numbers that we're coming up with is somewhere between 15 and 20 basis points is the headwind, simply if we were able to 100% reprice for commodity costs, which we have not been able to do.

And let me give you just some additional longer-term context as we discussed at SAM, our mix shifts and our relentless focus on cost will continue, but we will also see a positive evolution of operating profit dollars and margin, which we expect to happen in the medium to longer term as we do that mix shift. Remember, half of that $334 billion market is not in the traditional hardware. It's in other things like services and more profitable parts of the market, and we are mix shifting towards that over time. And as a result, we raised the high end of our range to 5% at the Security Analyst Meeting, and we feel confident in our strategy and in our ability to transform the portfolio over time.

So we were in the 3% to 4% historical range. We think that we will remain in that range for the rest of the year. But keep in mind that we also -- we go after any revenue that isn't dilutive to our margins, and it would be really a mistake for us to just focus on rate and not on operating profit dollars because, ultimately, it's operating profit dollars that are going to generate cash flow long term.

And our next questioner today will be Wamsi Mohan with Merrill Lynch.

Dion, now that you've had the Samsung portfolio for over a quarter, has anything surprised you in the business? And do you anticipate making any changes to the rate or pace of investments needed there? And can you just give us some context. Has this Intel chip flaw had any impact on demand? Or do you anticipate any uptick in demand from that? And I have a quick follow-up for Cathie.

Sure. Look, I would say the S-Print integration is going according to plan. We moved the head of our office Print business. He relocated to Korea with his family last year to oversee the process and the business, so we've got people from our traditional business inside the S-Print business and vice versa. We've combined our R&D orgs. We've created a new center of excellence in Korea. Remember that we added more than 1,000 incredible R&D engineers into the HP family and more than 6,500 patents. So I would say it's -- we're 1 quarter in and the business is operating as expected, and it's providing us with the opportunity to really accelerate our progress in the A3 $55 billion market, where we've been underpenetrated. So I feel good about that. The second question was...

On the Intel chip flow.

Intel. No, I don't think we've seen a broad reaction to the demand for PCs broadly or for the Intel platform. Obviously, we work very hard to make sure that we're providing the appropriate updates. Security is incredibly important to us and to our customers, and I think we're on the front foot there, reacting faster than all of our competitors. But I don't believe it's made a broad impact to demand.

And our next questioner today will be Katy Huberty with Morgan Stanley.

Two questions from me. The first is where do you think copier share could exit this fiscal year? And then when will the A3 market begin to pull through noticeable aftermarket revenue and really have some impact on Supplies? And then I'll ask my follow-up.

So Katie, from a -- A3 hardware share perspective, as you know, our goal is to hit at least 12% in FY '20. And we had 7.9% share in the last calendar quarter and up both year-on-year and sequentially. So we're feeling confident and optimistic about what we can do in the copier space. The kind of reception from customers has been positive, and so it does take a little bit of time, with such a big transactional business that we have, for it to have a meaningful impact, but we are making progress.

We continue to sign new channel partners. The pipeline is growing consistently in every single region. So this is obviously an area that we spend a lot of time. It is, again, a $55 billion market. We've been underpenetrated for a long time. We're making progress. More work to do and we're on track.

Is there any meaningful Supplies impact yet? Or is that still to come from A3?

It's not meaningful at this point in time.

And our next questioner today will be Toni Sacconaghi with Bernstein.

I have one for Dion and one for Cathie. Dion, I'm just trying to reconcile maybe qualitatively more than anything sort of the forces at work on Supplies. So Supplies organically have grown better than 2% for each of the last 3 quarters. And all the leading indicators sound good. The graphics business is growing. MPS is growing. You've commented for the last several quarters about placing profitable units. A3 is ramping. All of those would kind of suggest that Supplies actually should improve going forward. And yet, the guidance for fiscal '19 appears that it may be softer than what we've seen in recent quarters. So are there some offsetting takes that we're missing? Or how do we sort of square the circle here?

Toni, so maybe I'll take that one. There are some forces outside of the core HP Supplies business in Samsung. Their installed base is continuing to come down pretty significantly, and their installed base is mostly low-end A4 laser and just not pulling the attach. And so we will, in FY '19, be flat to slightly up in constant currency. And I think that that's not inconsistent with what we've been talking about in last year or this year when you look at the easy compare that we had.

I mean, it's not a surprise to us, I guess, is what Cathie's saying. We contemplated it. It was fed as an input into the Four Box Model, and the Four Box Model has been the strong predictor of outcomes for us. And as a result of that, we believe that Supplies in '19 will be flat to slightly up.

Okay. And then just a follow-up. Cathie, currency has moved much more favorably since you provided your SAM guidance. Wouldn't that be an incremental tailwind to both revenue and EPS? And can you help quantify that for us? And then should we expect a 16% tax rate beyond fiscal '18?

