HP INC.

HP Inc Securities Analyst Meeting

October 12, 2017

Ubiqus Reporting, Inc. 2222 Martin Street, Suite 212 – Irvine, CA 92612

Phone: 800-979-5009 Fax: 949-553-1302

HP INC.

HP Inc Securities Analyst Meeting

October 12, 2017 1

HP Inc Securities Analyst Meeting

[START RECORDING]

[background music]

MALE VOICE: Ladies and gentlemen, please welcome Steve Fieler,

Global Head of Treasury.

[background music]

[applause]

MR. STEVE FIELER: Good afternoon. I’m Steve Fieler, Global Head

of Treasury for HP, and welcome to our 2017 Securities

Analysts meeting. It’s great to see so many familiar faces

in the room, some of which have flown in from the east coast

and cities across the globe, so thank you for joining us here

today and thank you for those who are taking the time to join

us via webcast, as well. This is the first time in HP’s

history we’ve actually hosted the meeting on-site here at our

headquarters, and there’s been building momentum and

excitement around this campus, partially driven by the free

lunch today, but we’re thrilled to have everyone here. It’s

going to be an exciting day.

And for those who aren’t here in person, we’ve spent the last

90 minutes or so showcasing some of our newest products, from

very small to very large, some services and technologies,

including some cool detachables and notebooks, along with

gaming and virtual reality demo. A whole line-up of

printers, including our new A3 lineup, some amazing graphics

machines, and yes, even a live, 3D machine. How cool is

that?

Before covering today’s agenda, let me go over a couple

important slides here. 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 this slide about

the use of forward looking statements and the presentations

that involve risks, uncertainties and assumptions. And for

discussion of some of these risks, uncertainties and

assumptions, please refer to HP’s SEC reports, including its

most recent form 10K and for 10Q’s. HP assumes no obligation

and does not intend to update any such forward looking

statements and we also note that financial information

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October 12, 2017 2

discussed in this meeting reflects estimates based on

information available at this time and could differ

materially from the amounts ultimately reported in HP’s

annual reports on form 10K for the fiscal years ending

October 31, 2017 and October 31, 2018. For financial

information expressed on a non-GAAP basis, we have included

reconciliations for the comparable GAAP information, so,

please refer to this slide presentations accompanying today’s

meeting.

Okay. Deep breath. We’re real excited about the agenda

today. We’re going to start with Dion, who’s going to

highlight some of the progress we’re making towards both our

strategic and financial objectives. He’ll then talk about

what’s in store for next year and offer some longer-term

insights and perspectives about HP’s future. We’ll then

shift to a view of the segment and have each of the segment

presidents, from Ron, Enrique to Steve, join us up here and

talk in a bit more detail about their respective businesses.

We’ll start with personal systems and then take a short

break, then print, then 3D and take another short break.

Don’t worry, there will be refreshments at break and I’m

expecting at least two things to happen. First, in front of

you, an HP Sprocket, a really, really cool and amazing

technology and product we released over the last 12 months,

so make some memories happen over break. Use the Sprocket.

And second, in front of you is a 3D printed object, a very

geometrical shaped, interesting object, so I’m hoping to hear

some conversation on how did we actually print that. And

hint, that object can only be printed via 3D.

So, after the break, we’ll come up here and Cathie will talk

about our financial overview and our FY 18 financial

guidance. I’ll ask the executives to come back on stage,

we’ll do a Q&A and then we’ll head back upstairs for a

reception.

So, a couple of final, logistical points before getting

started. First, the IR team, raise your hands, Chris, Kitt,

Hwa, they’re here. Please ask any and all questions to these

three gentlemen and they’ll instruct you and give you the

answers, and also, they’ll escort you back upstairs once the

event is completed down here.

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Second, materials will be made available to download on the

investor relations site. They will be posted just ahead of

the presenters, except for Cathie, who’s slides will be

posted after she presents today. Okay. It’s time to get

started here. I’m so pleased to turn the meeting over here

to our president and CEO, Dion Weisler, but just wait. We

have a short video.

VIDEO MALE VOICE (Jim Cramer): Every now and then, the good guys

actually win. HP Inc. reported a quarter that totally

changed the narrative here.

[background music]

VIDEO MALE VOICE 2 (Dion Weisler): I tell you, I couldn’t be more

proud of this team. I think they just did a phenomenal job.

We set out to really reinvent this company 18 months ago. We

said we kind of have the heart and energy of a startup but

the brains and muscle of a Fortune 100.

[background music]

MALE VOICE: Ladies and gentlemen, please welcome Dion Weisler,

president and Chief Executive Officer.

[applause]

MR. DION WEISLER: Well thank you and welcome. Good afternoon,

everybody.

ALL: Good afternoon.

MR. WEISLER: Antonio, next year, music louder, a bit more bass.

Good afternoon, everybody.

ALL: Good afternoon.

MR. WEISLER: Welcome to our humble home. Actually, this is our

humble cafeteria, which is why we’re serving free lunch to

our team, because we kind of took over their lunch space, but

it’s a special place for us because we actually launched our

company here back in, November of two years ago. We invited

all our founding partners, those that represent almost 80

percent of our revenue, were in this room celebrating the

opening of this new company, and so, for those of you who are

on the web, thank you for tuning in, wherever you may be.

And for those of you here in the room, thank you for joining

us at our headquarters in Palo Alto, California.

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As you saw earlier today, we’re literally just steps away

from Bill and Dave’s offices. Every time I walk in, I’m

reminded of the power, pride and responsibility that we have

leading one of the largest technology companies in the world.

It’s amazing to reflect on all that has come before us, how

our company has changed industries, changed communities and

lives all around the world. Our aim is to continue to

reinvent this iconic company that’s been entrusted to us.

This has been a tremendous year for HP, and the best part is,

we’re just getting started. Most importantly, we’ve

continued to prove that we can consistently execute and win

in the marketplace and deliver returns for our shareholders.

We’ve also proven that we can convert ideas into real

businesses, as we set ourselves up to accelerate our growth

and capture the future.

Today, we’ll talk about how we’re delivering results aligned

with our strategy and what you can continue to expect from us

into fiscal year ‘18 and beyond. As part of this, I’ll also

spend some time discussing the trends that are changing the

world around us because with change, we create opportunity.

Nearly two years ago, we set out to create a company with the

heart and the energy of a start-up but the brains and muscle

of a Fortune 100 corporation. We set out to reinvent a new

kind of technology company with a mission to engineer

experiences that amaze for everyone everywhere. In the past

year alone, I met with tens of thousands of employees,

partners, customers and investors. I’ve experienced the

great products and services that we’re creating for our

diverse customer needs and seeing how our reinvention

strategy is paying off, and I’ve got to tell you, I’m humbled

by our success and I’m really optimistic about our future.

For our shareholders, we are doing what we said we would do,

delivering operational excellence, predictable shareholder

returns and building a business for the long-term. When we

became a standalone company, we had to prove that we could

deliver reliable earnings and cash flow, take profitable

share, drive productivity, stabilize our core businesses and

importantly, establish growth, and we’ve been doing exactly

that, and I’m very proud of what our accomplishments have

been since last year’s Security Analyst Meeting.

We delivered three-quarters of non-GAAP earnings, EPS, within

or at the high end of our guidance. We have grown total

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company revenue for four consecutive quarters with broad-

based growth and share gains across all three regions. In

the third fiscal quarter alone, we grew revenue ten percent

year-over-year. And we stabilized supplies revenue one

quarter earlier than expected.

These results give us the confidence in our business

fundamentals, including our ability to generate cash flow.

And we remain committed to our return of capital strategy,

and we’re on track to deliver at the high end of our 50 to 75

percent return target in FY ‘17. With an emphasis on

operational excellence, we remained focused on managing costs

and are on track to deliver our productivity initiatives.

This gives us the capacity to invest in research and

development, in sales and in marketing to fuel our core,

growth and future opportunities. Our investments in areas

like security and design are translating into growth across

both personal systems and print. Additionally, earlier this

year, we began shipping our first 3D printers, as well as our

new A3 product lineup. In each, the operating principle is

exactly the same, segment the opportunities, create

efficiencies to invest in differentiated technologies and

bring unique and compelling value propositions to market in

order to gain long-term profitable share.

We have never been as well positioned to execute on our core,

expand into growth opportunities and to capture the future.

Now, let me take a moment to highlight our business unit

performance and how we’re setting ourselves up for years to

come. In personal systems, we’re executing and innovating

like never before. Revenue has grown year-over-year by 12

percent and operating profit by eight percent year to date,

and we are seeing growth across all reported product

categories driven by the most innovative product portfolio in

our history. We rose to become the number one PC

manufacturer worldwide and have consistently outgrown the

market for 14 consecutive quarters, including our most recent

calendar quarter two, where we outgrew the entire PC market

by nine points.

When we last met at SAM one year ago, one out of every five

PCs globally had an HP brand on it. Now, we’re well on our

way to nearly one out of every four. While this is

tremendous progress, there is still room to expand and

profitable share to take.

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But, remember, share is not our goal. It’s rather an

outcome, and I’ve been very consistent on that point. The

teams are doing an outstanding job of stitching the seams to

deliver growth. Ron, together with the regional presidents

and the supply chain teams are in lock-step identifying

pockets of growth, targeting our investments and remaining

disciplined over a multi-year period. This focus has kept us

ahead of our competition and ultimately turned strategic

intent into positive return on investment.

A great example is in the premium segment and specifically

with the Omen gaming platform. Two years ago, we barely had

a gaming presence, but we saw opportunity and invested.

Gaming is one of the fastest growing market segments and most

high margin opportunities, as gamers play a premium for

performance, as well as style. Today, Ron will provide

additional color on our strategy in personal systems, as well

as how we’re positioning ourselves to capture the future.

And in printing, the pundits said printing was destined to

decline. But we’re providing them wrong. Some of you said

we couldn’t do it, but we are. We have grown revenue for the

past two consecutive quarters, including growth in both

hardware and supplies. Supplies revenue stabilized during

our third fiscal quarter, a quarter earlier than we said it

would. The team did an excellent job managing the

transitions in our supply sales model and our focus on the 4

box model drivers is really working for us.

Stabilizing our core business sets us up for growth

opportunities, and the print business has a strong track

record of making targeted investments and generating positive

returns. Take, for instance, the success of the Sprocket.

You all have one. It’s our new, pocket sized printer that’s

making print relevant for an entirely new generation of

customers, and our sustained performance in graphics, where

we’ve achieved 16 consecutive quarters of growth in constant

currency.

Similarly, our aggressive push to disrupt the A3 copier

market is supported by targeted investments and a very

disciplined focus. We see a large 55 billion dollar

opportunity where we can leverage existing capabilities and

know-how, including IP, distribution channels and service

based business models to accelerate or entry into a natural,

under penetrated adjacency. We are accelerating this

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opportunity with the announced acquisition of Samsung’s

printing business, and we look forward to welcoming them to

our printing family, once the deal is closed.

You’ll hear more from Enrique on the exciting initiatives the

print team are planning that will generate sustainable, long-

term returns in home, office and graphics printing.

Okay, go and have a little bit of a stretch. It’s about to

get really interesting, because we’re not only advancing our

innovation and security. We’re also shifting business from

contractual, from transactional to contractual offerings.

We’re leveraging decades of HP printing technology to offer

new products and enter new categories, and in the first of

three SAM exclusive announcements, we’re entering into a new

and exciting, do I get a drumroll? Anybody? New and

exciting, wait for it? We’re entering a new category of

textiles within our graphics business. This is an incredibly

new application of our technology, and Enrique will explain

more about the new market in his section.

Speaking of leveraging HP printing technology, one of the

most exciting elements of our strategy is 3D printing.

Momentum is building for the next industrial revolution as

the 12 trillion dollar manufacturing industry is digitally

transformed. This isn’t a one or two-year play. This is a

multi-year journey that should be a growth engine for this

company for decades to come. The disruption of manufacturing

is a massive opportunity because little has changed since the

assembly line transformed manufacturing more than a century

ago. Our strategy is not just to be a platform player, no,

no, not just to be a hardware provider, we want to work with

our partners in developing an open materials eco-system. Our

business is built on top of HP’s multi-jet fusion technology,

which delivers 3D printing at breakthrough speed, quality and

cost, making digital manufacturing at scale a reality. And

it’s incredibly encouraging to be hitting key business

metrics and key milestones. In only three short quarters,

we’ve turned our 3D initiative into a business with global

scale, repeat customer orders and expanding partners in our

material ecosystem, and yes, real revenue. While our

revenues today are small relative to our roughly 50 billion

dollars of annual revenue, our progress would make any

venture capitalist captivated with the future potential.

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You see, there’s three important things that matter most.

First, a significantly large and untapped market opportunity.

Second, a highly differentiated value proposition that’s

grounded in unique IP and really complex science, and the

third is a highly skilled team, capable of delivering success

while continuing to define the future. Well, we have all of

those in spades and more.

In the second of three SAM exclusives, are you ready, another

drumroll? You’re not playing much with me here. Good, I’m

glad, see, my team does that. When I get the rest of you,

that’ll be fantastic. But, we’re going to continue to expand

this business, introducing a new, lower cost, more accessible

3D printing platform that prints in full color. Multi-jet

fusion will be the one and only 3D printing technology in the

industry that can make mechanically robust and fully

functional full-color parts, and the lower price point will

open new market segments, making it easier for designers and

creators to access the technology.

