Steve Fieler - Head, Treasury Dion Weisler - President and CEO Cathie Lesjak - CFO

Jim Suva - Citi Katy Huberty - Morgan Stanley Steve Milunovich - UBS Sherri Scribner - Deutsche Bank Toni Sacconaghi - Bernstein Shannon Cross - Cross Research Wamsi Mohan - Bank of America Merrill Lynch Amit Daryanani - RBC Capital Markets

Good afternoon. And welcome to the Fourth Quarter 2017 HP, Inc. Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there’ll be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steve Fieler. Please go ahead.

Good afternoon. I’m Steve Fieler, Head of Treasury for HP, and I’d like to welcome you to the fiscal 2017 fourth 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 the webcast will be made available shortly after the call for approximately one year. We posted the earnings release and the accompanying slide presentation on our Investor Relations webpage 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-K for the fiscal year ended October 31, 2017 and HP’s other SEC filings. For financial information that has been expressed on a non-GAAP basis, we’ve included reconciliations to the 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 today. It was great to see so many of you at our recent Security Analyst Meeting here in Palo Alto. Our results today echo what you heard from us, HP is strong and getting stronger. And my message to all of you is we’re just getting started. As I look at our performance in the quarter and for the full fiscal year, I’m pleased with our consistent execution, ability to grow revenue, generate cash flow, and invest in our future to create sustainable growth over time. It’s results like these that give us confidence in the trajectory of our business moving forward. It was just two years ago that we began our reinvention journey. We committed to compete and win in our core, into new growth markets and natural adjacencies, and invest in our future where we can disrupt industries and create new categories. We’re also committed to a relentless focus on productivity, to take cost out of the business. We did what we said we’d do, and I’m proud of the substantial progress we have made. There is more work to do, but we’ve never been more competitive, more fixated on the customer, more innovative, and more focused on operational excellence than we’re today. Let me review the highlights. We drove impressive topline growth with net revenue up 11% year-over-year to $13.9 billion including double-digit growth and share gains across the Americas, EMEA, and APJ. Both, Personal Systems and Printing grew year-over-year, together for the third consecutive quarter. We grew non-GAAP diluted net earnings per share year-over-year, delivering $0.44 for the quarter. We delivered $0.5 billion of free cash flow in the quarter, taking us to $3.3 billion for the full year. And we returned 69% of our FY17 free cash flow to shareholders through share repurchases and dividends. Now, let me turn to segment performance. In quarter four, Personal Systems had another stellar quarter, driving growth, gaining profitable share, and delivering impressive innovations. This team is hitting their stride with truly outstanding performance. Personal Systems net revenue grew 13% year-over-year, which came on top of last year’s 4% growth in quarter four. For the full year we grew 11% year-over-year with double-digit growth in each of the past four quarters. Growth in Personal Systems continued to be broad-based with double-digit year-over-year revenue gains in consumer and commercial and across all three regions. We also saw consistent growth across product categories led by notebooks, and strong performance in desktops and workstations. Our regional leaders and sales partners are doing an incredible job of driving growth and delivering value for our customers. In calendar quarter three, the overall PC market returned to year-over-year growth both in units and revenue. We once again outperformed the PC unit market growth and increased our market share to 22.5%, up 1.2 points year-over-year. We saw year-over-year share gains continuing in each region in both consumer and commercial. In quarter four, we continue to surprise and delight the market with innovation. We announced our biggest premium launch across consumer and commercial, introduced the world’s most powerful and first detachable PC workstation, unleashed our most