HP Inc.’s second-quarter numbers read like a tale of two lines: revenue climbed to $13.22 billion, up 3.3 % year over year, yet adjusted EPS slid to $0.71—beneath the company’s own outlook and Wall Street’s consensus Q2-25-HP-Inc-Earnings-P…. The stock dropped more than 12 % in after-hours trading as investors recalibrated risk.

Macro Backdrop: Trade Policy Versus Upgrade Cycle

Fresh U.S. tariffs of 20-30 % on China-sourced printing components collided with a Windows 11 refresh wave that lifted commercial demand. While most PC SKUs are currently exempt, management warned that any reversal could shave two percentage points off operating margin Q2-25-HP-Inc-Earnings-P….

Revenue Gains, Margin Pain

Personal Systems delivered $9.02 billion in sales—up 7.1 %—but segment margin compressed to 4.5 % as commodity and freight costs surged Q2-25-HP-Inc-Earnings-P…. Printing revenue fell 4.3 % to $4.18 billion, yet held a healthy 19.5 % margin thanks to disciplined pricing and enterprise mix Q2-25-HP-Inc-Earnings-P….

Cash Flow and Leverage

Free cash flow swung to negative $95 million amid inventory builds and factory relocation payments Q2-25-HP-Inc-Earnings-P…. Net debt stretched to $8.1 billion as gross cash slipped and borrowings rose Q2-25-HP-Inc-Earnings-P…, though HP still returned $0.4 billion to shareholders during the quarter Q2-25-HP-Inc-Earnings-P….

AI PC Rollout: High ASPs, Higher Input Costs

The quarter saw the debut of EliteBook, EliteDesk, and ZGX AI Station powered by NVIDIA Blackwell chips. These devices drove a 9 % jump in commercial PC revenue but raised bill-of-materials costs, capping near-term profit Q2-25-HP-Inc-Earnings-P…. Management expects supply-chain shifts to Mexico to restore margins in 2H FY25.

Printing Under Pressure, Security a Differentiator

Supplies revenue slid 5 %, yet HP’s quantum-secure LaserJet Enterprise series commands premium pricing and anchors the 19.5 % segment margin Q2-25-HP-Inc-Earnings-P…. The unit’s strategy focuses on contractual print services to mitigate declining consumer usage.

Balance Sheet and ESG Credentials

Despite rising leverage, HP garnered its sixth consecutive “World’s Most Ethical Companies” citation and expanded its Digital Equity initiatives Q2-25-HP-Inc-Earnings-P…—assets that support cheaper financing even as debt climbs.

Guidance Reset and Mitigation Strategy

FY25 non-GAAP EPS was cut to $3.00-$3.30 from $3.45-$3.75; free-cash-flow guidance dropped to $2.6-$3.0 billion Q2-25-HP-Inc-Earnings-P…. The plan: rebalance manufacturing, push selective price hikes, and execute the 2023 cost-takeout program. CEO Enrique Lores vows Personal Systems margins will “trend toward double-digits” by fiscal year-end—still an open question.

Competitive Landscape

Dell, less exposed to China tariffs, maintains a 6.5 % PC margin, while Lenovo leverages lower costs to undercut consumer prices by roughly 12 %. HP’s differentiation relies on AI-enhanced performance and enterprise security rather than price.

Risks and Opportunities

A tariff exemption rollback remains the biggest risk, potentially erasing 220 basis-points of EBIT margin. On the upside, successful scaling of ink-subscription models could offset print volume erosion and stabilize cash flow.

Conclusion

HP’s top-line momentum is real, but translating sales growth into durable profitability depends on tariff mitigation and proving that AI PCs can command lasting premiums. The second half of FY25 will test whether cost actions and product-mix shifts can rebuild margins fast enough to regain investor confidence.