Now, take a look at a couple of these parts. Beautiful full

color parts, vibrant color parts and you can just start to

let your imagination run wild when you can add infinite color

to part creation. I particularly like this part. This is

created as a bracket and often, for visualization, for a

designer, we’re able to change the color of high-stress areas

and so that the designer can zoom in on the high stress areas

and see where they might modify the design, but interesting

shapes like this in full color are only able to be produced

with 3D printing, which brings me to our third SAM

announcement.

Not yet. I’m excited to announce we’re doubling down on our

3D printing business and entering into a new market segment.

When we first came to market, we said we would be leaders in

polymers, in plastics. And now, we’re going to disrupt,

we’re going to disrupt metals. Our 3D printing metals

technology is unique and includes extensive HP intellectual

property. In fact, we’re already producing metal parts in

our labs. I have a few of them here and we’ll make them

available to show you a little later on, but what you’ll

notice is we’re not producing very large parts. We’re

producing small, detail parts. These are parts that are

produced in the millions, because, of course, where we’re

taking our technology is not just for small prototyping.

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This is for mass manufacturing, to disrupt a very large,

traditional industry.

So with a combination of both plastics and metals, we

continue to move beyond prototyping and focus on mass

production and digital manufacturing. Later, Steve will

share a few more details on both the new low-cost color

platform and our exciting metals technology platform that we

expect to introduce in 2018. You’re the first to hear this

news and we’re thrilled to share it with you here at our

Securities Analyst Meeting.

And finally, as I like to say, it’s not always about what you

do, but how you do it. Success if built on strong corporate

values, and two of our core principles are reinventing for a

better and more sustainable world and secondly, to be a

beacon for diversity and inclusion. These are not just the

right things to do. These are business imperatives. And

we’re not just making a difference in our company. We’re

challenging our suppliers and the entire industry to do the

right thing.

As industry leaders, we will continue to represent the

diverse communities that we serve and ensure environmental

sustainability for future generations.

Now, I want to take some time and shift gears a little bit

from talking about HP to painting a vision of the future with

three large trends transforming the world.

The first of these is rapid urbanization. The second is a

changing workforce and the third is the accelerating pace of

innovation. It’s clear there is an accelerating and

disruptive change all around us, every single day and by

understanding the digital transformations that are shaping

our future world, we can determine where to invest today. So

first, let’s look at rapid urbanization, which is driven by a

massive migration to urban areas. In only 12 years, there

will be 8.6 billion people on our planet, putting a huge

strain on all resources. By 2025, 42 percent of the world’s

population will live in very large mega-cities, driving 50

percent of global GDP growth. Urbanization is not only

driving population density, especially with millennials, but

it’s changing what we buy, how we buy it and how we consume

products and services. People and businesses will be in

smaller spaces with greater efficiency needs and drastically

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shifting from owning things to on-demand, service driven

economies.

So why is this important? Why is rapid urbanization

important to HP? Because contractual led buying is

dramatically accelerating and service led business models,

like HP’s device as a service and managed print services, are

enabling customers to reduce costs, shift cap ex to op ex and

have the flexibility to scale, all customized to the specific

customers’ needs. This enables us to provide managed

services for the device from birth to burial, generate

reoccurring revenue and improve the end user experience.

In addition to rapid urbanization, the second major trend

driving growth is a changing workforce. For generations,

boomers have been the largest group in the workforce, but in

only in a few years, 2.6 billion generation Z-ers will

overtake them. And Generation Z-ers are like no other.

There is no separation between their personal and

professional life. It’s all one life and a single identity.

For them, mobility is essential, connectivity a given,

personalization a priority and design an absolute must. So,

why is this important to HP? Because a changing workforce

requires us to adapt to entirely new buyers and their needs.

A device must be powerful enough to crunch complex

spreadsheets, but also vanquish aliens when they’re gaming,

all done securely with IT manageability. As workforce

demographics and even the meaning of work changes, one life

becomes a reality every single day. Devices and solutions

become more personal and more important. Battery life,

compute power, flexibility, mobility, security and managed

services all increase.

Now, we’ve talked about rapid urbanization and a changing

workforce. The third trend is accelerated innovation. In

this business, the pace of change is exponential. It’s not

linear. In ten years’ time, your phone won’t be ten times

more powerful, but a billion times more powerful than they

are today. The smart phone in your pocket right now is

already a million times more powerful than the Apollo moon

lander computer. The rapid pace of change we’re experiencing

today is only going to accelerate as we move forward. With

this massive, with this, all of this massive amount of data

will be created, which will increase some 50 times to 44

zettabytes or 44 trillion gigabytes by the year 2020. For

those of you who can’t quite contemplate that math, that’s

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equivalent to 352 million years of ultra-high definition

video content. That’s kind of a lot of data. It’s a big

deal. Makes for a serious couch potato, I’ve got to tell

you. And the security threats are going to be far greater

than episodes of Game of Thrones being leaked or email hacks

at the DNC or the recent Equifax breach. I understand there

was another one today. You know, it’s happening all the

time. Organizations are going to spend more than 90 billion

dollars on security protection in 2018 alone, and that starts

with securing devices right at the edge.

I’m confident that I can say, and I have a team of lawyers

that enable me to say this, that HP is the most secure PCs

and printers in the world, and as the amount of data and the

value of it continues to increase, we continue to invest and

differentiate ourselves through security. In fact,

everything we do and experience is being driven by data,

predictive analytics and artificial intelligence. AI will

unlock new business models that will change the world,

creating entirely new business outcomes and valued creation

opportunities. For instance, a combination of AI and 3D

printing enabled generative design, where algorithms create

the best design and 3D printing enables a world where

manufacturing complexity is absolutely free.

Let me give you an example. If you want to drastically

reduce the part weight of an airplane wing while increasing

structural integrity, machines will be able to create

entirely new complex designs that achieve those objectives,

designs and parts that are impossible to make using

traditional manufacturing methods, not to mention the impact

as everything becomes connected at massive scale.

Today, in our labs, the labs that you visited if you were

here, we’re 3D printing sensors directly into the parts so

that same airplane part could be connected and inform the

pilot before a dangerous stress fracture is visible to the

human eye. These are some of the trends that inform our

strategy, which remains consistent heading into fiscal ‘18

and beyond.

Our strategy is brought to life by an incredible range of

products and go-to-market capabilities that set us up for

long-term shareholder value creation. We operate in very

large markets, and while our parts of our core business are

in industry decline, our job is to reduce the glide slope of

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those declining businesses, and as we’ve demonstrated this

year, we remain aggressively focused on capturing the pockets

of growth within our core print and personal systems

businesses.

At the same time, we’ll continue to pursue disruptive growth

in future strategies that take a little time to play out,

including graphics and A3 and commercial transformation,

immersive computing and even longer term in 3D printing, and

our strategy is underpinned by services and solutions based

on those mega-trends.

Overall, we are leading in the core, setting ourselves up for

sustained growth and building momentum to capture the future.

So, how do we execute across our core growth and future

strategy? Well, it all starts with operational excellence.

This is in our DNA, whether it be how we manage our supply

chain to assuring supply or preparing for component shortages

or how we segment and understand our markets in minute

detail, and of course our continued efforts around

productivity improvements. We remain focused every single

day on operational excellence, but we manage the company for

the long term by first investing in design and innovation,

secondly by listening to our customers and building relevant

products, not just technology for technology’s sake, and

solutions that are grounded in quality and security and real

value that our customers are depending on. And finally,

evolving our business models to stay ahead. For instance,

during the past year, you saw us successfully shift our print

supplies model to a healthier demand-based model. We’re also

shifting towards more service and subscription based models

in both print and personal systems.

Now, two years ago, I talked to you about the importance of

building a culture at HP. Our people and sense of purpose is

what drives our reinvention. This is truly a first class,

killer A team, all aligned to a common purpose and strategy.

We’re focused on agility, speed and simplicity, with actions

that are grounded in integrity, transparency and most

importantly, on customer insight.

For our investors, there are a few important drivers on how we

plan to deliver long term profitable growth and shareholder

value. Here’s what you should expect from us. It all starts

with leadership in the core and predictable earnings and cash

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flows that are generated by these incredible franchises and

businesses. Our cash flows are supported by business

fundamentals, including a strong annuity-like print supplies

business, a growing percentage of contractual business and a

focus on shifting our mix to higher margin categories.

We will continue to face risks in challenging markets and

uncertainties. That’s just business. What separates us is

where and when we face these industry specific headwinds, how

we go about and continue to pursue pockets of growth and

innovation in our product line up to outgrow the markets, and

we will never stop, never ever stop optimizing our cost

structure through productivity and efficiency. It’s just

also the nature of this business, and importantly our free

cash flow gives us confidence in a consistent strategy of

shareholder returns. This is an important investor

commitment which Cathie will cover in her section.

You should also expect us to target investments to accelerate

and ultimately deliver sustainable growth over time. We will

continue to be disciplined, but make no mistake, when we

enter a new space or natural adjacency, we have a focused

plan to disrupt, to lead and to provide our customers and our

shareholders with additional value and opportunity. We are

deliberate about our investment choices, using a returns-

based framework, and will accelerate what’s working and we

won’t be shy to kill off projects that are not.

To support our growth, we have many unique advantages and are

pushing a really differentiated strategy. We have a highly

scaled and efficient supply chain. We have the best print

and PC teams in the business, with great talent spanning

physics and chemistry and mechanical engineering, computer

science, microfluidics, informatics and many more. We have

an extensive and very rich patent portfolio. We have an

incredible go-to-market and deep channel partnerships with

more than 250 channel partners around the world. We have a

services infrastructure capable of spanning everything as a

service. Oh, and by the way, we’re very proud of our market-

leading brand. Finally, with predictable earnings and cash

flows as our baseline and growth opportunities near- to mid-

term drive upside, we’re also positioning ourselves to

capture the future. Using 3D printing as an example, we’re

creating large and growing secular tailwinds and we’re

leveraging an existing technology and IP platform where we

have invested billions of dollars over many, many years. In

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fact, the same core technology cuts across our ink, graphics

and 3D portfolio, including our metals and lower cost color

platform that I announced today.

While investments in the future may have a higher risk reward

equation, we are pursuing these opportunities from a position

of strength and where we have the right to play and win big.

The trends, strategies and technologies I discussed today and

our focus on aggressively pursuing core growth and future

strategies will help position HP, welcome to the future.

But it’s not just about vision. It’s about actions. There’s

much more work to be done for our customers, our partners,

employees and our shareholders, and as you’ll hear from Ron,

Enrique, Steve and Cathie, our team is focused. They’re

energized, and they’re optimistic about our path forward.

And best of all, we’re just getting started on our

reinvention journey.

So now, to start deeper business unit conversations, I’d like

to welcome the bad boy of Brooklyn, Ron Coughlin to discuss

more about the strength in personal systems. Come on up,

Ron.

[applause]

MR. RON COUGHLIN: You didn’t finish the Back in Black from ACDC.

I love the fact that we actually have a business in black

that we can use the ACDC Back in Black to start off the

presentation. So, first and foremost, I’d like to second

Dion’s welcome to all of you to Palo Alto and our campus

here. There could not be a more symbolically appropriate

place to talk about the resurgence and reigniting of the

personal systems business. Now, in the last two analysts

meetings, I used two words to describe my view of the

business. They were confident and optimistic. So today, I’m

actually very proud to be adding a third descriptor. We

remain confident. We remain optimistic, but we are growing,

and boy, does that feel good.

[applause]

MR. COUGHLIN: I continue to have deep confidence in our strategy

and our ability to execute. I have optimism that market

dynamics are such that we can generate growth and that is

reinforced by the PC categories return to revenue growth for

the last three quarters. And guess what? HP is growing.

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We’re leading the resurgence and our double-digit growth year

to date is proof that the strategy is working.

[audio cuts out]

MR. COUGHLIN: Now, the last two security analysts’ meetings,

we’ve shared the fact that we participate in a large and

growing addressable market, and now what you’re seeing is us

leveraging that broader market context to generate both

growth and margin. By combining share gains in our core PC

business with expansion into faster growing more profitable

adjacencies, we’re delivering faster top line and protecting

margins in the face of significant commodity headwinds. So,

our reinvention of the PCs is powering growth in our core

while we significantly transition our portfolio to these

higher growth, higher profit segments.

Now, contrary to many pundit predictions, the PC market

continues its recovery and the category revenues are being

lifted by a positive shift towards more premium devices,

gaming devices, and work stations. It is the PC category

that is the hotbed of innovation today, whether it is amazing

detachables, convertibles that defy physics, beastly gaming

devices, operating system improvements from Windows and

Chrome or security enhancements that keep the bad guys at

bay.

In contrast, the tablet category, innovation starved,

declining ten percent and its cannibalization of the PC is,

well, history. Now, we look at 2017, PC revenues will be up

six billion dollars. That provides fertile ground for HP to

source growth and it’s given us confidence in our PC

business. If you look at 2018, analysts predict

stabilization of units with continued positive MIC shift.

Now, we’re going to keep a keen eye on currency and its

impact of competitive pricing, and Cathie will talk about

this more later.