powerful OMEN X laptop for gaming athletes. And as you heard from us at SAM, we are doubling down on security with the world’s most secure and manageable commercial PCs. Security is built into our systems from the BIOS level and up, securing at, below, and above the operating system. As customer demands to services grows and the market transitions towards an on-demand based economy, we are gaining steady traction with enhanced devices or service offerings for the fleet management. We are seeing strong wins by our channel partners and a healthy pipeline for the future. Shifting to Printing. This business continues to make significant progress with year-over-year growth in revenue, operating profit and market share. In quarter four, total revenue was up 7% year-over-year with growth across all three geographic regions. We delivered year-over-year revenue increases in consumer hardware, commercial hardware and supplies. Quarter four supplies revenue grew again, demonstrating the huge progress we’ve made with this business during the year. Hardware units grew both year-over-year and sequentially, driven by consumer. This is our fifth consecutive quarter of year-over-year unit growth. Total print unit market share was 40% in calendar quarter three, and we gained share in both our office and home businesses. The graphics business continues to grow, even without the positive uplift that we experienced last year from the industry-wide drupa event. And as highlighted at the Security Analyst Meeting, we signed the single largest deal in our graphics history with Lightning Source. It’s a multimillion dollar, multiyear deal to deploy 24 PageWide digital presses to five printing sites on three continents. Lightning Source prints roughly 40% of the books sold through Amazon and this deal is going to help transform the distribution and sales model for book publishers all over the world. In A3, we continued to onboard new partners and gain market share, both year-over-year and sequentially. And I’m excited that on November the 1st, we closed the acquisition of Samsung’s Printing business. This creates a combined team, focused on innovation, acceleration and print excellence. Together, we are building on more than 30 years of print leadership and innovation, and now we have an unmatched portfolio and amazing technologies that will enable us to drive growth over time. As our two teams become one, we will preserve the best, the best talent, the best culture and the best technology to become better, stronger and faster. We’ve gained critical IP and now have a broad portfolio of laser and ink offerings that better positions us to attack the overall $55 billion A3 growth opportunity. And that also strengthens our A4 business. 2017 was a great year for 3D. We turned out 3D printing initiative into a business with global reach, repeat customer orders and expanding partner and materials ecosystem and revenue. This quarter, we continued to grow our business with new customers such as Medtronic, one of the largest medical device and service companies in the world. As previously highlighted, we As previously highlighted, we added more than 20 new partners including Henkel, our first worldwide reseller, and announced partnerships with Deloitte and Siemens to digitally transform manufacturing. Looking to 2018, we plan to introduce a new, lower cost full color system, allowing us to expand into new markets. We believe that Multi Jet Fusion will be the only 3D printing technology in the industry that can make mechanically robust, fully functional, color parts. Not only, are we leaders in polymers but we’re going to disrupt 3D printing with metals. Stay tuned for more news about this in the coming year. Overall, we’ve done what we said we would do. We’re growing the business, top line and bottom line, and generating strong cash flow. We’re delivering returns for our shareholders and investing in the future to create long-term value. I’m very pleased with our Q4 and FY17 results, but we always have more work to do for our customers, partners, employees and investors. Our markets remain highly competitive and our year-over-year compares are now much tougher, but we’re ready for it. I’m optimistic about our future and excited that we’re just getting started. I will now turn the call over to Cathie to provide more details on our performance and our financial outlook.

