HP Inc. (HPQ) Earnings Call Transcript & Summary

All right. It looks like folks are trickling in, but perhaps interest of time, we'll get started. Good afternoon, everyone. Really delighted to have with us Ernest Nicolas, who's the Chief Enterprise Officer at HP Inc -- Chief Enterprise Operations Officer, my bad at HP Inc. Before I get into this, maybe I'll just read the safe harbor statement on behalf of HP, which is today's discussion includes forward-looking statements that involves risks, uncertainties and assumptions, which are further described in HP's SEC filings, including the Form 10-K and 10-Q. HP assumes no obligation and does not intend to update any forward-looking statements. For more information, please visit HP's IR web page at investors.hp.com. So with that out of the way, good afternoon, everyone. Again, delighted to have with us Ernest Nicolas, who is the Chief Enterprise Operations Officer at HP Inc. Ernest has been at HP since 2022 and is really responsible for delivering innovative technology solutions and building the future-ready supply chain that promotes social and environmental sustainability that is directly tied to HP's global reputation and their business growth going forward. Ernest, again, joined HP in 2022, brought more than 25 years of global experience in end-to-end integrated supply chain functions at companies like General Motors, Rockwell Automation and others. I'm sure we have a lot to discuss. I look forward to learning more about the supply chain, how it's evolving and hopefully get smarter about it over the next 45 minutes. Before I get into questions, I just want to say we're going to keep this to around 45 minutes. And then secondarily, if anyone has questions in the group, just put it in the Q&A function at the bottom of your Zoom screen, and we can weave it into the discussion that we have over the next 45 minutes or you're welcome to e-mail me the questions, and I can kind of, again, use it through the discussion as we go through. So with that, maybe Ernest to begin with, your responsibilities, I think, are broader than just supply chain and operations for the company. Maybe just talk about the scope and vision of your total organization within HP. And from there, we'll get into some questions.

No problem. No problem. Look, I'll take a step back, though, and I'll start where you actually walked into was 2022. I joined just at the -- on the heels of the end of the pandemic. And it was during an interesting time, as you can imagine. I hired into the Chief Supply Chain Officer. And when I say it was an interesting time, I mean, we were coming off of the pandemic where HP had some challenges from a supply chain perspective, right? We openly knew that we struggled with some componentry as the industry did. But we felt as though in many instances, we were questioning if we're really getting our fair share. If we had robust enough of a supply chain, honestly, be as effective as we want to be against what I'd say are our closest competitors. With that said, as I joined, a lot of the thought went around how can we be certain that if this is to happen again, if we have a cycle that has some similarities to what occurred during the pandemic, we'd be able to respond. So a lot of the focus then immediately shifted to how do we think about resiliency, how do we think about our footprint, how do we think about supplier relationships and how do we honestly start to mitigate against points of failure. I start there to give you an idea of, as I hired a Chief Supply Chain Officer, is significantly different from where we are today as Enterprise Operations Officer. Chief Supply Chain also had a distinct focus, which was all supply chain, and it was honestly me taking the organization from what was a segment-focused supply chain into one that is broader from an operating model perspective to start to look at the distinct areas and functions within the supply chain. So we pivoted that organization. So we went from what I'd say is a print and a personal system supply chain into a supply chain that could manage, honestly, a much more resilient, much more broadened footprint, but then to think differently about what you see on the screen, the plan, source, make, deliver and return, the actual core elements of the supply chain. As we made those changes, we thought about a digital transformation. We thought about, as we enhanced our footprint, what it would mean for us to honestly manage through a transformation specific to supply chain so that we could execute much more intelligently, but honestly, much more aggressively in hopes of better supporting the dynamics of the market that were occurring, not just then, but then what we're seeing now. So as you look at the screen, you think about that pivot in November of '24 this past year, we essentially expanded the organization and consolidated what was the supply chain organization with our digital team. And with our digital team came with it our CIO, our Chief Data Officer and several responsibilities associated with digital transformation in conjunction with what was already there that you can see that's in kind of that teal or that blue color that you see on the screen. But in each instance, as we work through this, what you can see are the different elements of the organization that we manage across what is HP Inc. So a vast variety of things ranging from the direct supply chain of how we support our hardware to then how we support order management, how we support sustainability, how we ultimately support the infrastructure of the company as it relates to our digital organization. But hopefully, that gives you an idea at a high level of kind of who we are specific to enterprise operations. But at the same time, if you don't mind going to the next visual we have, we've got a few areas of focus that we try to hone in on. And those areas of focus are specific to being a much more customer-centric organization, that's on the left, and then also this idea of transforming the company digitally, resiliently and sustainably. When I think about what's on the left, specific to customer-centric operations, it's about the day-to-day. How do we manage and maintain our COGS? How do we keep our COGS down, our cost down as it relates to SG&A? How are we certain that we can support the business specific to customer experience or customer service metrics. But then as you go up to the right, it's how do we ultimately transform. This is the whole idea of we perform on the left, we transform on the right. And transforming, honestly, will allow us to compete differently, whether it's on the print or it's on the PS side of the company. But in each instance, hopefully, what you're taking away is we're thinking about both sides, both the near term operationally as well as the mid- to long term as we think about it strategically. But hopefully, that gives you an idea of what we're thinking about as an organization and honestly, the construct of what is enterprise operations.