Now, that said, the recovery has not been without its

challenges. The industry faced significant component

headwinds. SSD and D Ram spot prices add up to 31 dollars a

unit. For HP, that translated to a billion dollars, plus, of

headwinds that we had to offset, but our teams have done an

excellent job offsetting those headwinds. Our procurement

teams, and I see my friend Stu Pann there, absolutely

outplayed the majority of their competitors and gave us

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HP Inc Securities Analyst Meeting

October 12, 2017 16

advantage in component supply and pricing that turned into

the topline growth and the profit performance that you’ve

seen.

So, as we sit here today, we see us near the peak of

component costs. We’ve modeled costs for 18, flat to Q4

exit. For Q1 and Q2, that does create an overlap that will

be reflected in the financials that Cathie will share

shortly. But despite these challenges, we have delivered

exceptional results of the past year and we’re mitigating

headwinds through cost reductions in areas like logistics,

where we reduce costs by 11 percent, and a great micro

example of this is our China logistics team. They took our

turnaround time from four days down four to five days and

associated cost down 30 percent. These are savings that

offset those commodity costs. These are savings that dropped

to the bottom line.

We’ve also offset the commodity costs with increases in

average selling prices. Those are though MIC shifts, better

attach, as well as our sales teams partnering with our

customers to reprice against commodities. If there was ever

a year that we saw the strength in our sales teams, it was

this year and how they partnered with customers to drive

repricing.

Now, critically, do you know where we didn’t cut? We did not

cut in quality. We didn’t cut in customer service. We

didn’t cut in customer experience, where HP’s net promoter

score grew significantly. We take an insight’s based

approach, combined with amazing product management,

engineering and design. So, this deep insights-approach

allowed us to close the experience gap with Apple.

So, if you take an Apple premium notebook, today, we are on

par from an experience and net promoter score. If you take a

premium desktop, guess who is number one on net promoter

score now? HP. It’s been many, many years since HP has

pulled ahead of Apple on premium PCs. Amazing, Amazing work

by the end to end PC team.

So, not surprisingly, when you drive more innovation in the

market with a better experience, the market responds, and

demand for our products has been absolutely red hot,

resulting in industry leading revenue and share growth, and

importantly, our innovation is driving a MIC shift to more

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premium devices like premium PCs, like gaming, like

workstations where we’ve outgrown all windows competitors in

premium, including market leader Apple. Now, this positive

MIC shift towards premium is central to our strategy. What’s

not central to our strategy is share for share’s sake. We

have been very clear about that, which is why we’re even more

proud to have our all-time highest share. We’ve been number

one for two quarters and if you look at the prelim from IDC

from three days ago, we’re number one again in the last

quarter. It’s an outcome or innovation execution, never an

objective, but that said, a strong PC core is fundamental to

drive the transformation that we’re in the midst of driving.

So, last year, we talked about driving our strategy across

core growth and future pillars. Today, I’m proud to say

we’re executing across all three. We talked about the

importance of premium and gaming. We grew four share points

in each. We talked about the importance of pockets of

growth. We gained two share points in commercial, one share

point on displays. We talked about scaling growth areas, and

our commercial detachables are up 70 percent. Now, with the

scaling and the mainstreaming of detachables, we’re going to

move those into our core and include them moving forward into

our core business. And we talked about the massive

opportunity of devices, service and retail point of sale.

Both are growing double digits, so yes, we’d like to say

we’re executing against what we said we would do.

Now, a truism of HP since Bill and Dave’s oscillators is that

when we innovate, we win, and boy, is our team innovating

against core, growth and future. We deliver products that

enthuse and excite our customers. The new Elitebook X360, is

this a consumer device or commercial device. The answer is

yes, right, but it happens to have everything that a

commercial customer would look for. It’s the world’s

thinnest business notebook. It’s not only taking share from

Apple and Yoga, but it’s also taking the design man, so I

love the quote up there. The Elite Book X360 is the most

stunning business machine they’ve ever seen. The Z2 mini,

all the muscle of a workstation in one-third of the space,

breaking the paradigm of what a workstation is and an

absolute engineering marvel. This is loved by power hungry,

creative professionals, as well as architects like Daniel

Libeskind, who designed the Freedom Tower, and the new

Specter X2 takes the design of detachables to the next level.

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October 12, 2017 18

And with our VR backpacks, we’re not only redefining gaming,

but also commercial workflows, as well, bringing dreams to

reality.

Innovations like these are redefining the PC, but at the same

time, they’re powering our transformation to PC adjacencies.

Strategically, they’re helping us drive higher ASPs, higher

margins and higher customer loyalty. With that, let me show

you a video that brings the innovations we’ve launched to

life.

[background video music]

MR. COUGHLIN: Now, I hope you want something just like this.

They are available for the holiday for you holiday lists.

So, obviously I’m very proud of these accomplishments, but we

are just getting started, as Dion reminds me, us on an almost

daily basis, we will get neither arrogant, nor complacent,

but these products that we’re launching have us very excited,

as well what we have in the pipeline.

Foundationally, these innovations come from a deep insights

mind in discipline that we believe provides structural

advantage for us going forward, and as we evolve our

portfolio, we’re going to be pivoting off five key trends.

The first was brought to life in the mega trends discussion.

Our work and our personal lives are blending, like it or not.

So, how many of you did work this weekend? Show of hands?

Answer an email inclusive, right? It’s about 80 percent of

the room. Guess what? That’s how many adults say they do

their work in their personal lives. Conversely, 60 percent

say they do personal items in their business life. Of

course, Dion, I’m not one of them. So, these lives are

blending and for millennials, this is even more true. They

expect it and they want the blending. And because HP has

strength in consumer and HP has strength in commercial, we

are best positioned to capture this trend.

Next, people want to be connected, whether they’re in the

offices, whether they’re in Starbucks, whether they’re at a

skate park or a school pickup line, they expect to be

connected, and this will only accelerate with 5G. You’ll see

us launch products with technology to capture this trend.

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Third, between one - Equifax one and I guess Equifax two now,

and other security breaches, the safety of content and data

is paramount, and I’ll share our truly advantaged security

stack shortly. Next, big data is amazing in what it enables

us to do to be more smart and proactive in how we manage

devices and how we create experiences for our customers. We

can now know that your hard drive is about to fail before we

call IT and fix it. We can now know that your battery can’t

make it across the United States before you left New York for

the HP SAM meeting. We can now know that your security

settings are such that you have a major vulnerability and

remotely fix those.

And finally, people want, companies now are trying to buy

products, whether it’s PCs, phones, tablets, RPOS or even VR

as a service with a monthly fee. They’re looking to get more

efficient, yes, but more importantly, they’re looking to free

up their IT resources. For HP this opens up accretive,

stickier business models that because of managed print

service, we believe we uniquely can capture.

So, these are the trends that inform our go forward portfolio

and offerings. Now, more specific to our categories, we have

access to a 334 billion dollar addressable market. That

market is growing 4.6 percent. Now, year-over-year, we’ve

made some adjustments. We’ve reduced consumer accessories

because we’re more focused. We’ve added segments like VR

that are now scaling. About half the market, in orange

there, are PCs which, as I said, are recovering faster than

expected and are predicted to be stable going forward. So,

our job there is to gain profitable share, which we have

done, as Dion said, for 14 straight quarters and we’ve

outgrown every competitor for four quarters in a row while we

MIC shift to more premium segments like premium gaming and

workstations.

The other half of the TAM is what we call PC adjacencies,

which consist of growing segments like displays and

accessories, commercial services, retail point of sale and

now, nascent categories like VR and 3D scanning.

Importantly, these segments are growing double digits and

everything above the orange is profit accretive to our

transactional PC business. So, we’re very focused on

transforming our portfolio by scaling into these PC

adjacencies.

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So, we take the customer insights and the TAM model and we

use those to inform our go forward strategies. The basic

core growth future framework has guided us for four years.

Going forward, we are focused on reinventing the PC while we

transform our portfolio concurrently to these higher growth,

higher profit segments. In our core, we continue to focus on

delivering what we call the best-price future value. What

that means is lowest possible cost structure, with sprinkles

of magic, like a built-in privacy screen, the world’s first

that makes sure that your company’s next M&A deal isn’t

disclosed from seat 6C on Southwest, as isn’t your penchant

for the Bachelor. We’ll also segment the market and segment

again to find those profitable, I could tell from the smiles

who has that Bachelor penchant, to find those pockets of

growth. In our growth pillar, we’re focused on capturing the

25 billion dollar devices service opportunity and disrupting

retail point of sale, a great example of solving customer’s

work flow needs that I will talk about more later.

And to ensure we grow long into the future, we aim to drive

new category creation in immersive categories of VR and 3D

scanning, as well as defining compute in the offices and

classrooms of the future, and this all built on what is truly

and advantaged foundation, starting with supply chain. We

ship a PC every 1.7 seconds, just incredible. And if ever

there was a year that proved to you that scale matters, it

was 2017. And we’re doing it with world class quality and

now a premium experience on par with Apple. Our combination

of powerful creativity and relentless execution is truly

unique in our industry.

So, let’s now dig into our core business. As we shared, our

core business faced significant commodity headwinds. Did we

roll over? Were we victims? No way. We attacked non-

commodity costs and reduced them by ten percent. We did this

will continue to light our customers with sprinkles of magic,

one of my favorites here. This is the new Envy, all in one.

It has a pop-up camera, where it pops up and pops down, which

eliminates tape for many of you, but more importantly, for

some of us, it eliminates that oh my God, my camera was on

moment.

In gaming and premium, we’re tracking ahead of expectations.

You’ll see us continue to expand our lineup, extend our

design leadership and turn up the volume on marketing. Given

the higher ASPs and higher margins, gaming is now having a

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HP Inc Securities Analyst Meeting

October 12, 2017 21

tangible impact on the overall personal systems business.

Importantly, gaming’s also bringing younger users into the HP

franchise, which bodes well for us from a long-term

standpoint.

And finally, on security, our positioning as the world’s most

secure PCs is resonating. We grew two share points in

commercial and security was a big reason why.

So, in the last two security analysts’ meetings, we told you

we’d scale our premium gaming business. Clearly, we’re

executing against this, and in turn, these businesses are

improving the overall personal systems business. Gaming is

over ten billion dollars, ten billion dollars. We are now a

scale player in gaming, and we have increased our gaming size

10-fold in the last two years, ten billion dollars and we’ve

increased 10-fold in the last two years. The Omen brand went

from almost non-existent two years ago to a powerhouse gaming

brand desired by professionals and enthusiasts alike.

Believe it or not, more people watched the two Omen teams

play in the 2017 League of Legends championship than watched

the NBA Finals Game Seven. Just incredible momentum behind

gaming. And if you ask any retailer, any partner, they’ll

tell you HP’s designers have taken the design leadership

mantle. And the experts, well, they agree. We’ve won over

37 design awards this year, three this week alone. As a

result, we’ve outgrown all Windows competitors in premium and

taken significant share from Apple.

Beyond just being beautiful, it’s common sense. If 83

percent of customers say they prefer touch, we’re going to

give them a full beautiful touch screen, not just a bar of

it. And if convertibles are 40 percent preferred, we’re

going to give them a gorgeous convertible. We don’t have

dogma about laptops. We listen to our customers and that’s

what’s driving our momentum, which, by the way, this would be

a good holiday gift, as well.

Even with that incredible progress, we still have tremendous

headroom to reach our fair share of premium in gaming, and

based upon what we’ve launched and what’s in our pipeline, I

have tremendous confidence that our momentum will continue.

Now, others may have attractive devices, but at HP, we like

to think we have beauty and brains. No one, no one, no one

combines that design with the security features that are

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inherent in HP commercial PCs. Now, you say why is that

important? It’s important because 80 percent of companies

have had a cyber-attack this year. Guess where those attacks

happened? 71 percent of them happened on end-points. End

points are on the front lines. Our customers are concerned.

We have an advantage stack and security is now becoming a

major win rate driver for us, as well as margin driver. We

protect what matters most and do it in ways that no other PC

company does it, below the operating system, in the operating

system and above the operating system.

So, if your bios gets attacked, only HP, with sure start

technology, gets you up and running in minutes. And if your

PC gets lost like the Secret Service detail for Trump Tower,

with HP’s multi-factor authentication, we make sure your

content and your data and in that case, classified

information, doesn’t get into the wrong hands. And if you

click on a link with malware, HP is the only company that

containerizes your web activity so that malware doesn’t

infect your PC or your company’s. And if you want to do

important work in that boarding area before the flight on

your way home, HP Sure View is the only technology that makes

you sure that you’re not going to have visually hacking leak.

So, we know there is no impenetrable vault, but ours is

hardest to crack. These are the security differentiators that

help us deliver the most secure business PCs in the world,

bar none.

In our growth pillar, we’re continuing to grow double digit

and land major accounts in retail point of sale. We see

weaker competitors and a shift to mobility playing to our

advantage. In the last year, we’ve won a major coffee

company, a major sporting good company, amongst others. We

have significant momentum in this higher-profit space. Now,

workflow transformation is a continuation in our work in

commercial mobility where we mix innovative devices,

accessories, services bundled with software to solve

customer’s workflow needs.

So, a great example is India Customs. A pallet lands on the

dock in Mumbai. What used to happen was the gentlemen or the

woman goes out with a clipboard and a pen and writes what was

on that pallet and somebody else inputted that data. Enter

HP and its partners, we create a ruggedized tablet with

custom software linked in to the custom systems and taxation

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systems and out went weeks of work and added productivity to

India Customs. A great example of workflow solutions.