Thanks, Dion. I’m very pleased that we have sustained the momentum achieved during our first three quarters of FY17 and drove strong Q4 results. We delivered net revenue of $13.9 billion, up 11% year-over-year, as reported or 12% in constant currency. Our performance remained consistent across businesses and geographies. Regionally, year-over-year, Americas grew 10%, EMEA was up 11%, and APJ grew 16%, all in constant currency. Gross margin of 18.1% was down 20 basis points year-over-year, driven by segment mix with the higher commodity costs in Personal Systems partially being offset by the improved rate in Printing. Gross margins were down 50 basis points sequentially, driven by continued strength of Personal Systems revenue, combined with lower supplies mix and higher unit growth in Printing. Non-GAAP operating expenses of $1.5 billion were up 6% year-over-year and sequentially, driven by SG&A investments to support growth. Net OI&E expense was $65 million for the quarter. With a non-GAAP tax rate of 21.5% and a diluted share count of approximately 1.7 billion shares, we delivered non-GAAP diluted net earnings per share of $0.44. Non-GAAP diluted net earnings per share primarily excludes restructuring and other charges of $113 million and acquisition-related charges of $49 million, partially offset by non-operating retirement-related credits of $34 million, tax indemnification credits of $23 million and the related tax impact on these charges. In Q4, GAAP diluted net earnings per share from continuing operations was $0.39. Turning to the segments. Personal Systems net revenue was $9.1 billion, up 13% year-over-year as reported or 14% in constant currency. We’ve been delivering strong topline performance and are now beginning to lap tougher compares. By customer segment, consumer revenue was up 18% and commercial revenue was up 11% year-over-year. We again achieved strong results by product category, with notebooks up 16%, desktops up 10% and workstations up 8% year-over-year. This consistent performance is a result of our innovative product portfolio and effective execution. We delivered 3.8% operating margin in the quarter, which is up 10 basis points sequentially and down 50 basis points year-over-year. As we have highlighted throughout this fiscal year, margins have been pressured by industry-wide increases in component costs. We have increased prices globally, continued to leverage our supply chain scale and balance sheet, and have driven positive mix shifts in the business, enabling us to offset much of the commodity cost increases. Turning to Printing. Revenue was $4.9 billion in the quarter, up 7% year-over-year. Total hardware units were up 3% year-over-year, with consumer units up 3% and commercial units flat. In calendar Q3, overall print unit share was up about a point year-over-year with share gains in both our home and office businesses. Now moving to Q3 supplies performance. Revenue of $3.1 billion was up 10% year-over-year or up 3% after adjusting for currency and last year’s negative impact resulting from the supplies sales model change. We continue to operate below our channel inventory ceilings. We are also making good progress with our growth initiatives. We are still in the early days of A3 and adding Samsung’s printing team and technology should be a further accelerator to the business over time. As Dion highlighted, the graphics business continued to grow and we look forward to entering into textiles [ph] later this year. It was also a very strong quarter for managed print services with high double digit new TCB growth. Managed print services results can be heavily impacted by large deals signed in a quarter. And this was the case for us in Q4 which was driven by key wins. Print operating profit was 16.6% in the quarter, up 2.6 points year-over-year. The year-over-year increase was primarily due to the lower margins in Q4 2016 resulting from the supply sales model change. Excluding this onetime adjustment, we still saw good operating profit dollar expansion year-over-year. Sequentially, print operating margins were down 70 basis points, driven by materially higher than normal unit shipments, especially in consumer. The overall supplies revenue mix for the quarter was 64% versus 66% in Q3. Now, turning to cash flow and capital allocation. Cash flow from operations was $680 million in Q4 and approximately $3.7 billion for the full year. Free cash flow was $515 million in the quarter and approximately $3.3 billion fiscal 2017. Cash conversion cycle was minus 30 days, which weakened five days sequentially, driven by a three-day decrease in days payable outstanding, and a two -ay increase in days of inventory. Our cash conversion cycle and free cash flow results were better than expected for the quarter, driven by continued strength in Personal Systems revenue. During Q4, we had a total capital return of $722 million through share re-purchases and cash dividends. For the full year, we returned $2.3 billion or 59% of free cash flow, which is towards the higher end of our target range of 50% to 75%, even after overachieving our full year free cash flow guidance provided at our 2016 SAM. Looking forward, keep the following in mind related to our financial outlook. Starting with Samsung’s printing business, we are updating our full year FY 2018 outlook to include the operational impact of the acquisition. This includes approximately $1.4 billion incremental revenue, primarily A4, which has been in decline, particularly in the low-end; an additional penny of non-GAAP EPS for the full year. And as a reminder, we expect to be in investment mode in the first half of the year. Looking ahead, we expect to record various business combination accounting adjustments, which are not yet reflected in our outlook, since the acquisition just closed. These are noncash and GAAP-only costs and include adjustments to the fair value of certain acquired assets such as purchase intangibles and inventory. In addition, we will continue to look at opportunities to take costs out of the business, now that the deal has closed. For the rest of Printing, we expect supplies revenue to be flat to slightly up for the full year. This is organic growth and excludes any impact from the acquisition of Samsung’s printing business. In addition, we expect to continue placing units with a positive NPV. In Personal Systems, we now expect the cost of components will continue to increase from Q4 into Q1 and will remain elevated throughout FY18. We anticipate that ASPs may be pressured due to competitive repricing effectively offsetting a sizeable portion of any gross currency tailwind, but this will depend on the actual market dynamics including component costs, competition and currency rates. Overall, we would expect more of the FX favorability to show up during the second half of the year as prior hedges roll off. For the full year, we expect to deliver our productivity initiatives as guided at SAM. We’ll also continue to leverage our balance sheet, if we see attractive economic opportunities to do so. With all that in mind, we expect free cash flow to be at least $3 billion for the full year and our cash conversion cycle to be approximately minus 29 days as we exit FY18. Q1 2018 non-GAAP diluted net earnings per share is in the range of $0.40 to $0.43. Q1 2018 GAAP diluted net earnings per share from continuing operations is in the range of $0.38 to $0.42. With the $0.01 increase in EPS from our acquisition of Samsung’s printing business, we’re raising our full year fiscal 2018 non-GAAP diluted net earnings per share by a $0.01 to be in a range of a $1.75 to $1.85, and our full year fiscal 2018 GAAP diluted net earnings per share from continuing operations to be in the range of a $1.70 to a $1.80. With that, let’s go eat some turkey, or we can open up the call for questions.