Got it. Now I really love the whole transform HP digitally, resiliently and sustainably. And folks almost forget almost like 3 parts of the whole story there. I guess, Ernest, maybe just help us appreciate the size and scale of HP's supply chain. I mean I think we all know HP is depending on the data set you look at, first, the second biggest PC company in the world and you folks are definitely the largest printer manufacturer in the world. But just give us an idea on the size of your overall operations and really the complexity of what you folks are managing from a size basis.

Sure. Specific to the complexity, I have to be honest with you, you mentioned on the onset that I came from automotive and I worked in industrial. And so I'm dealing with a different life cycle of product, obviously, in the PC realm but still a vast array of supply base and suppliers that support the ecosystem that goes into both print and Personal Systems. If you think just from a direct supplier perspective, we've got over 1,000 direct suppliers. And at the same time, we've got a long tail of indirect suppliers for more so some of our services -- most of our services and a bit of our goods, but we've got over 10,000 indirect suppliers. We do this across 82 different manufacturing locations. And our manufacturing locations vary, right? We've got some that I would say do end-to-end, and end-to-end being we take components, we do full assembly and others that are more so delayed differentiation, second touch that they fall into that realm. We've got a few distribution centers globally, just under 50 distribution centers that we have, and then we've got several field stocking locations. And field stocking locations are specific to our service supply chain to be certain that we can provide service in short order. We've got 260 field service locations. We also have 15 repair centers. So 15 different repair centers globally, just to give you, hopefully, an idea of where we are, and we sit and we support over 137 countries distribution-wise as we ship out to customers. If I pivot on you from what is essentially our footprint to then speaking about what we ship, we move a lot of weight. Obviously, a lot of product and hardware, a lot of product that gets shipped. We ship predominantly via air, ocean and we do some via land. But the equivalent of what we would do is 190-or-so ocean containers on an annual basis. 747 we ship quite a bit, and we do quite a bit as it pertains to land and what we ship on the ground. So hope that gives you an idea of what we do and how much we move product-wise.

It's fascinating. It's not just a big size, but it's also a really complex process to manage that entire supply chain. And Ernest, I think one of the things you talked about -- something Enrique has talked about is a target that you folks are aiming to have 90% of U.S.-bound products to be made outside of China, just given all the tariff issues that are going on. Can you just give us an update on where HP stands currently in that journey? And what areas are you transitioning manufacturing towards away from China at this point for the U.S. products again?