And finally, we continue to scale our Device as a Service

business, otherwise known as DaaS. We’ve seen tremendous

excitement from customers and partners alike, and it really

builds off the learnings, the infrastructure and the

capabilities for managed print services. Device as a Service

allows our customers to free up their IT resources, to focus

on their strategic priorities and for us, it creates a

stickier revenue opportunity. Let’s watch a short video that

brings Device as a Service to life.

VIDEO MALE VOICE 3: We tried turning it off them on again, so you

don’t think it’s lost, but you can’t find it.

VIDEO MALE VOICE 4: It happened how?

VIDEO MALE VOICE 3: IOS, Android, Windows? Oh, you don’t know,

so you downloaded and opened the attachment from the unknown

sender. Sound familiar? Well worry no more as all these

issues are about to become problems of the past with HP DaaS.

VIDEO TAMMY: What is DaaS?

VIDEO MALE VOICE 3: Thanks for asking, Tammy. DaaS is device as

a service. Let’s take a walk. We have some explaining to

do. DaaS is a fresh, modern way to manage your computing

solutions with one partner supporting you every step of the

way. It’s all about getting the right IT hardware and the

right support to the right people, helping them work from

anywhere in the world with total confidence. And all these

devices can be managed and secured easily, regardless of

operating system. I know. How does all that sound?

VIDEO TAMMY: Great.

VIDEO MALE VOICE 3: You bet it’s great.

VIDEO FEMALE VOICE: Moving forward, based on the numbers, let’s

keep it running at 138 percent.

VIDEO MALE VOICE 3: It’s all thanks to the DaaS consumption based

pricing model, simplified plans that make your IT spend more

predictable and efficient. And what is that model, I hear

you ask? It’s a one price per device contract scalable up or

down as you need, which makes the finances department very

happy.

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[background video music]

VIDEO MALE VOICE 3: Uh, okay. But wait, it gets better. HP DaaS

provides unique analytics and actionable reports about your

device’s health. This covers things like battery issues,

hard drive concerns and blue screen errors, so you can take

care of potential problems before they before problems.

Efficiently allocate managed devices with any operating

system, anywhere in the world, with up to date security,

predictive analytics, next business day replacement,

accidental damage coverage and an incredibly flexible

contract, all in one place, from one partner. DaaS from HP.

VIDEO TAMMY: Device as a service.

MR. COUGHLIN: So, hopefully you’re no longer asking, what is

DaaS? I love that video. It shows our device as a service

offering spans operating systems and device types. Our

differentiation is rooted in multi-OS, multi-device, our

ability to manage devices, secure devices, enable our channel

to do device as service and leverage managed print service.

For us, it provides new big data around end points, how

they’re used and expands our customer base and speeds up

refresh rates. All goodness.

From a financial standpoint, we are investing to build this

business, but over time, we see it generating accelerated

recurring revenue and higher margins than our legacy

transactional business, all goodness that reinforces a

strategic import of this to our overall transformation.

So, if you’re wondering whether customers really want this,

the numbers behind me speak for themselves. Customer

acceptance and momentum has been strong and validates the

strategy. We have a strong pipeline that is now scale,

growing 40 percent in this past year. Orders are up double

digits, and these are the result of a strong value

proposition and a very experienced services go-to-market,

thanks to managed print services, experience that our other

competitors do not have. Major customer after major customer

is shifting away from competitors to our devices in a service

contract. Our wins include a major Hollywood studio, a big

four accounting firm, a global airline and a top five

retailer, and that retailer is really interesting.

Not only are we managing their Windows devices, but we’re

managing thousands of iPads, yes, thousands of iPads. Great

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HP Inc Securities Analyst Meeting

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example of the TAM opportunity that our multi-OS services

approach opens up for us.

Now, make no mistake about it. We are extremely proud of our

hardware business. And our product managers, engineers and

designers do a fantastic job, but at the same time, we’re in

the middle of a transformation from a purely hardware

business to a hardware leveraged services and solutions

business enabled by automation. Our strategy is to build on

top of our hardware leadership with must-have devices and new

form factors, bolstered by security, sold as a service,

bundled by software to drive workflow solutions to our

customers. We believe all of this will translate into more

sustainable growth, higher value-add, higher customer

retention and long-term, higher margins.

And to ensure our growth long into the future when I’ll be a

proud AARP member, the future pillar of our strategy is

focused on creating new categories across 3D scanning,

offices and classrooms of the future and virtual reality.

We’re doing breakthrough work in the 3D scanning space, and

we have an exciting effort underway with a company called

Super Feet, who’s the leader in innovation in custom insoles.

We’re creating custom insoles. They’ll be 3D printed on

multi-jet fusion. You’re welcome, Steve. On the slide, you

can see Tim DeBoom, two-time Iron Man winner, getting scanned

for his custom insoles. And this is the official foot

solution endorsed by the NFL and being deployed by teams as

we speak for their athletes, to keep them healthier and

playing better.

This is a fantastic proof point of our blended reality

strategy, combining 3D scanning on the front end and 3D

printing on the back end. Our teams are also designing

experiences that’ll define the future of offices. Many of

you in your offices probably have these small conference

rooms, three to five people. We call them huddle rooms.

What’s a technology that goes in a huddle room? Our product

management engineers are working to make sure it’s HP

technology. A great example of an adjacency in the offices

of the future.

And last, we’ve been very active in the VR space. We

partnered early with HTC Vive. This holiday, we’re launching

Microsoft’s VR solution. Earlier this year, we announced the

world’s first untethered VR backpack for commercial use

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cases, where we’re seeing traction with automotive players,

healthcare players, manufacturing players and entertainment

players. We view this as an important area for HP, a driver

of high end compute, and long-term a growth catalyst.

MR. COUGHLIN: We are very excited to be shaping the future of the

market. But we are thrilled to the, to see the impact that

we’re making today. Our VR system is being used today at

Providence Cancer Center in Portland to help patients, cancer

patients manage their pain. Dave Packard said that a company

exists not just to make a profit, but also to make a

contribution, and this is a contribution that we at HP are

very proud of.

So, if I was sitting in the audience, I’d be trying to figure

out how these strategies, initiatives and fancy innovations

translate to financial performance. So, last year, I shared

an area chart that talked about how we migrate to a higher

growth, higher profit model, and I’m proud to say we are

tracking to create that faster growing, higher margin

business. It starts with a never-ending quest to reinvent

the PC, with focus on higher value, premium gaming,

workstations, spaces. We transform our portfolio by moving

into device as service, retail point of sale, again, both of

which are growing double digits, and we supplement those with

long term building programs in VR and 3D scanning, which are

predicted to be 30 billion dollars by the year 2020 and where

we’re seeing already early traction.

Every day, everyone who works in this business is focused on

making this chart a reality. We’re passionately reinventing

the PC while we concurrently transform the portfolio. It’s

not a concept. It is a reality. In the past two years,

we’ve shifted our mix towards these higher growth segments by

three points, this, despite double digit growth on our core,

which is a good problem to have. It is this reinvention of

the core and portfolio transformation that gives me so much

confidence and optimism. Our future growth will be enabled

by a large and growing addressable market, a consistent core

growth and future strategy. As was the case when Bill and

Dave walked these very halls, our future growth will be

powered by the incredible innovation momentum that we’ve

reignited in this company, and our future growth will be

driven by the execution across supply chain, sales and

marketing that served us so well in this headwind-filled

year. And we’re committed to making sure that our future

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growth drives strong topline, bottom line and cash flow for

the investors that show so much trust in us.

So, I hope you, too, leave these hallowed halls with

confidence in our ability to execute, optimism in our ability

to transform the business and excitement that once again, the

personal systems business is a dynamic growth engine.

With that, we’re going to go to a break and after that the

prince, prince and the architect of an amazing renaissance of

the print business will come and talk to us about print.

Thank you very much.

[applause]

[background music]

[Music Intro]

ANNOUNCER: Ladies and gentlemen, please welcome Enrique Lores,

President, Imaging and Printing.

[Entrance Music]

[Applause]

MR. ENRIQUE LORES: Good afternoon. It’s great to see all of you

again and welcome you to our home. The success in personal

systems is impressive. I think you will all agree with me

that Ron and his team are doing a fantastic job in growing

the business and they’re actually becoming great role models

for all of us as we try to grow ours. Congratulations on.

Let’s talk now—yes.

[Applause]

MR. LORES: Let’s talk now about printing. Fiscal year 2017 has

been a year of great progress for the print business. We did

what we said we were going to do and more. When we met a

year ago I shared that there was one objective was to

stabilize the supplies business. And we did it. And we did

it one quarter ahead of plan. We also have continued to

remove cost from our structure that we have used to deliver

our financial commitments, but also to invest for the future.

And we are executing a winning strategy. The business has

grown since 2011 and we just posted two consecutive quarters

of growth.

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In fact, if we look at the growth year-to-date and we

compensate for the adjustment in the supplies model that we

did a year ago the year-to-date in cost and currency we are

growing 1 percent. More than two points better than the

market. And we change several quarters of unity decline with

year-to-date four percent growth in the units that we are

placing. And on top of that we really believe that we now

are in the right position to be able to grow. And we will be

doing that by executing our three strategies. Re-igniting

the home, disrupting the office, and transforming graphics.

Today I’m going to be talking most of the time about growth

and what are we doing to reinvent the print business to get

to growth. But before that I want to share a few of the

details of what happened in the year with supplies. You may

be asking what did we do to stabilize the supplies business.

It was all about rigorous execution of all the actions that

influenced the four drivers of the supplies business. It is

about improving the install base, increasing usage, improving

the quality of units that we place, that we keep, increase

share and price. This is what we did.

On top of that we re-defined the supplies model, and we moved

to a demand-driven model and we are starting to see the

results of that change in our business. We operate now with

lower channel inventories. We have been able to reduce our

channel discounts and increase our marketing investment. And

we have increased and improved linearity on product ability

within the quarter. And the combination of both the supply

stabilization, the management of the drivers of the model,

and the change in supplies gives us great confidence in our

ability to project and to predict this business in the

future, but also to manage it for growth.

So let’s start talking now about growth and how do we see the

future. We have great confidence in the future of the print

business, because we believe in the power of print to make

life better for everyone everywhere. In our personal lives

print is a great tool for us to share our better memories and

feelings. In our professional lives print helps us to

communicate our ideas with precision and power. I mean, what

we consume digital printing enables friends to connect with

our users, with our consumers in a very different way, in

surprising ways.

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This ability to connect and communicate tells us that there

is a future for print even in the digital age. And to

support that, let me share with all of you a great example.

A few months ago we learned that astronauts in the space

station in the International Space Station print more than

1,000 pages per month. So we were curious to know what were

they printing. They print three things, first they print the

records of all experiments, second they have to print all

emergency procedures, because they have to keep them in a

binder in case something happens. And they update them

regularly. But three, they print photographs that their

family sent to keep them connected to the world. What a

better example of the power of print, because I am sure you

will agree with me that the Space Station is one of the most

advanced offices and homes that we can think of and if they

print up there that means there is a future for print

everywhere else.

[Laughter]

MR. LORES: Now we want to talk about the trends in the industry

and where is this business going. I’m not going to repeat

all what I said, but I think it’s important to really review

what has transpired, because we used them both to define our

product solutions, our future solutions, but also to

differentiate from competition. Lifestyles and work styles

are changing. And Ron explained very eloquently how our

professional and personal lives are blending. Now, Dion, I

have to tell you something. While you and I were working

here hard to set up the stage Ron and Cathie were actually

watching a movie in their office.

[Laughter]

MR. LORES: So we need to talk about that later.

[Laughter]

MR. LORES: We see big changes in our life and how we work driven

by mobility and collaboration. The demand for security and

sustainability keeps growing. And as Dion said, we consume

more things every time as a service, especially young

generations. Personalization is becoming the norm in

everything we consume. We look at these trends to define our

future and to differentiate our offering in the future.

Let’s talk now about how do we see the print market. Print

is a large and stable market. But has significant

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opportunities to grow. The projection that we have here is

very similar to the projection we discussed a year ago.

And we believe that by focusing on the right focus of growth

we will be able to grow this business, despite a flat market.

The home segment is going to continue to decline in the

future as has been declining in the last year. But prints

printed from mobile devices are going to continue to grow,

especially photographs. And this is a great opportunity for

us to grow. The office segment is going to be growing about

one percent in the years to come and with an office there are

two important segments for us to grow, first is A3 which is a

large market where we are under indexed, and second is

managed print services, which is going to continue to grow

between two and three percent in the years to come.

And, finally, graphics, especially the digital portion of it

is going to keep growing in the coming years, giving also

opportunities to grow. How are we going to be driving this

growth? We are going to be achieving that by driving our key

strategies. At a high level, our strategies are very simple.

It is about capturing new pages. It is about creating new

print occasions, because these will be driving the growth of

our supplies business. And you know that our business model

is centered around supplies. We classify our growth

initiatives in core, growth and future. In the core it is

about increasing innovation to capture opportunities in the

home space. And it is also about continuing to grow our

share of profitable units in the office.