So let's start with the last question first. Yes, we expected in FY '19 our tax rate will be 16% plus or minus 2% so in line with FY '18. In terms of FX, you're right. At the time of SAM, we thought that the tailwind to revenue is going to be 1 to 2 points. With kind of exchange rates now, it's more like 2 to 3 points. And we saw in Q1, basically, 1.7 points worth of tailwind. But we also are starting -- are seeing basically commodity cost increases. And so that is basically being offset somewhat by the tailwind that we're seeing on the currency side. And then also just the pressure in the market. It's a very competitive market. The competitive dynamics are such that there is pressure to basically reprice. And so the combination of the commodity cost increase and the repricing assumptions basically say that the tailwind from currency in FY '18 versus '17 is still about 6 points -- $0.06.

And our next questioner today will be Jim Suva with Citi.

One question for Cathie and then one for Dion. For Cathie, the operating margins in Print segment, which went down, I believe, about 20% -- 20 basis points year-over-year. Is that solely attributable to the Samsung integration or investing or something else? And then for Dion, with average selling prices of PCs going higher, are you seeing a average life of the PC be extended even more? Or what's your view on the current installed base average life of the PC going forward?

So let me start with the Print margins. There are a few factors to consider. The first one is what you mentioned, and that's that S-Print, we have a full quarter of S-Print since we closed this transaction on November 1. And as we talked about on the last earnings call, S-Print is in investment mode in Q1 and, frankly, the first half of the year. And so that, of course, is diluting not only margins but also operating profit dollars. And that's probably one of the big impacts to the 15.8% versus the 16.6% that we saw last quarter. The second one is the NPV positive unit placement. We have seen a significant increase sequentially relative to normal seasonality with unit placements. And of course, we all know that you've got to place the units in order to get the recurring revenue on Supplies. So at this point in time, we do expect that the 15.8% will be the low point in the year since Samsung will help because it will continually improve over the course of the year.

And on the second question, I'd say broadly speaking, there's quite a few forces acting on the pretty aged install base of Personal Systems today, given it's sort of about 5-plus years for the most part. But we see tablets down. We see mobile phones under pressure. And that's creating capacity for investment in other areas. And in the Personal Systems category, due in large part to the kind of innovation that we've been driving, we've been giving people a reason to upgrade. If you look at a PC of 5 years ago, it's probably unrecognizable from the products that we make today.

It's ugly.

It's ugly, yes. Unrecognizable. And as a result of that, I think we're not quite sure whether it remains at 5 years or whether it moves to 4 or it goes to 5.5, I think a lot of that depends on us as innovators. How can we keep an innovation engine alive that is giving customers a reason to update their equipment? What else is it going to do for their businesses? What else is it going to do for their personal lives? So we spend a lot of time thinking about how we can not only invigorate the different categories but how we can invent new categories. And it's incumbent, I think, on the industry to provide customers with a reason to upgrade.

And our next questioner today will be Shannon Cross with Cross Research.

Just one and then a follow-up. In terms of subscription services, I'm curious how do we think about the percent of your revenue that's now under contracts and recurring. I assume most of it's sort of weighted to Printing, but I'm also curious as to how Device as a Service for PCs is being received by customers.

So maybe I'll start with kind of the contractual business as a percentage of our total business, and then Dion can handle how it's progressing. The contractual element is there. It's happening but it's relatively slow and gradual. We're pleased with the progress, but in terms of it having a meaningful impact on our top line or our bottom line, it's just going to take quite a bit longer. It's just not -- it's not that meaningful at this point in time. It is an important trend for our business both in Print as well as in Personal Systems because it does create an opportunity to drive incremental profit.

And if you -- if we think more broadly about the big mega trends affecting societies, there is very clear evidence that markets are going to shift more from transactional motions to contractual motions where they value Everything as a Service. And so the investments that we're making in not only our Managed Print Services but in really very innovative Device as a Service offerings plays out over time. And to Cathie's point, as a percentage of revenue today, it's relatively small. The interest we see from customers to move to Everything as a Service and big customers, small customers and everything in between, is quite large. There's about a 6-point shift happening from transactional to contractual, and it varies country by country. But again, it's up to us to innovate in these markets served. The different types of customers, Gen Zs really want Everything as a Service, and we think we've got an incredibly exciting portfolio in that area. It's a great part of our pipeline going forward, both in terms of product innovation but also in terms of real sales funnel.

And one of the big announcements that we made this past few weeks, I think, was really related to now us bringing Apple devices or being able to service Apple devices within a Device as a Service offering. And this is important because, in order to really do that well, you have to be multi-OS. You can't just be kind of your own product set. And so that's an additional kind of move forward for us.