Sure. So at this point, we -- I stand by where we've been and what you've heard from Enrique. And the reason I say that is we have remained on schedule with our plan to have essentially all of our U.S. demand being built outside of China. We said that as of last month that we would hit it by this month, and we have. We're on pace to hit it. There are no hiccups as it relates to that. There's been a lot of transition, as you can imagine, a lot of start-up and qualification that we work through, but the acceleration has worked out for us as planned. So big kudos to my team. They put in a lot of hard work to get that done to make sure we transitioned. What I can tell you specific to our footprint, we are still heavily in Asia, but we -- as you know, we pivoted out of China. Over the last couple of years, we've opened factories in Thailand, multiple factories in Thailand. We've expanded existing operations in both Vietnam and in Mexico. We opened up in Mexico as well, and we opened up a small in Indonesia. So quite a bit that we've done via footprint, and we did it honestly, relatively quickly. I think you know and most of the people on the call will know, we were not a leader in this area of resiliency. And I don't know if I can even get away with saying we were a fast follower. But ultimately, we're comfortable in where we sit today and that we've caught up. We don't feel that we're behind, and we think in some instances, depending upon the footprint, we may be a step ahead.

Got it. Perfect. And then I guess maybe just on the topic you touched on towards the end, right? Maybe talk about how are these moves impacted -- or how are those moves impacted by what you've seen over the last few months from a tariff perspective across different regions? And from a supply chain footprint, do you believe that at the end of all this, you folks are going to be better positioned than your competitors? Just kind of how would you stack that up would be helpful.

No, look, that's fair. It's a great question. And again, I think you've heard from our organization we were surprised by the tariffs as most companies were. They were bigger than expected. We didn't expect some of the countries to get hit the way they did. So ultimately, we had to think about how we were going to adjust. And what we saw from a duties perspective, we're having to manage through. But what it forth on me and the team was to take a plan that we had already laid out and to accelerate it and to force ourselves to honestly just go even faster than we had originally anticipated. Did that take some work and a little bit more investment? The answer is yes. It always does. But ultimately, we felt comfortable with the plan that we had and that we could move forward given what the rules of engagement are today, right? We recognize fully that this is a very dynamic situation, and we know that it will change, but we're very comfortable with the moves that we made thus far and what we've accelerated. I can tell you when I think about the competitive landscape, I do feel that we're relatively similar to our peers. The countries that we've -- that I mentioned earlier, the countries that we've chosen are the same as that of our peers. We may honestly have a deeper penetration in certain countries than they do, and that's a decision that we've made for many reasons as we thought about whether it was Southeast Asia or it was leveraging Mexico. But ultimately, we see ourselves as being in the same predicament as they are in. And we think, again, depending upon how things play out, we may have an advantage when it's all said and done.

Got it. And then, Ernest, one of the topics that always comes up when it comes to supply chain diversification, let's just say, right, is at a high level, can a company achieve diversification of supply chain without having cost inflation? So maybe the question for you, I guess, would be, how does diversification away from China incrementally affect your cost structure at the end of the day?

Understood. Understood Look, what I've always shared, and I say this to my team all the time, customer service isn't free and neither is resiliency. It's not, right? Resiliency, when it's all said and done, can be looked upon to many extent as insurance. And so it's not free. It's not something you can have and expect that you will have no implications from a cost perspective unless we're ultimately moving to an environment that is somewhat lower cost because in many instances, we're duplicating capability. Now with that said, as we look at our own situation, we are relatively comfortable with what we've seen. We know that -- and when I say we've seen, specific to what I'd say is our assembly and how we're pivoting our assembly process and our assembly cost structure from one location to the next. What I know is going to require continued investment is the development of our ecosystem. And that realistically shifts us to think about supplier development and what does it mean for our ecosystem to be developed and the new location that we've chosen. As you listen to me talk about Southeast Asia, well, the majority of our ecosystem specific for PC was sitting in China. As we shift, we need to have a presence that starts to exist in Southeast Asia. As I think about this on the print side of the business, it's somewhat already shifted, and print is a little bit more flexible because they've gone through this some time before. But ultimately, we've got to think about how we accelerate the ecosystem and how we accelerate the learning curve within these sites. Because as you're accelerating, that's again, where there are expenses and there are some very realistic expenses that occur within an operation. What I also want to be certain that I don't lose sight of is the working capital implications, right? Again, as we open up multiple locations, we are going to have to honestly seed stock. And as we see stock during acceleration, as we think about how we position inventory, we have to be realistic that there are some implications for that. We'll ultimately settle down. But initially, we've got to ramp up accordingly. To be certain, we don't fall backwards specific to customer service. We don't want that to happen at all, and we don't want our customers to feel any of this as we make these transitions.