We have two growth opportunities, capture pages that today

are printed in copiers from competitors and to grow our

graphic business by driving the transition from analog into

digital in many applications. And our opportunity in the

future is about leveraging years of investment in technology

to create a new opportunity in 3D, and to transform the

manufacturing industry. And Steve is going to be covering

that in the next presentation. These strategies are

supported by five key capabilities. Growth and technology

are one of the broadest IP portfolios in the industry.

A supply chain that is unrivaled in scale and that every year

gets more efficient. The best and most knowledgeable team in

the print industry. One of the world’s most valuable brands.

New capabilities in big data and analytics that help us to

continue to redefine our offering and make our business more

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profitable. And before I talk about the strategies let me

spend some time describing what we are doing around two of

these areas. First of all, there’s marketing. We have

reinvented print marketing. We use now storytelling to

connect our customers with our strategies and we sell our

products.

And we had aligned all of our marketing activities around

five themes, print you, to highlight the power the detail

that printing has to create personalization. Print joy, to

communicate how print can help to establish connections with

consumers. Print securely, to reinforce how important

security is, also when printing. Print anywhere, to

highlight that now it is possible to print from any mobile

device. And finally, print sustainably. Because

sustainability is critical, not only for HP as a company, as

Dion explained before, but also for anything that we do in

the print business, from how do we design our products to how

do we manage our supplies.

The best way to understand the impact of these activities of

the impact of solution telling is really about watching a

video that highlights the power of print. Let’s see the

video.

[Video plays]

[Video ends]

MR. LORES: This is the power of print, and now since all of you

have a Sprocket you can go home and for those of you with

kids you can take a picture and see what happens.

[Laughter]

MR. LORES: Let me talk now about the second capability.

Big data and analytics are becoming very important both in

how do we manage our business, but especially on how do we

improve the profitability going forward, and therefore how

do we improve shareholder value. This is based on the

ability that we have and the capacity we have now to

connect with millions of printers in our install base and

to capture the data from them. And I thought that rather

than explaining it in a very high level it was better to

give three clear examples of things that we are doing today

to leverage and to use this data. The first chart shows

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how are we able to monitor and measure at a country level

what is the usage across different territories.

Dion talked before about the heat in the market, this is

one way for us to look at the heat in market. And we can

use this data to define specific marketing problems in

those areas. The chart in the middle shows how we use this

on a more granular level. We work with some of our

partners to understand what is the connect rate between

supplies and hardware at the store level. And this enables

us to build specific sales programs in those stores to

improve that connect rate. And the third chart shows a

very different view. In the past we had talked about

looking at profitability per printer. Now we can look at

the profitability per printer and per user. And this helps

us to identify opportunities to improve our overall

profitability by defining new types of products and

defining new types of service models. This is really

fundamental for us, it’s going to be fundamental for us to

manage our supplies business in the future.

So let me talk now about supplies. First and foremost we

project a stable or lightly positive revenue growth for

supplied in fiscal year 2018. And this forecast is

supported by the predictions of our 4 box model. As we did

last year, I wanted to share the assumptions that we used

to drive the model. And as you will be going through the

details, you will see that the assumptions this year are

very consistent to what we discussed a year ago. In fact,

there is only one change in the table. Last year we were

projecting a decline in the office install base, now we are

projecting that the install base in the office will be

flat, and this change is driven by our penetration and our

growth in the A3 space. The rest of the assumptions stay

consistent.

We also wanted to share how we continue to improve the

quality of the units that we ship every year. And this is

the similar chart of what we shared a year ago. It shows

how we improve the percent—how we increase the percentage

of units that deliver more value over time and how do we

decrease the number of units that create less value for us?

And the best way to look at this is by looking at the unit

value index. This is a weighted average of the units that

we ship every year. And what this is telling us is that

the units that we will ship in 2018 will be 20 points

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better than the units that we ship in 2015. A very

significant improvement.

And, finally, about supplies, I wanted to confirm another

trend that we discussed a year ago. One of our key

initiatives is to transform our business from a

transactional model into a contractual model. And we are

going to continue driving that over the next few years.

And actually, we see a point in time in the future where

the percentage of our business under contract will probably

be the most important variable of the business. But that

point is not today. So having discussed supplies, let’s

now start talking about our strategies for the different

segments.

We see consumer habits changing, and therefore we need to

change our offering, we need to change our solutions. We

discussed last year what our strategies are. First of all,

it’s about bringing innovation to our core products.

Second is about creating new business and service models to

grow our business. And finally, it’s about creating new

print experiences that will make print relevant again.

This is what we are doing across to reinvent and to ignite

home.

In the core, we have made very good progress this year. We

launched the new HP Smart App. It simplifies what it takes

to print from any mobile device into any HP printer. Since

we launched the application a few months ago, we have had

more than 29 million downloads, and now more than five

million jobs are printed from the application every month.

And that number keeps growing. And we have also introduced

a new portfolio of printers, the new Envy photo printers

that combine great design with great photo quality and that

will enable to reposition us in the high segments of the

consumer space.

When I was talking about supplies I was sharing how are we

using big data to redefine our portfolio. Let me share two

specific examples of how have we done it in the home space.

In developed countries we show that customers with very low

use were barely profitable. They don’t print enough. So

for those customers we have launched a freemium model with

instant ink. And this model incents them to print more.

We also show that customers with heavy use have a lower

profitability than the average.

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And for those customers, we have launched a 500-page model

with instant ink that helps us to keep the loyalty of these

customers to HP supplies. In emerging countries, we saw

that our share and profitability with very heavy use of

customers were very low, because they used clones. And for

those customers, we transformed our portfolio and we

launched the ink tank products, which are helping us to

increase our profitability and improve our business model

in those spaces.

So as we look into the future, we continue to see

opportunities to improve our profitability in the home and

therefore our shareholder value by transforming our

offering, either of products, or of services.

And let me talk now about creating new opportunities. I

mentioned before the opportunity that we see of printing

pages from mobile devices, especially photos. Every year

close to consumers take close to one trillion pages, a

trillion photos. And these photos stay in what we call the

digital prison. Since we launched our photo lifestyle

category and Sprocket, is actually the first product in

that category. We have released close to seven million of

these photos. Customers have printed them.

Sprocket follows a very simple message. We want consumers

to click what they like and to print what they love. And

with this simple message we have seen also that we have

been able to attract a very new type of customers to print.

Consumers that had never printed before. More than 55

percent of the users of Sprocket are younger than 25 years.

We are attracting consumers to print that have never

printed before.

We are planning to continue expanding these categories,

both into new geographies, but also increasing and

expanding our portfolio. In fact, today in New York, we

announced two new products of the photo lifestyle family.

We announced Sprocket Plus, that prints images that are 30

percent larger, and we announced the Sprocket 2-in-1, that

integrates an instant camera into the printer. And we

believe that by driving and increasing the portfolio, we

will continue growing this category.

For those of us that were here when we launched the first

desktop printer, we remember the very clear objective that

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we had. We wanted to sell one printer for every desktop

computer. And now with this category we have a very

simple, but at the same time a very ambitious, goal. We

want to sell one Sprocket for every Smartphone in the

planet. And I know this is ambitious, I know this is bold,

but it is also very inspirational. And tells us about the

opportunity that we have in the years to come in this

category.

Let’s talk now about the office. The office is a very

important segment for us. It is a big part of our core,

but also, we have a great opportunity to grow in the A3

space. And our goal is very simple. To continue placing

A4 and A3 profitable units, while at the same time, we

transition from a transactional into a contractual model.

And we will do that by differentiating through security, by

capturing pages that today are printed in competitor

copiers, and by launching a new portfolio of solutions that

will enable mobility, will enable collaboration, but also

will be connecting the printed page with digital work

flows.

Let me talk about the first of these strategies, which is

security. Both Dion and Ron talk about how critical

security is for any modern business today. Unsecured

printers offer a backdoor for hackers to penetrate in

corporations. And our objective, our plan, is to close

that door. And we are doing that by securing the device,

securing the data, and securing the documents. And we have

built multiple technologies to make that happen. But when

we started to work on these a few months ago, we realized

that the awareness of this problem was low. Even if this

is a critical problem for our customers, many IT decision

makers didn’t realize that the printed world was really an

integral part of the network. And to raise awareness of

this problem, we launched a marketing campaign. The Wolf

has been focused in showing how vulnerable the networks are

and the problems our customers can have. Let’s see the

video of what The Wolf is doing out there.

[Video plays]

[Video ends]

MR. LORES: So since now we have raised awareness, now it’s time

to start talking about how HP is going to be fixing these

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problems. And for that, we have launched a new campaign

called The Fixer, and the Fixer is going to be showing how HP

products and solutions are going to be helping our customers.

Let’s see the video of The Fixer.

[Video plays]

[Video ends]

MR. LORES: Security is now one of our key differentiators both

for our A4, but also for our A3 portfolio. So let’s talk

about A3. A3 is a great growth opportunity for us. It’s a

55 billion dollar market of hardware supplies and services

where we are under indexed. And we have built a very solid

plan to grow, built upon a clear differentiation of our

portfolio. We are the company that we offer the lowest

maintenance costs. Since we announced these products in

September 2016, we have made great progress. We have

onboarded more than 500 partners that have seen the value of

our portfolio. Customer reception has also been very

positive. Customers like the breadth of our portfolio and

the fact that by having the lowest maintenance cost they can

save money, but also, they see a significant increase in the

up time of their devices. Demand has actually exceeded our

expectations, and the shipments are ahead of plan. And we

have had wins all over the world, across many different

vertical industries.

But we are only starting in A3. When we look at the market,

we see two types of companies what we call tier two vendors

that have between five and ten percent share. And we see

tier one vendors, and there are only three or four in the

world that have shares higher than ten percent. Our plan is

first to be the leader of the tier two category, but then to

aspire to lead the tier one category. And what milepost have

we defined to monitor our progress? Our goal is in three

years to at least double our share to 12 percent. We know

that to grow this category we are going to have—we will have-

to continue to invest as we ramp, but also that we will have

to execute with the same rigor that we have been doing in

other parts of the business. And as we will do that, we will

be able to continue to drive the transition from

transactional into contractual models and grow our managed

print service business.

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One of the building blocks of our strategy is the acquisition

of Samsung. A year ago, I shared the strategic rationale of

the acquisition and it has not changed. And today, I

actually want to focus on: what are the strategies that we’re

going to follow to drive integration. Even if acquisition

has not been completed yet, we are going to do three key

things.

First of all, we are going to be fully integrating both

portfolios, eliminating duplications and minimizing overlaps.

And we will do that while integrating the Samsung salesforce

first. The Samsung salesforce for the printing business into

HP sales force.

Second thing we will do is manage the Samsung printing

business with the same rigor and discipline that we have been

managing the HP printing business. Both in placing units,

profitable units, and also managing the supplies business.

And, we will accelerate technology leverage to drive

innovation, but also to drive efficiencies. I’m happy to

report that we are on track to complete the acquisition

during Q4 of 2017.

And now let me talk about graphics, the second key growth

opportunity that we have in this business. The growth will

come by driving the transformation from analog into digital

and we are in the best position to do that because we own the

printing technologies that are going to be required to drive

that change. Graphics today represent about 15 percent of

our total print business and during 2017 we saw a significant

acceleration of the business that we are planning to maintain

in the years to come. We will drive the transformation from

analog to digital and grow this business doing three basic

things.

First of all, increase the range of digital printing

technologies through technology innovation. Second, by

working with brands and showing them the capabilities and

what can they do with digital technologies. And third,

working with print service providers, our direct customers to

help them to improve their operations, make them more

profitable, make them more efficient.

Let me talk now about what are we doing in the different

applications to grow our business. This chart shows all

applications where we are playing today. Applications on

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your left are applications where the penetration of digital

is high today. Our strategy in this space and these ares

applications like publishing, commercial printing, or

signage. Our plan in this space, our goal in this space is

to grow our share of pages printed in our devices. And the

two recent wins that we announce are great proof points of

the progress that we are making.

Two months ago we announced that we are now the preferred

provider of digital presses for Shutterfly. This is the

largest deal that we have ever done with Indigo Digital

Presses and what this means is that if you order a photo book

online, there are very, very, very high chances that this

book will have been printed in a digital press from HP. We

also announce a month ago another big deal, actually, the

largest deal ever in the graphics space: a deal with

Lightning Source. And they are now going to be buying our

page-wide digital presses.

Lightning Source is a publisher. They produce books, but

they are a large producer of books. In fact, they produce

more than 40 percent of the books sold by Amazon. And HP is

now going to be the exclusive provider of digital presses for

Lightning Source. Another great win that shows our progress

in this space.

The applications on your right are applications where the

penetration of digital is low. And our strategy there is to

increase the penetration of digital. And this is what we

will do in the packaging space and I will talk about this

next. But before I do that, I wanted to make a big

announcement. Though the problem of being the third person

to talk is that usually the CEO steals the thunder. So, yes,

we are going to be entering into the textile space, a 12

billion dollar incremental opportunity and in 2018 we will be

launching our first products in this space. We will start by

focusing on the soft signage space, but then later during the

years enter also the garment- going after the garment

opportunities.

Let me talk now about packaging and what are we doing in that

space to grow. Packaging is a great business and a great

opportunity for us to focus. It is a large business, close

to 11 billion dollars. We have digital penetration of five

percent, that is on the digital business will be growing by

20 percent in the years to come. And in packaging we include

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many different applications, flexible packaging, folded

carton, corrugated packaging. Today we are actually the

leaders in flexible packaging space. And we have more than

100 installations already made. And we are in a great

position to also lead the corrugated packaging business. We

are the only vendor that has pre- and post- solutions. The

inks that we use in our page wide presses are the only inks

that have been approved for food packaging. And most of the

largest packaging companies in the world are already using

our products.