We’ll now begin the question-and-answer session. [Operator Instructions] The first question comes from Jim Suva with Citi. Please go ahead.

Thank you. And congratulations to you and your team, as well as a happy early Thanksgiving. I have two questions, I’ll ask them at the same time. Perhaps the first one is to Dion or Cathie, and the second one more towards Cathie. Regarding the -- Dion, the sales upside was -- looks like across basically almost every line and every end-market, which is great but the drop here to EPS at the bottom, I guess some investors could have wanted or hoped for more. Are you spending a little more for like investing in the business, in the channel and products and R&D? And if so, what are the specific areas as to where you’re investing or not seeing the drop through? And then, the follow-up is on the Samsung acquisition, a $0.01 of earnings. I assume that it’s first half of the year more of a headwind as you integrate and the accretion comes in at the tail end and then longer term, it should be much more than a $0.01 of annual EPS?

So, Jim, let me start with the first one in terms of your comment around the drop. I think, the way we think about this is if you go back to kind of the Q3 earnings call, we provided an EPS range, and we ended up at the higher end of that range. So, we anticipated kind of where we thought we would end up. Now, we did see a little bit of upside from a Personal Systems perspective, and that drove a lot of the top line, and there just isn’t as much drop in Personal Systems, especially when you combine that with commodity cost headwinds that we’ve seen in that business. And then, on top of that in print, what we were really focused on this quarter was not only keeping supplies stabilized, which we did, very pleased with the results there, but we also took advantage of a little bit bigger market and also the opportunity to place materially more printer units than what we would normally see on a sequential basis. And so that obviously put some downward pressure on operating profit and EPS as well.

The next question comes from Katy Huberty with Morgan Stanley. Please go ahead.

Operator, can you hold on just one sec? I think there was another question specifically related to Samsung, Jim, if I remember correctly. And basically we’ve obviously just closed the acquisition at the beginning of November. And for FY18, we do expect to see about a $0.01 of accretion but it is more backend loaded. So, for the whole year, it would be about a $0.01, but we do expect to be in investment mode in the first half of 2018. And then, over time, the pressure that we see on the math around the OP rate as a result of the acquisition of the Samsung printing business, we do expect that as we integrate that business and take advantage of the disruption, the disruptive technology they have in the A3 copier space that in fact the margins will recover. Okay. Operator, next question?

The next question comes from Katy Huberty with Morgan Stanley. Please go ahead.

Thank you. Couple of follow-ups on the printer business. If I heard you right, organically printer supplies grew 3% in the quarter, you’re guiding for flat to slightly up next year. So, can you talk about the elements in the four-box model that suggests a little bit of a deceleration as you got into next year? And then, just a follow-up on printer margins, they came in below the 17%ish that you were at the last few quarters. Can you just walk through some of those factors? And as you bake in some of the new categories you’re entering as well as Samsung, where do you think the near to medium-term range for printer margins will be? Thank you.

So, let me start with the supplies question. Katy, thanks for that question. We have really proven to ourselves and hopefully to you that you should have confidence in our four-box model. We saw that we performed at least as well as we had expected and in some cases a bit better than what we had expected, both for the full year 2017 quarter by quarter as well as in Q4. And based on that, we grew supplies, obviously in Q3 and Q4 operationally, and we’ve plugged that into the model. And what we see coming out of the model is that supplies for FY18 would be flat to slightly up. But keep in mind, we are always working on ways to optimize kind of each of the boxes with a variety of strategies and tactics, and we will continue to do that and try to drive even better supplies performance.

Second question was around margins over time.

And in terms of print margins over time, what we talked about at the Security Analyst Meeting, and this is without Samsung, was that over the long term, we would expect that the print margins would be in the 16% to 18% range. In the shorter term with Samsung, there will be pressure on the rate. I mean, think about that we brought Samsung in at about a $1.4 billion in revenue for FY18 and about a $0.01 of net profit to the Company. And in near to short-term, the next half, we expect it to be in investment mode. So, there will be incremental pressure. But, we do think over time that those margins get back to the 16% to 18% range.

And Katy just to reiterate the point that Cathie made to Jim’s question, the rate was slightly down this quarter but we did place sequentially many more units than we ordinarily would. And of course that bring the razorblade business model, generates returns over time, positive NPV units and a good deal for our investors.

The next question comes from Steve Milunovich with UBS. Please go ahead.

Following up on that, you did put more units out there, but the growth at least was higher on consumer than in commercial. And generally, the commercial units, I would think would have a greater attach rate. So, I guess what’s your confidence that those are in fact going to be NPV positive if it’s skewed a bit more toward consumer?