You talked a little bit about print versus PCs. With the different margin profiles across printers and PCs, can you maybe just explain to us the nuances between both the manufacturing strategies and associated costs between these two?

Yes. I hinted at the fact that print has already had a diversified footprint. And a lot of that had to do with the fact that print went through the tariff situation, Tariff 1.0 with the first Trump administration. And so they adjusted accordingly. So the diversification, quite honestly, away from one geography had already happened. And so because of that, print isn't nearly as significantly impacted by this round of tariffs. At the same time, I think many know that we partner with Canon. And as we partner with Canon, Canon is also exploring and honestly deploying their own diversification strategy, which is also helping us because they have some critical components for us and critical elements of the printers that also come into play. As we think about diversification for print, a lot of the discussion has been less about opening up new rooftops and more about leveraging the different pieces of our footprint. So how do we move lines from one location to another or duplicate lines from one location to the other to be certain we're driving in that resiliency? If you contrast that with PC, we were concentrated predominantly in a location, and that's because we weren't impacted by the first round of tariffs. And so irrespective of whether you say it's the print business, which we know has much more favorable margins or higher margins than the PC business. And either way, we had to think through what are we going to do from a diversification perspective in order to be certain we can still support customers. And while the approach is the same, obviously, there's some fine-tuning that happens specific to how much working capital and how much, honestly, redundancy or resiliency we build in to be certain that we can support our customers.

Got it. Maybe I'll pause there for my questions. I have a few questions from the folks that are on the call that maybe would love to get your perspective on. So maybe the first one is, can you talk about how Section 232 would work for electronics broadly? And would HP expect to get any exemptions from there? Or do you expect to pay the entire tariff and then collect them from your suppliers? Just talk about how does Section 232 potentially affect your folks. And how does that kind of math work for you over time?

Sure. As we think about the 232 tariffs, look, we are planning for -- I don't want to say that we're expecting an exemption. And the reason I say that is we've thought long and hard about 232. We have our government affairs, public policy team that stays very close, I'd say, to the administration. I've spent time myself, but I wouldn't tell you for 1 second that we're thinking about this being dissipated. We're honestly just awaiting what's going to come from the administration and trying to be certain that we leverage our footprint accordingly to support whatever the rules of engagement become. If the rules of engagement become something that forces us to pivot differently, we will. But for now, I'd tell you that we're not thinking that we're going to get a clear exemption from this, by no means.

Got it. And then, Ernest, would it be fair to assume that you folks would pay the tariff and you just levy that on your suppliers? Or have you folks thought about how the payment mechanism would work for them, I guess?

It's a combination of things. And I think we shared that on multiple occasions that there is a mitigation element that has to come into play and that we try to mitigate as much as possible through the supply chain. That is the first lever that we're trying to move forward, and that's what makes, honestly, the work of what my team is doing so critical for us. And again, after we try to mitigate as much as possible, only then do we consider what that means to us from a price perspective. But we try to mitigate as much possible from a supply chain standpoint first. So this is not just a pass on -- and pass it on and not think about it after the fact. We try to mitigate it first internally.

Fair enough. Just another one from one of the folks on the call, which is, can you just give us a sense on after the moves you folks are doing, what are some of the top countries and geographies where the product that will be U.S. bound come from? I think you mentioned Southeast Asia, you mentioned Thailand, but just what are the big countries, geos where the product for the U.S. is going to be coming from post some of the moves you're making?

Understood. And I did mention it. Look, our footprint, as I shared before, we have expanded it. And I shared that we have expanded to Southeast Asia, a combination of Vietnam, Thailand, Indonesia as well as Mexico. And each of those locations will be used in one way, shape or form to support what we ship to the U.S.