The growth of packaging is going to be driven to a big extent

by personalization. Because personalization is something

that you cannot do when you print with analog technologies.

So to understand the value of that let me show a video that

shows what the capabilities that we have to personalize

output. Let’s see the video.

[Video plays]

[Video ends]

MR. LORES: Working with brands has become one of the key

strategies to grow our graphics business because we need to

help them to understand what is the value that digital

printing can have for them, it is about showing them the

value of personalization and how this can help them to

establish different connections with their consumers. But

it’s also about explaining how can they save money by

printing shorter runs, by removing, reducing waste, and by

reducing inventory costs. And we have now a team that is

driving that very actively. To understand the value of what

this is, let me share one of my favorite stories.

Amarula is a famous liquor and we worked with them last year

to create the name them, save them campaign. The Amarula

liquid is actually produced from the Marula fruit, which is

one of the favorite fruits for the African Elephant. And the

African Elephant is a species under extinction and there are

only 400,000 elephants left in the world. So, we worked with

Amarula to design 400,000 different bottles and with this

campaign they were able to reconnect with their users in a

different way and they actually saw a significant increase of

their sales of more than 150 percent in North America.

As we work with companies to drive these campaigns they see

the value that this brings they bring them to other parts of

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their business, but more important their competitors see that

and this creates a snowball effect that drives the

penetration of digital. Last year we did 40 projects like

this and we have another 150 projects in the funnel.

But now it’s time to close. And I hope that having gone

through the opportunities that we have in our three segments:

home, office, and graphics, you will share the optimism that

we have about growing this business. The opportunity is in

front of us and now it’s really about execution. And we have

proven that we can execute. In fact, the chart I’m showing

is a chart that I showed more than a year ago and we are

executing what we said we were going to do. 2016 was the

year for us to establish the foundation of this business. In

2017 we stabilized supplies. And now as we enter into 2018

we are shifting our focus towards profitable growth. And if

all of this is possible it is because at HP we are

reinventing print. Thank you.

[Applause]

MR. LORES: And now before I invite Steve to talk about the work

they are doing around 3D printing, I wanted to share a final

story. Actually, the stories are amazing that when I

explained to Steve the first time he thought I was making it

up. I shared before that we learned recently that astronauts

are printing almost 1,000 pages per print in space. We

learned about that because a few months ago we were

approached by NASA and they had a very interesting request.

They needed a printer that would work in space. And that

which may sound easy is very difficult because for a printer

to work up there it requires that it works in a zero gravity

environment. And today printers work because of gravity.

So, our engineers have to work on the problem. They have

been working on that for the last months. They have solved

that and we will explain more details in a few weeks. But

the only way they were able to solve that problem was because

they used the 3D printing products and printers that Steve

and his team has been designing. And this is a great example

of how there is the power of print helps the astronauts in

the planet, but how the innovation from Steve’s team is also

helping us to create new innovative products. Steve?

[Applause]

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MR. STEPHEN NIGRO: Okay. Thank you, Enrique. Actually, Ron and

Enrique, you guys are fantastic. And one day I hope our 3D

printing business, actually, I know our 3D printing business

will be as big and I’m sure Dion will say larger than those

businesses. Now in 3D printing we are so fortunate to be

able to leverage so much what HP has built over the last 30

years. Earlier this morning I hope you had a chance to go

see the multi-jet fusion printer in action. You guys see it,

making parts? Awesome. Ones and zeros going in and robot

parts coming out. And when you think about it, this is what

it’s about. This is our product. This is, for example, is

an air intake for a high-performance motorcycle. Real stuff.

And what you see is amazing HP engineering and science at

work.

Now, for 3D printing our mission is bold: to change how the

world designs and manufactures, or to say it differently, to

lead the next industrial revolution. Well, let’s start with

the market. The 3D printing market is projected to grow at a

30 percent CAGR over the next five years. With that said,

the big opportunity is to address and transform the 12

trillion dollar manufacturing market. With multi-jet fusion

we are bringing a uniquely differentiated platform to 3D

printing. We’re leveraging over 5,000 patents from our 2D

printing business, and we now have over 600 3D print patents

and patents applications. We are filing new 3D printing

patents at a higher rate than anybody else in the industry.

And in addition to a technology platform, we are building an

open material platform.

This allows HP to work with some of the largest and most

innovative chemical and material companies in the world. Now

I want to set some context. Last year here at SAM we had now

sold a single 3D printer. None of our routes to markets were

established. Now what we have seen is we’re shipping

globally to all regions around the world and we’re seeing

repeat customers. And one of the best indications of our

success is customers, who after a short time of using our

products are returning to order, not just two, not just four,

but six, eight, and in one case ten systems. In 12 months we

have built a global business. And we are just starting.

Now one of the benefits of being part of a company of the

scale of HP, is we have the capacity to innovate while doing

the very heavy lifting of starting a completely new business.

So in 2018 HP plans to deliver a completely new 3D plastic

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system that will expand our portfolio. We’re going to be

introducing it at a much lower price and for the first time

ever we’ll be able to produce mechanically robust full color

parts. And if that’s not enough, as you heard from Dion we

intend to go beyond plastics. And into metals with a brand-

new HP invented 3D metal technology.

Now, the fourth industrial revolution will change every

aspect of our society and the global economy. It’s been one

of the most discussed subjects amongst leaders of the last

two world economic forums. In fact, the World Economic Forum

itself has stated that the total value of digital

transformation across all industries could reach 100 trillion

dollars over the next ten years. When looking back at

history what we see is each major description is typically

based on some key enabling technologies. IT was the enabler.

IT was enabled, in large part, by the invention of the

summer-conducted transistor.

Our digital 2D printing business was enabled, in large part,

by the invention of laser and ink jet printing. The fourth

industrial revolution is no different. Key enabling

technologies include, artificial intelligence, the internet-

of-things, all devices being connected, big data and

analytics, robotics, and of course, 3D printing. The fourth

industrial revolution is all about the digitization of

manufacturing. Ones and zeros controlling all steps of the

creation and manufacturing process. The reason the world

gets so excited about the fourth industrial revolution is

that in a fully digital future innovation will happen faster,

time the market will shorten for a greater variety of

products. Business efficiencies will dramatically improve

with less inventory, new and more efficient supply chain and

increase capital efficiencies.

We say the fourth industrial revolution will democratize both

manufacturing and design. But what will democratization look

like? Now imagine a designer in Brazil has a new idea.

Let’s say creating a new personalized blue tooth speaker

design. She will be able to put this design up on the web,

the speaker will be produced anywhere in the world in a 3D

factory that serves the local market. Ship electrons, not

products. That is why China has Made in China 2025. That’s

why Germany has Industry 4.0. That’s why countries all over

the world are investing in 3D printing. Now 3D printing is a

key to the fourth industrial revolution. It might be

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obviously, but you can’t have a digital transformation

without a digital production process. We expect 3D printing

to grow rapidly and be a large and attractive TAM.

But even in 2021 it will be small relative to the 12 trillion

dollar manufacturing industry. So, what are the keys that

allow 3D to grow? We see six factors. The first three are

critical to unlock growth. Without significant progress in

these foundational factors the industry will not reach its

potential. First product capability. 3D printing needs to

be as reliable and consistent in production as current analog

processes like injection molding. Second, material prices.

The materials used in 3D printing must be similar to the cost

of analog materials. Third, material selection. Today there

are thousands of analog materials and 3D printing must

develop thousands of materials too.

Now the next three factors are keys to accelerating the

growth of 3D printing. First, design for additive. Creating

tools and training designers to take advantage of design

freedom enabled by 3D printing like the example that Enrique

shared with the moon printer. Second, new supply chains.

Creating completely new digital supply chains. Shipping

electrons around the world versus products. Fast, efficient,

more environmentally sustainable. Third, standards and

policies. Develop new standards in key industries and

embracing new policies to support the acceleration of the

fourth industrial revolution.

We are mapping our roadmap and activities against these six

factors to unlock and accelerate the market. Okay. HP is a

company that does what we say. We deliver on our

commitments. Last year we shared a multi-year roadmap on how

we plan to build the 3D business. This roadmap creates

mileposts to measure our progress. The first two things we

said that we would do is we would ship our first product in

2016 and we would establish our business in 2017. So how

have we done? We shipped and sold our first printer before

the end of 2016. So we have our first dollars of revenue.

In less than nine months from shipping our first product with

one product we are now shipping more plastic production 3D

printers than any other company in the world. We define

production as 3D printing systems that cost over 100,000

dollars and produce functional and mechanically robust parts.

But for me the most compelling fact is how many of our

customers are ordering multiple printers with repeat orders.

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Take a look at this picture on this slide. This is an actual

picture from Forecast 3D. They had been in the 3D printing

business for over 20 years. After buying and using the first

HP machines they came back and bought another ten machines.

And we have many customers who have bought a second, third,

fourth, sixth, or eighth machine. We are also seeing

momentum across key verticals. We have deepened the work

with leaders like BMW, Nike, Johnson & Johnson, and JABIL.

We have new engagements with innovators like Jaguar or Land

Rover, the biggest automaker in the UK, and with ETH Zurich,

a leading engineering university. They’re all looking for

multi-jet fusion to change how they design and manufacture

their products.

So, let me share an example of what is possible with 3D

printing. This is an air duct, something you would see in

automotive, aerospace, industrial applications, and even our

own printers. It is completely redesigned to take advantage

of multi-depth fusion. So, what we were able to do is reduce

the part count from six plastic parts, plus 13 screws, that’s

19 skews, plus assembly and testing, to one single part. We

were able to reduce the cost of the part by 5X and deliver

superior quality with superior air tightness. By redesigning

and combining parts today it is possible to improve

performance and reduce cost using multi-jet fusion. It’s a

big reason why 50 percent of the custom plastic parts in our

printer are printed, using multi-jet fusion.

Now as part of the buying process before buying a new 3D

printing system, customers want to produce sample parts to

test their application. This is what in the industry is

called benchmarking. Think of this as a test drive to see if

our technology will meet our customers’ strict application

requirements. What is really exciting is for us that in the

first nine months of shipping our systems, more than 50

percent of our benchmarks are targeting full production

applications. So, the world clearly sees multi-depth fusion

as a path to final parts production. The goal in high-tech

is create a platform. All around here in the valley people

talk, I want to create a platform. Leveraging the world is a

key to speed, innovation, and transforming an industry. We

have now added both Henkel and Sinopec to our open material

platform. And our partners represent more than 400 billion

dollars of revenue. We have had over 50 other companies

express an interest in building materials on our platform.

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We also created the world’s first open 3D material lab.

Scientists from other companies have been working side-by-

side with HP to advance new material systems. We introduced

and sold to the industry first material development kit, or

MDK. The MDK allows companies to speed up their in-house

development, new multi-jet materials by doing the work in

their own labs. Before using the MDK companies would create

3D powders and send it to HP. We would sometimes find that

the powders might not even be in our system. A big waste of

time.

Now after buying and using the MDK or the material

development kit, they can do their initial powder development

and testing in their own lab, so when we get the powders

we’re able to start diffusion optimization process. We will

be expanding these tools like this for our material partners

to help them innovate quicker and to create more materials.

So, our open material platform will be a key part of our

strategy to drive new materials, opening up new applications,

and driving more multi-jet fusion adoption. Expect to see

several new materials coming in 2018 as we expand our

platform.

Now, ultimately, 3D printing, if it’s going to transform that

12 trillion dollar industry must be as compelling

economically as traditional manufacturing. Last year we

talked about breakeven point, a key to shifting from analog

to digital. Now this blue line represents the relationship

between the cost of the part, in this case, that gear, and

the breakeven point. As the cost of the part is reduced, the

number of digital parts that can be made for less than analog

increases in a very non-linier fashion. So let’s go back to

the gear we showed last year. Now to give you a sense of

this, we approximate that there’s roughly 20 billion of these

plastic gears produced every year. Everything from consumer

electronics, industrial equipment, and again, our own

printers. And we noted last year that with the planned

pricing and productivity of our multi-jet fusion 40200 that

if you were going to make 55,000 or fewer of these gears it

would just make sense to print it versus injection molding.

Based on raw economics alone.

With the expansion of our portfolio the increase in our

material selection and the reduction of our material costs

the breakeven of this gear will double to 110,000 in 2018.

And we will continue to drive the breakeven. We will

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continue to drive productivity. We will continue to drive

down material costs to dramatically grow the 3D printing

market. Okay. As I said earlier last year at this time we

hadn’t sold a single system, we didn’t have our go-to-market

in place, one year later, we are now in all three regions.

We have over 65 channel partners. We have over 25 experience

centers where customers can come and see multi-jet fusion in

action. We are expanding to new transformational selling

motions, but most importantly, we are driven to serve our

customer. So let’s see what they have to say about multi-jet

fusion. Please roll the video.