So, Steve, we have a lot of confidence. Our consumer portfolio, particularly in the inkjet space, those printers phone [ph] home regularly and they let us know where and what types of printers are getting really strong attach rate. You’re absolutely right, most of the incremental units were in the consumer space because that’s where we saw both a little bit better market sizing and then also on an opportunity to place positive NPV units.

Okay. And then, should we look for a little bit of growth for the printer business next year? It sounds like graphics probably grows, supplies flat to up; I don’t know what hardware does, but you put all together. I assume, it’s a little bit of growth. And if we’re sitting here a year from now, what are your priorities, what are you hoping to achieve and how do we -- this last year was all about stabilizing supplies, what are we looking for to accomplish in the next 12 months?

I think Enrique said it best at the Security Analyst Meeting. We’re really focused on accelerating growth. We don’t guide revenue. But if you do the math, if you’ve done the math, you can imagine. I mean, if supplies is, 60 plus, 65% plus of the revenue and it’s flat to slightly up, and we’ve got growth initiatives across the A3 copier space, where we think there is real opportunities, we’ve got the 3D printing opportunity to grow, we think that we’re actually as Dion say, just getting started in that space.

I think it’s always important to remember, Steve, we’re executing across our entire strategy, which is to cross three pillars of our core business. It generates the vast majority of our revenue and operating profit today. The growth initiatives around A3, our graphics business, everything is a service which will obviously provide growth opportunities for us over the next two to three years and then further out into the future over the next five to ten years, the work we’re doing around the most of computing and 3D printing, really crates an opportunity for long-term growth for our shareholders.

The next question comes from Sherri Scribner with Deutsche Bank. Please go ahead.

I want to ask a question on the PC business as we move forward into fiscal 2018. I think Cathie, you mentioned the compare is much more difficult in fiscal 2018. I think the bearish view is that the PC business will have a hard time growing next year. Are you guys anticipating being able to grow the PC business and what will help drive that growth?

Well, let me start sort of long-term, and Cathie might want to weigh in a little more than that. I’d still remind everybody this is still a $333 billion market that one in five machines got an HP logo on it, means four out of five don’t; that represents opportunity for us. I’ve said consistently that the market is consolidating; the top four grew 3.5%. We grew at 2.5-point premium to that. So, certainly, the big is getting bigger and we are growing much faster than the big four. And that’s really off the back of strong innovation to this lineup, I think we have ever had, we are getting incredibly positive reviews consistently. It’s a continuous transformation of the business to more profitable subcategories, finding where the heat is into the market and where we can get value for the innovation that we are creating. And in quarter four, that paid off yet again. We saw topline -- strong topline growth, sequential growth in operating profit. We saw year-over-year share gains. But those share gains, I’ll remind everyone and not an objective but rather an outcome of all of this work. There is no single magic pill that was all categories, all regions. The channel inventory was well under control. We aged inventory was well-managed. I think really kudos to the team both regionally within the business units, the supply chains and the functions. I think we are in a very good position to compete as we go forward in this market.

And I think, Ron laid out at the Security Analyst Meeting the fact that core traditional PC market from a unit and revenue perspective would be down in 2018 over 2017. But, as you’ve seen and as Dion talked about, we are playing our game and we know how to compete and win. We’ve got to make sure that we’ve got a great cost structure that we do hyper-segmentation and that we reinvest back into innovation, so that we can grow the market. The compares are tougher, no question about that. I mean, last year, we grew 10% in Q1 year-over-year, 10% in Q2, 12% in Q3 and now 13% in Q4. So, there are tough compares. But we know how to operate in this environment, and to outgrow our competition.

And then, just a question on Samsung. I think you mentioned 1.9 billion in revenue to add. Can you give us some sense of how that breaks out between supplies and hardware units? And then, also on the margins, just to clarify, would you expect to be below the 16% to 18% operating margin in the first half of the year because of the dilution from acquisition or do you think you can still be in that 16% to 18% range?