Got it. And then maybe if I just go back to some of the questions we had, which is what scenarios are you currently modeling for future supply chain disruptions, whether geopolitical or tariff-related? Had your team implemented AI or digital twin models to really enhance some real-time decision-making or risk detection because it does seem a little bit of a game of whack-a-mole otherwise, I feel that people are running at.

Understood. It's -- I'd say it's not just the scenario modeling that was important, but I'll start there. We have thought about, honestly, this new environment that we've created, honestly, to support the geopolitical environment, the new tariff environment, as I've been saying, the rules of engagement. And it requires us to think substantially different, right? We've got multiple sites that are honestly assembling the same product. We didn't have that as much before. There were -- there was sporadically, we had it through our supply chain, but it's going to be ramping through our supply chain moving forward. So we must model geographically how we support certain regions through certain locations and then how we honestly model in the redundancy to support that. So we've had to think differently about digital tools. We've had to think differently about our supply chain digital transformation, what that's meant for us, but it's forced us to put into place visibility, and visibility from component all the way through finished goods. Because it's one thing to model and start doing scenario planning, it's another thing to then execute on it operationally. We needed to do both. So there's an element of thinking through scenario planning from a digital twin perspective. There's an element of how do I actually plan for this operationally, thinking about how do I forecast, how do I think about capacity and then ultimately, how do I execute. So we've had to think about in both instances, how we do that, which is very, very important. And so when I mentioned to you earlier, this notion of a resiliency strategy that we had to develop as a supply chain, well, in conjunction with that, we had to develop a supply chain digital transformation strategy to make with that because we couldn't continue to transact in the fashion that we had been transacting for years where it was a single site, single location, everything pours in and then ultimately gets shipped out to customer. It's now multiple inputs, multiple outputs that we had to think about as an organization. So it's an and, okay?

Got it. Sorry, I was on mute. You actually touched a little bit on this. Don't forget that there's the impact to working capital when you're doing all this stuff. And I think the management team, Karen and Enrique have also talked about, hey, there is a bit of a working capital dynamic that you got to talk about when you're doing all this. So maybe from your field, I'm hoping you can just expand a little bit more and talk about what are some of the working capital requirements that are needed for your diversification strategy. And then one of the things that always comes up in these discussions that we have with investors is, are you receiving as a company any co-investments from your customers as you ramp up a new supply chain essentially?

Understood. Understood. Look, as we talk about the working capital, and I'll go specifically into how we're thinking about just inventory management. One of the digital capabilities that we needed to deploy that we wanted to deploy was inventory optimization. right? For years, HP has been focused on -- and for those that know inventory strategy, they've been focused on a weeks of supply strategy. We're going to have x number of weeks of components, x number of weeks of work in process, x number of weeks of finished goods. And we had to say to ourselves, if we're going to go to a multisite environment, we've got to optimize better than that. And we've got to be a bit more strategic. So one thing we are deploying is an inventory optimization tool set that allows us to think statistically about a specific site location and that part in that site location based on either the inputs of how we're receiving or the outputs of how it's being demanded. But ultimately, we're looking to deploy that over the next several months. We have in some areas of the company because we've done a pilot and we've run through it. But a lot of this is, again, to complement the fact that we are now in a multisite environment. We want to be certain we optimize the inventory as much as possible so that the seed stock isn't as simple as just put 2 weeks here, put 2 weeks there. So that will allow us one area of improvement. I'd say second to that, we're looking at how we manage the capacity of each of our partners. You heard me mention visibility earlier. We have worked with our partners to gain visibility into their systems to understand how our orders, how our purchase orders are being fulfilled, how they're being confirmed by our supply base, but then we're also thinking about how do we route orders to them, orders that we get to be certain that we're best utilizing our capacity. On a couple of different fronts. Obviously, one, there is the geopolitical situation that we're in now. We want to be able to be certain that we can route accordingly to minimize the implications of the tariffs. But at the same time, we want to minimize our cost and be certain we're utilizing our capacity to the best of our ability. In either case, we're going to make decisions in both instances, whether it's the flow of product or it's the inventory we put into place -- excuse me, it's the flow of product or it's how much we want to put essentially safety stock in place that will determine how much inventory we have in either instance. So in each case, I'd say very important, but again, digital tools and digital transformation, honestly coming life how we're making shifts for the organization. You also asked specifically about customers. I can tell you there are multiple examples where customers are asking to have visibility of our inventory in the same manner that you hear me talking about I want visibility into that of my supply base. And so we have provided it for those that want to be, I'd say, in that type of relationship with us. We've been somewhat selective because quite honestly, I'm spending a lot of my time and resource on our own digital transformation, but we have partnered with some select to be certain that we're piloting how much information we provide them because for us, that's kind of the next step. The next step is to say to ourselves, if we brought in all this rigidity of process and execution that's going to see improvements in customer experience, that's going to see improvements in how we transact, we want our customers to be able to realize the benefit of it so they can see that when they place an order, they know exactly where it's going to be built, they know exactly when they're going to get it. They know exactly when I ship it. So we're trying to be certain we can change that experience. So kind of clean our own house first. And then as we continue over. We will start to then share very openly more so with our customers to be certain they have a customer experience that digitally based that quite honestly is very effective, and it represents and reflects essentially who we want to be as HP.