[Video plays]

[Video ends]

[Applause]

MR. NIGRO: Thank you. In that example I visited the person in

Barcelona who is using 3D printing and what he’s doing with

it is he makes equipment that basically paints steel

construction beams. And that’s his products’ equipment. And

he’s using our technology to redesign the equipment he can

make and he is able to basically lighten the structure, he’s

actually routing the paints through this structure using

multi-jet fusion and he’s going to reduce his cost

dramatically of his product and he’s going to improve his

productivity, it was fantastic. A really creative guy. So

the HP 3D business is a great example of what Dion likes to

say about HP. We have the heart and energy of start up with

the brains and muscle of a Fortune 100 company. We have

innovative and new technology. We have delivered a new

product. We’ve scaled up a business at a rate that exceeds

what is possible even here in Silicon Valley. We have

established a business at an incredible speed. We have laid

a solid foundation and we’re hitting our milestones.

This is a great first year. There’s so much more to come.

Well, let’s go back to the roadmap we shared last year. We

said in 2018 we would expand our portfolio and to go-to-

market. So let’s look at what we planned to do in 2018. Now

multi-jet fusion is a voxel level 3D printing technology. A

voxel is a three dimensional pixel and the might HP voxel is

a key building block of our technology. In 2018 as Dion

mentioned, we intend to bring full color to the 3D printing

line up. Color is a great example of building at the voxel

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level. Now multi-jet fusion will be the one and only 3D

printing technology in the industry that can make

mechanically and robust and functional full color parts. We

plan to combine this color capability with a new lower priced

position.

This lower priced position will open up new markets to HP.

Making it easier for designers and creators to access the

technology. Being able to prototype with the same technology

as full-scale production will change the end-to-end design

process. And accelerate the adoption of 3D printing. So let

me share an example. Today a designer might use 3D printing

to build a prototype. But when going to production they will

have to completely change the design to reflect the

production process like injection molding. This additional

step in the development process will slow delivery buy two to

six months. With multi-jet fusion this goes away.

Shortening the time to market. The prototype parts will be

built with the same process that will be used in full

production. And this new lower priced product will be a

great compliment to our existing solution, allowing us to

expand to new market segments, and adding full color.

Also, what Dion talked about is our entry into metals. As we

said before, our aspiration is to disrupt the 12 trillion

dollar manufacturing market. With multi-jet fusion we have a

fundamental advantage of plastics. Now we are expanding

beyond plastics to metals. But why now? Well, pretty much

it’s the same reason we got into 3D plastics with multi-jet

fusion. We have developed a novel 3D metal approach that

leverages key HP assets. We have developed a novel 3D metal

approach that is built around a combination of high quality

and improving the economics of 3D printed metals. Today’s 3D

printing industry—today’s 3D metal industry is focused

primarily on specialized, high-value, and expensive

application. Our invention will transform the 3D metal

industry into a more mainstream high volume production. Or,

to say it differently, we are entering the 3D metal business

because we can have a major impact on the market and we could

make a unique contribution.

As a next step, we will be announcing that HP metal 3D

printing technology platform and our business plan to the

industry in 2018. This is certainly a major break through

and this is a major step for HP’s 3D printing aspiration and

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will be another defining point for the industry. Stay tuned

for more details in 2018.

Now I do love geeking out on technology, and a big reason I

love geeking out on technology, is because I really love

innovation. But innovation is just not about technology and

products, when transforming an industry is about new business

models, it’s about developing new routes to market. Henkel

an 18 billion year old material leaders is a great example.

Henkel initially joined our open material platform to develop

new 3D printing materials. Based on what they saw with

multi-jet fusion they will now be installing multiple systems

around the world, and they will be our first worldwide

reseller. They are also setting up demonstration sites in

Asia, Europe and the Americas. They’ll reach even more

potential customers.

We are also partnering with Delight, the leader in helping

large enterprises digitize and manufacturing and supply chain

processes. This is about two industry leaders coming

together to provide the needed expertise to help large

customers drive the digital business transformation. And we

recently announced the integration of the Siemens NX design

tools with multi-depth fusion to enable designers to take

advantage of our voxel level capability. Siemens’ is a

leading supplier of the design and factory tools and multi-

depth fusion is the first time they are integrating 3D into

their core toolset. Digitization is about data, and in the

future you will see HP providing new data services to

customers. There is so much happening right now I thought it

would be fun to share a video that captures the next step in

our 3D printing journey. Let’s take a look.

[Video plays]

[Video ends]

[Applause]

MR. NIGRO: Just can’t wait. Just can’t wait. We have done so

much in such a short time. We have launched and scaled the

global business. Our customers are scaling their business

with HP. We had expanded key partnerships with major

material providers. We have developed new route to markets

to drive the digital transformation. We are expanding our

technology in plastic portfolio. We are innovating new metal

technology that will change the industry yet again. And we

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are delivering against our mileposts. And the best is yet to

come. But everything we’re doing is driven by our north star

to change how the world designs and manufactures, or to say

it differently, to lead the next industrial revolution.

Thank you.

[Applause]

MR. NIGRO: Okay. We will now have a break and you’ll all, I’m

sure, be back to hear from Cathie.

[Applause]

[Music outro]

[END OF TAPE VT-Z-PIX-4-1-014_audio]

[START RECORDING]

ANNOUNCER: Please take your seats. Our program will begin momentarily.

[“Despacito” plays.]

ANNOUNCER: Ladies and gentlemen, please welcome Cathie Lesjak, Chief

Financial Officer.

[“I Love Rock and Roll” plays.]

CATHIE LESJAK: Okay, that’s it for today. I’m done. Good afternoon,

everyone. Let me echo the warm welcome to our campus. For those of

you that are here in Palo Alto, I hope you’ve had a chance to

glimpse at the incredible technology that’s driving our success

today and will into the future. Working daily in such close

proximity to Bill and Dave’s office is a constant reminder of the

importance of innovation. Product innovations, business-model

innovation, or process innovation. It doesn’t matter. We strive to

live up to their legacy every single day.

It’s been almost two years since separation and in that time, we’ve

worked hard to reinvent HP. By refocusing on our innovation roots,

we have created the greatest product lineup that our customers have

seen in a very long time. I’m proud of what this amazing team has

accomplished and I’m very excited about what lies ahead. This has

been a real breakthrough year for HP. Clear evidence that our

strategy is working. I’m pleased with both our execution in the

short term and our continued investment and focus on the long term.

In personal systems, we’re growing the business and gaining

profitable share. We’ve outperformed our competition and responded

very effectively to some challenging industry-wide, component-cost

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headwinds. Our success here is on the back of operational

excellence. Combined with a deep understanding of what our

customers want, we are able to drive innovation that really matters.

In print, we’ve achieved supplies revenue stabilization a quarter

earlier than expected and we’ve continued to invest in our graphics

initiatives, which has created a lot of energy and passion and

optimism and at times, at least for me, a few tears after watching

Enrique’s videos. And we’re all excited about the launch of our 3D

printing business and how much has been accomplished in just three

short quarters.

Our core, growth and future strategy has helped us sustain our

performance. We’re delivering financial results which are in line

with or better than the commitments that we made to you for FY17 at

last year’s SAM. Dion covered our business momentum earlier today

so I won’t go into great detail but I do want to highlight a few

areas. Last year, at SAM, we set a goal of a one billion dollars in

productivity improvements for FY17. We’re on track to achieve that

goal and just as we said we would, we’re doing it a second year in a

row. These cost cuts are critical to us. They’ve helped us offset

both the currency headwinds and the margin pressure of increasing

commodity costs in personal systems and in print, our improved cost

structure is helping us place more positive NPV units. We know,

that in order to be successful in our very competitive markets, we

need to be focused on costs, day in and day out. Always looking for

ways to operate more effectively and efficiently, cost-management

creates capacity. Capacity to invest in our R&D, in sales, and in

marketing.

The next highlight is earnings. The midpoint of our full year FY17

non-GAAP EPS range is now nearly five cents higher than our original

outlook that we provided to you at last year’s SAM. We’re also

generating very strong free cash flow. Last year, at SAM, we guided

an outlook for the free cash flow was 2.3 to 2.6 billion dollars for

FY17. During our Q3 Earnings Call we have increased our outlook for

the year to be at least three billion dollars in free cash flow.

And finally, we’re keeping our capital commitments to our

shareholders. Through Q3, we have already distributed 1.6 billion

dollars through dividends and share repurchases and we still expect

to end the year towards the higher end of our 50-75 percent range

despite the fact that our free cash flow is coming in significantly

higher than what we had expected. I’m particularly proud that we

have been able to accomplish all of this while remaining committed

to the investments that will drive future results. As Dion said,

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“We’re just getting started.” And innovation is key to everything

we do and ultimately drives HP’s leadership in new categories,

products, and business models.

So, now let’s take a look at our overall business. As you know,

we’re global industry leaders in both personal systems and printing;

delivering over 50 billion dollars in revenue in the last four

reported quarters. That’s five percent growth from where we were at

the same time last year. In PCs we continued to drive profitable

share gains maintaining our number one position worldwide and we’ve

extended our commercial leadership with innovative products like the

Elite Book X360 with SureView and offering the most secure and

manageable PCs in the market. We’re also driving on our commercial

transformation growth initiatives and in printing, we’re number one

in all regions and we’re also number one in brand loyalty and

customer satisfaction in managed print services. And did we mention

we stabilized constant currency supplies revenue? A quarter earlier

than expected? Note that the print OP rate on this chart is 16.2

percent and that is the trailing four quarters results and that

includes the change in supply sales model (say that three times) in

Q416 excluding that change, the print OP margin would be higher.

We continue to have very diverse geographic footprint with 46

percent of our revenue coming from Americas, 34 percent in EMEA, and

20 percent in APJ, and each reach region as grown year-over-year in

the last three consecutive quarters. Through our direct customer

relationship and leveraging our global channel partners, we have

extensive market reach which allows us to sell our products and our

services in over 170 countries. Our strength in the channel and our

culture of working with partners is particularly important as we

look to grow and scale our businesses. We expect that by the end of

this year, over 85 percent of our revenue will come as a result of

strong channel partner relationships. As you’ve often heard us say,

we segment our markets, and then we segment them again in order to

find the heat in the market and the opportunity for profitable

growth. We then drive hard into these pockets of growth utilizing

key customer insights to enable us to outperform in the markets.

In addition, our leadership experience throughout the organization

is a critical factor in how we execute whether in responding to PC

component shortages, successfully implementing the changes to our

supply sales model, or leveraging our IP in 2D for 3D. Capitalizing

on the right strategic moves requires exceptional teamwork to get it

right and we’re focused on driving better business results today and

well into the future. Turning to cash flow: delivering sustainable

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cash flow supports our overall capital strategy and capital

structure.

Three key aspects of our free cash flow generation to keep in mind

are: first, we’re generating strong profits and recurring cash

flows from our annuity revenue supplies business. With supplies

revenue stabilizing and as we shift to more contractual business

over time, those recurring cash flows should only be further

bolstered. Second, we have a negative cash conversion cycle and

I’ll talk a little more about this later. And third, our business

is not capital-intensive. Much of our capital expenditures are to

support the manufacturing of print hardware and the associated

supplies. The Q3 balance sheet shows approximately 0.2 billion

dollars in net cash. When compared to the Q3 balance sheet last

year, cash is increased by more than two billion dollars.

While we ended Q3 in a positive net cash position, we do expect that

to change once we close the Samsung printing acquisition which we

expect to do by the end of this calendar year. Because we operate

in rapidly evolving and increasingly service-based markets we

believe in the importance of maintaining an investment-grade credit

rating. This gives us the flexibility and capacity to make the

right investments at the right time and execute on our strategy. In

addition, as we continue to shift and grow our contractual piece of

our business with longer term customer relationships both in print

and personal systems, what these customers’ value is an investment-

grade credit rating. Our capital structure ultimately sets the

company up for long term success.

We have a consistent approach to capital allocation: one anchored

in a returns-based framework where we allocate capital to

opportunities with the best returns. We design our business plans

around our competitive competencies and then we develop both short

term and long term business and operational plans that align with

the financial objectives that we set. By design, our risk-adjusted

return framework means that we look at all opportunities relative to

one another to ensure that the decisions that we’re making are

maximizing shareholder value. As a result, we deploy capital

testing to the core whether that’s to place NPV positive printer

units, support the innovation necessary to remain leaders in the

markets in which we play, or to improve processes or systems like a

new ERP.

And we also invest capital to support our organic growth and future

initiatives. These investments are critical to laying the

groundwork for sustainable, financial performance. Finally, we

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deploy excess capital to achieve the best risk adjuster return on

investment for our shareholders. This includes return capital to

shareholders through dividends and share repurchases and may also

include inorganic acquisitions such as the Samsung deal. We expect

future acquisition activity to be focused on technologies that are

complementary to our existing portfolio and accelerate our strategy.

Our capital allocation framework is rooted in our commitment to a

robust dividend and repurchase plan intended to drive upside value

for our shareholders and to that end, our capital allocation targets

are return a 50 to 75 percent of free cash flow to shareholders.

With that framework in mind, let’s talk about the specific

objectives for shareholder return in FY18. We expect to continue to

return cash to shareholders in the form of dividends and share

buybacks. The Board approved a five percent increase in the

quarterly dividend which we expect will result in approximately 900

million dollars in FY18.

The combined growth in dividends in FY17 and in FY18 tracks net

earnings growth consistent with our long term financial model. As

part of our capital allocation framework, you can expect the total

return to shareholders to be in the range to 50-75 percent of our

annual free cash flow and given our current view of FY18, we expect

to be towards the higher end of that range. We’ll continue to buy

back shares opportunistically based on our view of intrinsic value.