Why don’t I sort of stop, because I know, we’ve got some new investors that have come into the stock and I think it’s important to reiterate and recall why this transaction was important to us, given that we’ve just closed the transaction, and then Cathie can talk specifically to those numbers. First of all, we welcome the Samsung print team to our family. And for our new investors, we bought this business for three primary reasons. Firstly, the A3 market is a $55 billion market and we are underpenetrated in that market relative to the A4 market where we have very strong market leadership. The traditional A3 players operate very complex machines, if you were to break those machines down, they would -- you would see thousands of parts on the ground. The Samsung technology really disrupts those traditional copiers with copier level performance but significantly less complex machine, the thousands of parts, when you were to break a Samsung down would be hundreds of parts. And this lowers the cost to operate and that translates to increased margins for our partners and/or lower cost per page for our customers. So, we have an extremely strong portfolio when you put our technology together with the Samsung technology now, HP technology in both the A4 and A3 spaces in Ink, in PageWide, and in Laser, the second reason is that we integrated it, the A3 and the A4 portfolio which really increases our managed print services capability, there’re certain customers and tenders that would come out, that had a requirement for a mixed deployment of both A3 and A4 and were often excluded from those A4 deals. Now having a very full portfolio, actually opens up A4, new A4 opportunities for us. And the third is, we now have incredible thing, we inherited more than a 1,000 top class engineers, industry-leading R&D team in laser space, includes go-to-market capability more than 6,500 patents being added to our core. And I think this newly combined team is increasingly diverse and industry-leading. And so with that we have a lot of confidence in our ability to attract at least 12 points -- or 12% of A3 market share in the next three years.

And then with respect to Samsung’s business, some of the things to keep in mind is that the revenue that I talked about for FY18 is $1.4 billion and the business that Samsung has is mostly A4 laser. And within that historically has been largely low-end laser, which means their supplies mix, as a percentage of the total print business is materially lower than our current business. And our job is to obviously improve that but they are -- they do run quite a bit lower in terms of percentage of revenue. In terms of the margins, I’ll leave it up to you to actually do the math on whether or not you think they drop below 16%. We know that in the very short term, there’s pressure from the Samsung business but over the long term, we’ll get back to good strong margins.

The next question comes from Toni Sacconaghi with Bernstein. Please go ahead.

I just wanted to follow up on Samsung. So, I think when you bought the business, you said it was a $1.8 billion business and supplies were about $1 billion, you’re guiding for a $1.4 billion for next year. Maybe you can tell us what the trailing 12 months was. And given that supplies shouldn’t roll off all that quickly that feels like a really dramatic decline in hardware, and maybe you can speak to that? And I’ve a follow-up, please.

So, Toni, in terms of $1.8 billion, that was the 2015 revenue for the Samsung printing business. But, we’ve never talked about what the percentage was of that that was supplies, and they run materially lower on supplies as a percentage of the revenue mix than HP does. So, I can’t really talk to that. But what is pretty typical is that when you have a long period between announce and close, there’s a lot of uncertainty and customers make choices. Right? And so, we’re not surprised by the fact that Samsung printing has lost market share and declined their revenues. And keep in mind again, this is mostly in the A4 -- low-end A4 Laser space, and that’s really not the reason why we bought the Samsung printing business, we really bought it to disrupt the A3 copier space.

Just, if we’re ever going to really know what your organic supplies growth rate is next year, we really need to know how much is coming from Samsung. So, if you are not going to give it out now, are you going to be giving it out in the future? And then, my follow-up or separate question is just on PC ASPs; they were up about 8% year-over-year, which I think is a reflection of DRAM and some of the high-end targeting that you guys have done. I guess, the question would be, why wouldn’t we expect pretty rich ASP declines again in fiscal 2018, particularly in the first half?

Okay. In terms of Samsung, one of the challenges we are absolutely going to have on a go forward basis is with Samsung is that if we do our job right and we fully merge and integrate the HP print business with the Samsung printing business, we are going to be doing things like optimizing the portfolio and completely integrating go-to-market and R&D. So, it will become increasingly difficult for us to break out what was -- what is the Samsung’s printing business versus the HP Printing business. So that will be a challenge on a go forward basis. We can discuss and decide whether or not we are going to talk about supplies, tell you what the supplies percentage is of the $1.4 billion. But, on a go forward basis, it’s going to be very difficult. We will do the best we can, so that we can give you a good view of whether or not we are flat to slightly up on supplies, and we expect that we will be without Samsung.

The other thing to remember Toni on Samsung is that still the largest portion of the composition of the revenue today is A4. You’ll recall that we acquired these assets, so the A3 capability which was still largely in an investment mode. And so, as we move more and more into the A3 market and we shift the business from transactional to contractual, that generally comes with the higher supplies attraction. And so the composition of supplies over time is indeed going to change.