Got it. And Ernest, maybe I just move away from the supply chain side for a minute, not really moving away from it. But from a demand perspective, I would say, to start this year, we have seen a bit of a demand pull in happen as well as you seeing stuff of PC refresh cycle given the device age. Windows 10, I believe, was end of life in a couple of months as well. Can you talk about what are you seeing as it relates to these factors? And have they accelerated any of your actions from a supply chain standpoint, be that manufacturing inventory position, what have you? Just love to understand how you're reacting to the fact that demand is actually getting somewhat better at the start of the year, I feel.

It makes for an exciting time. I have to be honest with you, a very exciting time. We have seen strong demand, and we've been excited about seeing strong demand. As you know, it's been a little while since we've seen strong demand since the pandemic. So it'd be nice to see a nice ramp up. But doing the ramp-up of demand while we're going through, as we talked about kind of the tariff situation, it's led us to think about our processes and I think very favorably. We have taken the view that we're just going to go on offense, and that we've been pushing to go on offense as an organization. We've been pushing to be certain that our processes can handle the change. So we're transforming essentially as things are accelerating. So it's an exciting time. At times, as you can imagine, there have been some hiccups as with anything else. But for the most part, we're seeing a positive trajectory relative to how we're executing, how we're moving forward. So the mitigations, the inventory positioning that we've done, it's working out for us for the most part.

Got it. One of the other things beyond questions around how folks are managing the supply chain given the ever-evolving tariff situation has been the commodity markets, right, in terms of the commodity of PCs and so on. So I'd love to kind of get your perspective, what are you expecting for the rest of the year when it comes to commodity costs? I think HP has talked about making strategic buys where they make more economic sense for you as a company. Can you just share a little bit more about your procurement approach? And how do you think about commodity costs for the rest of the year as you go forward?

Sure, sure. Look, as you talk about procurement approach, I mean, you heard me say at the onset of the call, the importance of the relationships with our supply base. I mean given our girth and given the scale at which we move, it's very important that we sustain -- we maintain and we sustain the relationships we have with them. As I think about the second half of our fiscal year, for the most part, if I think specifically to print, I'll start with print first, they've been stable, relatively stable. I mean we've seen some slight fluctuations. But for the most part, given the commodities that we procure, it's been relatively stable. So hopefully, knock on wood, no big or major changes there. While the PS side or the PC side, a little bit different, right? We've had some tailwinds from some strategic buys. We do strategic buys on some of our main commodities, which has continued to play in our favor. But we're not, I'd say, as concerned as we think about Q3. We see a slight increase as we go into Q4, specific to memory is what we see. But overall, as we continue to think about this quarter-over-quarter sequentially, we monitor this very closely, very, very closely. But some concerns as it relates to memory specifically. And Amit, let me add. I think as you cover the space, the challenge with memory is not so much as servers continue to take off, right? It's very attractive for any of our supply base to pivot over to servers, and that's honestly what's creating some of the shortfall in capacity or availability that's essentially raising up some of the prices.

