HP Shares Plunge As Chip Shortage May Have Peaked PC Sales 

HP Inc shares slumped more than 5% in premarket trading Friday, despite the computer-maker beating Wall Street estimates on its top and bottom lines in its second quarter. The continuing chip shortage is likely to pressure computer sales this year and may have already resulted in peak sales. 

HP reported earnings of 93 cents per share on revenue of $15.88 billion, beating the Street’s top estimates by 4 cents per share and revenue expectations of $15.02 billion, according to Refinitiv data. The company has experienced huge growth in computer sales by people working-at-home to schools to businesses during the virus pandemic. 

A chip shortage is likely to drag on the company’s performance which means HP will lack the ability to match supply to meet the demand for its products, Chief Executive Officer Enrique Lores told investors Thursday. The shortage will persist through the second half of the year as lead times for chips have reached the “danger zone.” 

Following HP’s earnings, Citi analysts said, “Short-term investors will notice that HP did not get the full sales upside to flow through the EPS,” which “will likely raise a new question for investors of: ‘is this the peak?'” Citi maintained its “buy” rating with a $40-handle upside target. 

Analysts at Well Fargo Securities maintained an “equal weight” on HP with a price target of $30. The bank’s analysts said, while the results remain robust and the outlook is strong, “investors will be focused on the co’s implied 2HF2021 / F4Q21 EPS decline as an indication of peaking fundamentals vs. conservatism amidst supply chain constraints.” 

Morgan Stanley analysts said the stock should be bought on weakness due to sustained PC demand and an aggressive stock buyback program. It has an “overweight” rating on HP with a $40-handle price target. 

Bloomberg Intelligence said there’s pent-up demand for HP products but warned about supply constraints (semiconductor shortage) that may dent HP’s sales. 

What’s evident is that HP may fall victim to the chip shortage and result in lower demand that may ruin the pandemic streak of increasing sales thanks to work-at-home. 

Dell Technologies Inc. also echoed the concern about chip shortages, predicting component supply constraints will continue into 2022. Chip-maker Intel, who supplies chips to Dell, said the shortage could continue for a “couple of years.”  

PC sales might have peaked overall thanks to the chip shortage.