And then, in terms of your question on ASPs, Toni, can I just ask a clarifying question? You talked about the ASPs being up year-over-year as a result of the kind of the pressures from commodity costs and the repricing actions that we took. And I agree that is -- big piece of it as is the mix shift to higher end products, things like premium, gaming and work stations. But, then, you said why wouldn’t we expect a decrease, did you say in -- a material decrease in ASPs in 2018, is that what you asked?

No, I’m sorry. I wasn’t clear. I was saying why would you not expect a similar level of ASP increases, particularly in the first half of the year and a substantial increase still year-over-year?

So, on a year-over-year basis, we do expect that there will be an increase in ASPs related to commodity costs but what we’ve been talking about in terms of the counter pressure is that the currency environment has gotten -- the currencies have gotten much stronger. And therefore there is kind of the counterbalance to that is what are the pressures going to be, the competitive pressures to actually decrease local currency prices in the foreign markets? And that’s where we think there could be some significant downward pressure in ASPs for Personal Systems.

The next question comes from Shannon Cross with Cross Research. Please go ahead.

I have one follow-up on Samsung, then another. So, with regard to Samsung, sort of operationally, how are you thinking about the integration? And I’m trying to figure out within the one penny of accretion, how much synergy is in there or how much visibility you had prior to the closing the deal three weeks ago? And then, I have a follow-up.

Thanks, Shannon. Of course, we were competitors up until that sort of 20 days ago. And so, you can imagine, this is somewhat of a tricky acquisition in terms of exactly how much information that we had leading into the closure. I would say, still very early days. The integration is going incredibly well; the team is incredibly focused on our customers, doing all the right things. But, we’re learning every day as we get under the covers of this business. We would expect that as our team looks at best industry practice that’s got us to the position where we are today that there will indeed be opportunities to capture those synergies. But, I would just say, it’s a little too early, not more than 20 days into the acquisition, to give you a lot of specifics around that.

Okay. And then, sort of utilizing those synergies or maybe incremental synergies, you have 3D printing, you A3, I guess, gaming on the on the PC side and some other investments that your making. How are you engaging the level of investment per initiative or how are you thinking about the return on what you’re doing? And then, on the other side, I would assume continuing to reduce costs and simplify the business within sort of the core that may be isn’t growing as much as some of your growth opportunities.

Well, I think you’ve actually summarized it really well. We focus incredibly on cost, it’s table stakes. You have to be in the right cost position. If you’re not on the right cost position, you don’t have the opportunity to make investments. As it relates to investments, we feel good about the investment choices ahead of us. We believe we can create significant shareholder value. As we outlined at the Security Analyst Meeting, we have confidence in our ability to execute and hope that we’ve dropped $1 or $2 in the trust bank over the course of the last couple of years to demonstrate that we can execute. I would say that our investment thesis and process that we follow is that we identify investment opportunities across the business, we weigh them all against one another. We’re very targeted to ensure that the investments that we do make advance our strategy, so that we don’t surprise anyone with the investments that we’re making. We’re very disciplined about establishing and hitting the milestones that we lay out. And ultimately, generating profitable growth is what it’s all about. Growth for just growth sake is not particularly fascinating. I think segment by segment, we’re demonstrating that those investments are good choices, investment systems, broadly in premium and specifically in gaming are great examples of investments that we made that are paying dividends right now. Same is true for graphics and the very targeted unit placements that Cathie talked about, NPV positive units and print. 3D printing has gone from a business that was nonexistent a year ago to a real business today, 65 channel partners around the globe in every single region and ecosystem that we’ve developed, partners in Deloitte and Siemens, more than 50 materials partners that are starting to look at making materials for the platform, plus the technology announcements that we made at the Security and Analyst Meeting around a lower cost color platform and the technology announcements we’ll make around metals in 2018. So, we’re feeling good about our ability to execute in the core, in the growth areas that we outlined, as well as the future.

And Shannon, just to remind you, this is all very returns based analysis. We step back and we look at what the investment is that’s necessary and then what the opportunity is in terms of cash flows on a go-forward basis to determine whether or not, it will add value to the firm. And then, also to stack rank and determine which ones we are actually going to invest in.

The next question is from Wamsi Mohan with Bank of America Merrill Lynch. Please go ahead.

I have a Samsung question, then a follow-up. So, Cathie, I think you said that the mix of hardware relative to supplies is intrinsically quite different in the Samsung business relative to the core HP business. Now, the shrinkage in revenue from the time you announced the $1.8 billion to $1.4 billion, I would think that’s more or less hardware related. Is that a right assumption to make. And so, as the percentage mix that you are alluding to, is that something that holds true, both at the 1.8 billion and 1.4 billion level? And I have a follow-up.