Got it. And I guess I want to shift away from this and spend a few minutes on your digital transformation side as well. I think the company has talked about a target of $2 billion, I believe. $2 billion is a number you folks have talked about in run rate savings that you're expecting from the future-ready plan that HP is implementing to transform the business and really enable a digital move on an end-to-end process basis, right? Can you talk about the progress HP has made on this so far? And maybe dig into a little bit of how you're deploying AI internally to drive a lot of these savings?

Understood. Understood. Look, what I can share openly, this is one of the most exciting areas that I took on when I expanded to Enterprise Operations, to be very honest with you. Spending time with this team, seeing, honestly, the know-how, the capability and honestly, just the forward thinking makes this more than exciting. When I think about the company, we've challenged ourselves from an enterprise perspective, just to think about how do we modernize our infrastructure and modernize it in such a manner that we think about being productive as well as being efficient and what value we can add to employees. What we found is there are organizations that are focusing solely on efficiency, which we don't think is the right approach. We want to be certain we include value, we include productivity so that ultimately, we can see that our employees start to leverage this in the right manner. I have a team of people that work centrally from an AI perspective that are essentially governing how we're leveraging large language models. But we've seen some wonderful deployments already, and we've got several that are planned. I can tell you openly on our bid proposals when we go after large deals, we've reduced the time substantially of how long it takes us to process our bids. At the same time, from a sales perspective, we are creating, leveraging AI, a digital product that will allow us to essentially have a one-stop shop for our salespeople. And when I say a one-stop shop, whether they're looking for information from a customer or looking for a specific order, whether they're thinking about highlighting the customer what they could order and when they will receive it, all of that will be piped into a tool set for them that will be AI-driven. Like most organizations, we're also looking at our customer support, our customer operations team, our call centers, we're looking for opportunities there. And when I say that, meaning we have teams right now that are combing through processes that are looking at end-to-end processes, looking at process maps to honestly identify what we feel is the next opportunity to leverage AI, to leverage automation, you name it. At the same time, another instance I can share, we've leveraged it in marketing. With a lot of our in-house digital capabilities, we've been leveraging AI. So hopefully, you're getting an idea for the different areas that we're touching upon. But the digital team is honestly, they're spread across the organization, looking for opportunities. And again, I say that to you because we've tried to focus on how do we look at our end-to-end business processes, all the core streams across the company and said that's what we're going to attack. And again, we'll attack it from a process perspective and leverage AI to optimize it.

Got it. I guess, Ernest, one of the things that comes up when we talk to folks about deploying AI internally has always been what does that mean at the end of the day? Does it mean for you folks, for example, that you can keep growing revenues, let's just say, x percent, but you can do that while your OpEx or headcount keeps coming down? Is that how you envision AI helping you? Or -- I'd love to understand like how do you think about headcount versus revenue growth as you go forward, especially with AI getting deployed?

I'm glad you asked that because I wasn't explicit about it. So when you heard me talk about being productive versus being efficient. To your point, when we start talking about the salespeople and I talk about a one-stop shop for them, that's them being more productive. And our expectation is they can do more with the same. So for the same set of commercial organization employees, we can do more. We can hit more accounts. We can have more information. We can be essentially faster to the draw, faster to the right response. When you hear me talk about customer operations, it's a little bit different, right? That's within my own organization. It's order management. How can we leverage order management to be -- or leverage the process within order management to be more efficient? And being more efficient, again, yes, we're fast at the right decision, but in processing a certain amount of orders, I should not need the same amount of resource to do that. So that, to me, is doing the same with less. And so we should be able to do that and ultimately then give back to the company, to the enterprise and think about how do we reinvest that or honestly how do we take it to the bottom line. We can put ourselves in a predicament that we can make a decision, both impacting the top line as well as the bottom line.