And Shannon, you know that well from Managed Print Services. You often walk into a company that has a fleet of many different vendors. And if you're going to be successful in Managed Print Services, you have to be able to take over the entire fleet regardless of where it comes from. The same is true for Personal Systems, and the strategic hook-up with Apple was a very important component to enable us -- to be able to service Apple devices as part of managed Device as a Service contract.

Great. And then I think we've gotten through this call until now and not talked about 3D Printing. So I'm just curious as to what kind of update you can give there and what you're seeing from customers.

So we remain very excited about the 3D Printing business. We laid out markers that we wanted you guys to continue to check back with us at the Security Analyst Meeting. One of those was the product portfolio. We said we were getting to full production -- full color, and we launched a low-cost prototyping product into the market a couple of weeks ago, which complements the production system that we already have. It's off the same platform technology, and that's really important as we get leverage from that single investment and pull it from a low-cost full-color platform all the way up to a full production system. We continue to make progress with our end customers with multiple repeat orders. We have continued to grow our channel. We continue to grow our materials partners. So that business is operating according to our plan, and we remain excited about its ability to tap into the $12 trillion manufacturing market over time.

And I think there's 2 important points about that, the announcement with the low-price, full-color 3D printer. And one is Dion mentioned in his prepared remarks is that because it's the same platform, now for prototyping as well as production, that's unusual in the market. And so that's a draw. And then the other one is, over time, if we're really going to disrupt this $12 trillion manufacturing industry, we've got to get folks to design for 3D. It's not just replacing a part today that's injection molded. It's saying, is there a better way to design that part? And this lower-price printer is going to get placed in universities so that the new generation really starts thinking about designing from 3D right away.

And our last questioner today will be Rod Hall with Goldman Sachs.

I wanted to come back to this idea of Supplies growth in 2019 flat to slightly up. And at the same time, your A3 share is growing. And just see if you can help us understand why continued growth in A3 share doesn't drive increase in Supplies since that's such a big part of the net income? And then I have a follow-up to that.

So Rod, it's not that A3 doesn't provide some lift in Supplies in FY '19. It's the other factors that are offsetting the good unit placement, kind of the A3 growth that we're seeing. We are -- with S-Print, we have an installed base that is declining. We have Supplies on low-end A4 laser that just doesn't have the same sort of attach at that price band. And so what we're doing is we're offsetting some of those headwinds and are confident in our ability to have Supplies stable, flat to slightly up in constant currency in FY '19.

And then I wanted to -- I wouldn't mind if you'd comment on when that sort of all that underlying movement on the negative side of that equation kind of stabilizes and when we are -- actually see it growing. And then the second question I had was just on NAND pricing. I wanted to check and see if your views there have changed? I know DRAM kind of makes sense to us. But just double checking that you're not also thinking NAND continues to increase through the year? And whether you've changed any thinking there.

So Rod, in terms of Supplies, 1 year at a time or maybe 1.5 years at a time. We've now talked about '19. Stay tuned. At the end of '19, we'll talk about '20.

And with regard to sort of memory, broadly, we know that DRAM is obviously a headwind. There are other components in the very broad basket of components that some move up, some move down. There may be some pressure from NAND. The biggest material impact is from DRAM, and that's what the teams are looking to obviously reprice wherever they can. We look to offset that through other items within the basket of costs as well as our own noncomponent costs within the business. We selectively leverage our balance sheet to secure inventory. We shouldn't forget that. You can't reprice what you don't have. Our Supplies value that consistency. The sustainable partner to smooth their cost investments is very important to them, and that drives a closer relationship to secure components at rational prices. And I think we've demonstrated our ability to do that. We'll always remain aggressive in our pursuit of other noncomponent cost takedowns. It's part of our DNA. It's wired into the way we work, and we'll continue to drive the mix shift to higher-priced, higher-margin segments as we laid it out at SAM.

And we are getting a little bit of a tailwind obviously from currency that helps us in fiscal '18 to offset.

But overall, I would say in closing out that I'm really pleased with the vitality of our business and our Q1 results. Very broad based. It's no one single pill inside the company. It's Printing. It's Personal Systems. It's Notebooks. It's desktops. It's home. It's office. Impressive revenue growth and year-to-year operating profit improvement delivering across the portfolio. We're leading in the core. We're accelerating our growth initiatives. And we're investing and continuing to invest in our future. We're never satisfied. We know there's much more work to do. We need to remain humble and continue to innovate and amaze our customers. We think we have an incredible opportunity to move even faster, embrace the change that's happening within the industry, accelerate our own thinking and deliver for our partners and our customers. And as I always say, our [ reinvention ] journey is just beginning. I'm convinced the best years lie ahead of us, and this year will be no exception. Thank you all.

Thank you.

And the conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.