So, Wamsi, yes, the mix of the $1.4 billion in revenue for supplies is materially lower than the current HP business.

But, would you say Cathie that the decline from 1.8 to 1.4 was largely hardware related?

I think it was led by hardware but it had obviously ramifications for supplies as well.

Okay. And if I could follow up. On the PC gaming market, maybe Dion, you could share some sense of how much share you are you gaining in this market? How big of a growth driver it was in fiscal 2017 out of your total growth? Maybe if you could give us how many points of growth was driven PC gaming, that’d be great?

We don’t break it down at a segment level. And I think there are better sources of data to look at how much share we’ve taken in that particular space. And I wouldn’t want to make our analysts redundant. I would just say that this has been a material business for us that’s grown up over the last 18 months from nothing to a sizable portion, not only in terms of revenue but the gross margin that it drives, as well as the halo effect that it has on the overall brand, which I think is lifting our premium segment as well as every other segment that we had within the PC business. This is an incredible franchise; it’s a growing franchise; the airier is growing. And there is more people that are tuning in to these battlegrounds than game 7 of the NBA. So, we like being in this business and we see the growth continuing.

The last question comes from Amit Daryanani with RBC Capital Markets. Please go ahead.

Perfect. I guess, I need to start with the Samsung question as well. I guess, Cathie, it sounds like the deal is dilutive near-term. Your Jan quarter EPS guide that you guys gave us essentially bracking The Street numbers. Could you quantify what the EPS dilution is in the Jan quarter from Samsung and what’s the timeline to get this asset back to the 16%, 18% margin range that you guys have talked about core IPG historically?

So, Amit, we are not going to break down Samsung in that level of detail quarter-by-quarter. I think it’s suffice it to say that with our guide for Q1 2018 of $0.40 to $0.43 for non-GAAP EPS, we are covering and absorbing the little bit of headwind that we get from Samsung. And I’m sorry, what was the second part of your question?

The second part was really -- you’ve talked about the Samsung asset longer term being in line to core IPG margins, 16% to 18%, what sort of timeline is that, is that a fiscal 2020 target or is that much more longer term than that?

It will take us some time, but we’ll see pretty consistent progress over the next few years to get it back to those levels.

I think it’s really worth reiterating why we acquired this asset. It was not to buy revenue. And I’m being pretty clear about that as is Cathie. We don’t chase share for share’s sake. And whilst the revenue is interesting, it’s not fascinating. What’s fascinating for us is the incredible disruptive technology that this team invented to take on a pretty unconsolidated A3 $55 billion copier market with a better mousetrap that enables our partners to earn more money and enables a lower cost per page for our customers with a very different value proposition from a servicing perspective. More than a 1,000 engineers of very rich portfolio of patents. It’s all of those reasons that we’ll pay dividends over time that we’re incredibly interested in and why we acquired this asset and we’re just kind of getting started in this space.

And if I could just follow up on the core PC business, could you tell us how much of a headwind did you guys have on operating margins from memory right now? I mean, year-over-year, it is down about 50 basis points; revenue is up double-digits. So, just trying to get sense, how much memory had been you dealing with on op margin basis?

So, Amit, if you look at the total year, our commodity costs headwind was about a $1 billion. And so, we’ve actually done -- I think Dion talked about, we’ve done a really good job of managing in what has been a very tough industry-wide commodity cost environment. And we’ve done that by leveraging our balance sheet, looking at basically buying strategic -- doing some incremental strategic purchases to assure ourselves of supply, entering into longer term agreements, so that we not only assure ourselves of supply but also that we are able to negotiate better prices. We also have mitigated it by using our balance sheet by putting more product on the sea and then, when all of that -- we figure all that out and then we look at what kind of repricing that we’re able to do and still be able to be very competitive in the market. And in fact, as you see, significantly outgrow the market with kind of all of those tactics coming together.

So, with that, I want to take the opportunity to thank you all. I have been Americanized and I understand, it is a season of Thanksgiving, and we’re between you and a turkey. So, I want to thank you for following us through the course of our reinvention journey. Our results give us real confidence in the trajectory of our business going forward. We’re leading in our core markets, we’re entering new growth markets and natural adjacencies and at the same time investing in the future. We’ve never been more competitive. We remain humble and focused. We’re proud of the results that we’re delivering and proud that we’ve been very open and transparent and dependable. We think it’s been a great year of reinvention and we’re just getting started. Thanks all. Have a great Thanksgiving.

Happy Thanksgiving.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.