Fair enough. Now that's a good place to be where you decide what do you do with the pocket of gold or the pot of gold you have at the end of the day in terms of investing it back or putting to the bottom line.

That's what my boss is expecting. He calls it more than a pot of gold, but I get it. I get it. I get it.

Exactly. There are a couple of questions here. I know we're almost up on our time, but there are a couple of questions from folks on the call that I just want to flush out with you. One of this is going back to the inventory discussion. As you're talking about, one, adding resilience; b, increasing optimization of inventory at a given site, is there a way to think about what happens to your inventory levels? Does it go up by 10%, 30%? Is there a way to quantify that number, I guess?

There is a way to quantify it, and we have invested, I'd say, in inventory through the transition now. What I can tell you is I have a goal of being relatively flat. And the reason I want to leave it there is I do feel that we weren't as optimal as we needed to be when we start to think through what I mentioned was our policy before, the weeks of supply policy. That weeks of supply policy put us a predicament where, in some instances, it was enough. In other instances, it was too much. As we think about working statistically, I should be able to dial in better to where I want to be and allowing for us to decrease inventory in some instances, even though I'm becoming duplicative by having it at multiple sites. I think what's more important that we'll net out against that as we move forward, we've gotten better at our strategic buy process that I referenced earlier. And so a bit of that working capital that we will save or have saved has been reinvested into strategic buys. And strategic buys have been done again for multiple reasons, whether there is an opportunistic element to our decision of a strategic buy or it's availability of supply. And we're trying to be certain that there may be risk in a certain commodity because of capacity limitations in a given -- for that given commodity, so we'll make different decisions to invest. But I want to be careful because I do think we had opportunity and that we're capitalizing on it, and we're making what I think is the right decision, which will help us long term as we think about our overall cost structure for the organization.

Got it. And so maybe the way to think about this just out loud is days of inventory should be relatively stable, no matter -- despite this kind of inflation or higher price you might have, right?

That is correct. Now -- but again, I want to be careful because we will reserve the right to make decisions on strategic buys. I'm taking strategic buys to the president and to Enrique all the time as we work with our supply base and we have an opportunity and we know we -- it will allow us to be more competitive, we're jumping all over it. And again, competitive in a couple of different fronts. You heard me say cost as well as availability for service in both areas. Well, we're trying to take advantage where we can.

Got it. Perfect. I know we're up on our time here. So maybe I'll stop my questions here and turn it back to you and see if there's any closing thoughts that you would like to leave me, investors with that we should be aware about as you think about HP and enterprise resiliency and supply chain.

Yes. Look, first of all, thank you for the time. I appreciate it. I hope that everybody that joined found this to be helpful, at least to give you some further insight into kind of who we are as HP, what Enterprise Operations is and what our supply chain does in order to allow us to be competitive. I've been on a journey since I've joined here. I just finished 3 years, still excited. I got many more to go. But what I love about what we've done is we have created a more resilient supply chain. We have created a supply chain that is much more customer-centric, as I referenced before. And we're on this journey of digitally transforming the supply chain and ultimately, what you'll see is the company. So when I think about us moving forward, I think we're in the right position to support the growth for the organization that we're planning for through the innovation that my peers are driving, both on the print and the PS side. We do know that we've got potential headwinds and some challenges that may occur. As I mentioned before, the rules of the game changes as it relates to compliance, tariffs, you name it. But ultimately, I think we positioned the supply chain to allow HP to be successful. And that, to me, is very, very, very important. So we'll keep working with different -- with the administration, with different people in government globally. But ultimately, we think we positioned ourselves very well to be competitive moving forward. So again, thank you for the time. I really appreciate it.

Well, thanks a lot, and I really appreciate you spending some time with us to educate us on all this. So look forward to all the changes that HP going forward. Thank you very much, and take care everyone.

Thanks.

Thanks Ernest.

Okay.