HP Inc Discloses Sharp Increase in Memory Costs for PC Production
In a significant development for the global PC industry, HP Inc has announced that memory, commonly known as RAM, now constitutes a staggering 35% of the total cost of materials required to manufacture a personal computer. This marks a dramatic rise from the previous quarter, where memory costs accounted for only between 15% and 18% of the bill of materials. As one of the world's leading PC manufacturers, HP anticipates that this contribution from RAM will continue to escalate throughout the fiscal year, posing challenges to profitability and pricing strategies.
Financial Impact and Margin Pressures Highlighted by CFO
During HP's Q1 2026 earnings call, Chief Financial Officer Karen Parkhill provided detailed insights into the financial ramifications of this cost surge. She revealed that memory expenses have increased by approximately 100% sequentially, with forecasts indicating further hikes as the year progresses. Parkhill elaborated, stating, "We did share last quarter that memory and storage costs made up roughly 15%-18% of our PC bill of materials. We now currently estimate this to be roughly 35% for the year." She emphasized that the most substantial impact is expected in the second half of the fiscal year.
Consequently, HP projects that its Personal Systems Operating Profit (PSOP) margins will fall below the long-term range for the remainder of the year. Parkhill assured stakeholders that the company is actively implementing measures to counteract these headwinds, including product cost optimizations, company-wide cost reduction initiatives, and strategic price increases aimed at recovering the financial impact over time.
Mitigation Strategies and Supply Chain Adjustments
Despite the cost pressures, interim CEO Bruce Broussard presented a proactive approach to managing the situation. He highlighted that HP has secured long-term supply agreements for the year, qualified new suppliers, and built strategic inventory positions for key platforms. Additionally, the company has halved the time required to qualify new materials, enabling faster product configuration changes to adapt to market demands.
Broussard explained that HP is configuring products and shaping demand to align supply with customer needs, while also taking targeted pricing actions in collaboration with channel and direct customers to offset the remaining cost impacts. This strategy involves building inventories of critical components to prevent shortages and potentially passing on some of the increased memory costs to consumers through price adjustments.
Furthermore, Broussard noted efforts to expand lower-cost sourcing across commodity categories and reduce logistics expenses through agile end-to-end planning processes, demonstrating a comprehensive approach to cost management.
Revenue Growth and AI PC Adoption Trends
Amid these challenges, HP reported robust financial performance in its personal systems division, with revenue reaching $10.3 billion, an 11% increase year-over-year. Consumer PC purchases rose by 14% compared to the previous year, driving a 16% revenue growth in this segment. Ketan Patel, HP Inc's president for personal systems, attributed part of this success to the adoption of Windows 11, which has stimulated PC sales.
Patel also highlighted the growing significance of AI PCs, noting that 35% of the PCs sold by HP now fall into this category. He stated, "The local models on AI PCs started to deliver results, with more and more ISVs developing applications, which are using [AI] locally and more effectively than ever before." This trend underscores HP's focus on innovation and adapting to evolving technological demands, even as it navigates cost-related headwinds in the memory market.