We have approximately three billion dollars in outstanding

authorizations available for share repurchases and have a share

repurchase program for FY18 that includes buying back shares to at

least offset dilution from employee benefit plans.

With that in mind, let’s talk about some of the strategic elements

and key assumptions that support our FY18 financial outlook. Our

strategy is consistent: lead in the core, accelerate our growth

areas and capture the future. Starting with a global context, we

expect the worldwide markets to remain competitive and potentially

volatile. We will actively monitor global macroeconomic conditions

and policy changes that could impact our business and we’ll provide

updates throughout the year as we learn more.

Now, shifting specifically to print; we’re assuming a flat year-

over-year market with pockets of growth. Continued focus on placing

NPV positive units, flat to slightly up year-over-year supplies

revenue, and continued and incremental investments to expand A3

graphics and 3D. Finally, we expect Samsung to close by the end of

this calendar year and are not including incremental Samsung

financials in today’s outlook except for the integration-related

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GAAP-only charges, which we’ve already communicated. We also expect

that there will be more cost reduction opportunities once we close

the acquisition and we’ll talk more about that once the acquisition

is closed.

For personal systems, we’re assuming the traditional PC unit market

will be down slightly in FY18 but the broader market including all

of those adjacencies that Ron talked about will grow. We’ll

continue to focus on profitable share gains and improving the mix of

margin and creed of products and services over time. We expect

commodity costs will remain elevated but will reach their peak by

the end of Q4 this fiscal year and we’ll make investments in

commercial transformation including our DaaS offering. Finally, we

expect to continue to drive productivity improvements in both print

and personal systems to offset higher commodity costs and certain

market sizing assumptions. With that as a framework, our FY18

outlook for GAAP-diluted net earnings per share from continuing

operations is in the range on 1.69-1.79 dollars and our fiscal 18

non-GAAP diluted net earnings per share outlook is in the range of

1.74 to 1.84 dollars.

Some of the key assumptions to keep in mind are: for revenue, we

expect to gain profitable share and using October FX rates, we’re

expecting a one to two point year-over-year currency tail wind. The

tax rate will remain consistent between 21 and 22 percent and OI&E

should continue to be an expense of approximately 350 million

dollars. Our outstanding share count will be approximately 1.7

billion shares as we exit FY17 and we expect a slight decline in

FY18 as a result of our capital allocation priorities. Totally

GAAP-only charges are approximately 100 million dollars are

comprised of: one, the GAAP-only restructuring of other charges of

approximately 150 million dollars driven by both labor and non-labor

actions including charges related to employee exits, IT and

facilities changes; two, Samsung integration related costs of

approximately 100 million dollars and then three, partially

offsetting these GAAP-only charges are non-operating related, I’m

sorry, retirement-related credits of 150 million dollars.

Remember, that FY18 is the second year, is going to be the second

year of our three-year restructuring program and we remain on track.

For the full three-year plan, we anticipate GAAP-only charges of

approximately 500 million dollars and we expect gross annual run

rate savings of 200 to 300 dollars million in the full year

beginning FY20. Now, let’s take a look at a year-over-year bridge

on our EPS. The current FY17 non-GAAP EPS is outlook is 1.63 to

1.66 dollars. I’m going to bridge from the midpoint of that range.

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First, based on current FX rates we expect about a six-cent tailwind

from currency year-over-year. What’s important to note, is that

benefit is net of hedging and the assumed competitive re-pricing

actions. As we’ve said previously, we have increased prices

throughout FY18 to offset commodity costs and to a lesser extent, FX

headwinds.

Looking forward and depending on the actual currency and market

dynamics, we anticipate that ASP’s may be pressured due to

competitive re-pricing, effectively offsetting a sizable portion of

the gross currency tailwind. Overall, we would expect more of the

FX favorability to be during the second half of the year, as our

hedges are rolling off and that of course, assumes that rates don’t

change from here. The second bridging item is that we expect to

make incremental investments to support growth and future

initiatives that have been described in the earlier presentations.

This equates to about eight cents and I’m going to discuss this in

more detail in a minute. The next bridge item relates to our view

on market sizing, volume, and product mix in what continues to be a

competitive and dynamic market environment. The impact is expected

to range from a minus 4 to minus 8 cents and as both Ron and Enrique

mentioned some parts of the respective markets are in decline

although the year-over-year headwind is significantly lower than in

prior years.

We have also factored in a full-year impact of higher component

costs in the bridge, which would be more of a first-half year-over-

year headwind. To offset market sizing volume and mix headwinds and

continue to fund investments that will drive future growth, we

expect to achieve approximately 18 to 22 cents of productivity

improvements and as we’ve shown over the last two years, we are very

efficient and effective at executing against our cost-reduction

goals. Included in our productivity improvements are the full year

benefit from initiatives that were started in FY17 and incremental

in FY18 some of the key categories that we’re going after is

optimizing costs across supply chain and billing materials,

streamlining operations through a reduction in design and

manufacturing complexity, improving product quality and other

product costs, and better optimizing our non-revenue generating head

count and costs.

Finally, with share buybacks offset by some of the corporate

charges, our FY18 non-GAAP diluted net earnings per share outlook is

estimated in the range of 1.74 to 1.84 dollars.

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Now, let me spend a couple of minutes describing our incremental

investments given how important they are to our long term financial

model. As you heard earlier, our investments this year have been

critical to our recent performance and the execution of our go-

forward strategy. In these past three quarters, we’ve launched 3D,

we’ve launched A3, we’ve invested in new graphics applications,

we’ve expanded our instant ink to new regions in the world, and

we’ve also started to lay the groundwork for more service oriented

business models. In FY18, we expect to make investments to further

ramp and scale growth and future businesses. We expect to continue

our aggressive entrance into the A3 space and ramp that go-to-market

further. Graphics investments will include a product launch into

the corrugated space, as well as an incremental investment for other

applications like textiles. In personal systems, we’ll continue to

invest in our DaaS platform that will bring to market a whole new

business model around manageability of devices and will help

transform our business over time to a stick year contractual model.

And, finally, in 3D, plastics, and now metals: this business is off

to a very fast start. We also expect to increase our go-to-market

and R&D investments to support 3D growth next year and beyond. We

remain very disciplined about where we invest. Wherever possible,

we leverage existing HP strengths, assets, and core technologies

across the portfolio making our investment dollars as impactful as

possible. As mentioned earlier, we are making these investments to

drive sustainable, long term growth and set ourselves up for the

future. We’ll continue to balance current and expected future

market conditions, evaluate the competitive environment, assess

other risks and opportunities in order to make the right decision to

deliver shareholder value.

Given that HP is a long-term cash flow business, let’s now shift to

free cash flow and what we think will happen for next year. Our

free cash flow outlook is expected to be at least three billion

dollars. We’ve modeled a flat cash conversion cycle year-over-year

at approximately minus 29 days as we exit FY18. Non-recurring items

include restructuring cash payments which will be approximately 200

million dollars in FY18 and the cash impact from Samsung integration

costs will be approximately 100 million dollars and therefore not

much of a delta year-over-year. Capital expenditures are expected

to be 500 million dollars. Capex is roughly weighted equally

between growth and maintenance initiatives including certain

implementation costs related to our new ERP which will take roughly

three years to fully implement. With that in mind, I’d like to

provide some further color on how to think about free cash flow.

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I’m often asked by you all how to think about free cash flow at HP

and here are a few things to consider. First, free cash flow

ultimately tracks in line with net earnings. We’ll have quarterly

or annual variances from time to time but long term free cash flow

and earnings move in line with one another. While free cash flow

tracks in line with net earnings over time, working capital changes

can drive material fluctuations.

Let’s start with the cash conversion cycle. In quarters where the

cash conversion cycles improves, which for us means gets more

negative, incremental free cash flow will be generated in the

quarter. The actual cash conversion cycle will be influenced by a

variety of factors including terms with customers, terms with

vendors, intra-quarter linearity and also business mix.

Specifically, when our personal systems business grows sequentially,

it generates cash up front, whereas when our print business grows

sequentially, it uses cash up front.

The other working capital variable is business volume. Assuming the

cash conversion cycle remains constant, free cash flow will move

higher or lower depending on, in a particular quarter, depending on

our volume in the business. For example, a sequential increase in

revenue should result in higher cash flow in that quarter since

receivables are collected well in advance of payables being paid

given the fact that we have an overall negative cash conversion

cycle at the company.

With what I’ve covered so far, I think it’s fairly easy to

understand what our long term financial model is, so I’m going to

briefly summarize. We expect to continue to be market leaders,

outperforming our competition, and gaining profitable share where we

choose to play. We will focus on innovation at our core, enter

attractive new markets and invest in future category creation.

Given the different sizes and the growth dynamics across personal

systems and print is now appropriate to think about business models

and long term operating margins at the segment level. Personal

systems today is largely transactional in nature and operates with a

significant negative cash conversion cycle. Coupled with low

capital intensity, this business yields a very attraction return on

invested capital despite relatively lower operating margins. Longer

term, we expect person systems operating margins to be in the range

of three to five percent, consistent with the portfolio initiatives

that Ron is driving.

Printing has a different dynamic given the annuity nature of high

margin supplies and the low to negative margins on placing core

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hardware units. Therefore, when we invest in placing incremental

NPV positive print units, our short term margins are pressured.

Looking forward, we would expect print to continue focusing on

operational excellence and accelerating its growth initiatives with

operating margin targets of 16-18 percent. And finally, as we

generate cash we expect to continue with our returns based approach

to capital allocation. With a long term target return of capital

between 50 to 75 percent of our annual free cash flow and over time

dividends grow in line with net earnings.

So, let me wrap up and leave you with a few key messages. We’re

competing and leading in our core markets. The combination of our

recurring revenues, our negative cash conversion cycle, and our

efficient operating model drives predictable earnings and cash flows

and in turn, provides the opportunity to invest in the business and

return capital to shareholders. We’re also successfully entering

new and large growth markets where we can leverage HP’s strengths

and deliver sustainable growth over time. We are investing in

future categories where we expect to disrupt with world-class

technology building on our rich legacy of innovation with the goal

of creating shareholder value for many, many years to come.

And finally, our team knows how to deliver. As mentioned at the

start, it is awe-inspiring to continue the work of such great

innovators who started the business building audio oscillators for

Walt Disney out of their garage. Our task is to continue that

legacy, to deliver reliable returns, strong cash flow, and the

opportunity for long term growth. We appreciate your support and

especially your time with us today. Thank you. Now we’ll take a

break and we’ll get everybody up on stage so we can do Q&A.

WAMSI MOHAN: Thank you, Wamsi Mohan Bank of America Merrill Lynch.

Thanks for all the details here today, I appreciate it. My question

is really around when we look at the EPS bridge this year, Cathie,

the productivity improvements relative to the last few years is

quite a bit smaller but you’re also assuming that the commodity

pricing, you’re taking an assumption of exit at roughly peak levels

going into next year? So, isn’t that, sort of, very conservative on

both ends and why is it that you’re taking the exit level to be, I

think you said peak and Ron mentioned that the exit level is what

you’re going to assume for next year. Why is that the right

assumption?

DION WEISLER: Well, I’ll actually happy to start and I’ll have Cathie

chime in. I think what we’ve put together for our plan for FY18 is

a very balanced plan. It’s a prudent plan and I think it’s always

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important that we think about all of the opportunities that we see

in the market as well all of the potential headwinds that we see, as

well. And as a result of that, we put together a plan that we all

very much believe in that strikes the right balance between those

two dynamics. I think if we look at the work that we’ve done in our

core business in our growth initiatives and ability to capture the

future, there’s a couple of things that I think stand out. I think

we’ve really delivered in our core business but we’ve, having the

bridge plan clearly operational improvement and we also have created

the capacity for us to continue to invest in the business so that

you can see long term sustainable growth over time. And I think if

you click one step further into each business, there’s different

dynamics going on in each of the businesses. For Ron’s business he

obviously very significant cost headwinds. This year, we expect

that those will reach a highpoint of the end of quarter four and

remain at elevated levels over the course of next year and we’ll

just have to wait and see how some big things that happened in the

industry pan out. For example, you know, we need to see how mobile

phones from certain companies do; which can have a big material

impact on panels, it can have material impact on D-RAM process, we

have to watch how that evolves. And so, we have a market, at least

in Ron’s business, where the traditional PCs are still expected to

slightly decline and that produces a headwind but that’s offset by

Ron’s strategy really to grow into more profitable areas of the

business but I think it will remain a very competitive, fiercely

competitive environment and we need to be able to compete fairly. I

think in Enrique’s business, the groundwork that we’ve done on

stabilizing supplies was not an easy task but the output of the 4

box model is running according to, or at least a little better than

some of our predictions. And then we see in Enrique’s business the

opportunity in the medium term for growth in A3 and the graphics

portfolio that he’s outlined and you know, offsetting some of that

is as we take the cost out of the business we want to be able to

place those in PV positive units and that puts downward pressure on

the rate. And then of course, in Steve’s business, this is an

incredible business, over the course of nine months going from

nothing to the number one market leader in that product segment that

he articulated with a very broad ecosystem, partners, a channel, a

network, and key core technology that we’re only advancing as we

talked about the two new breakthroughs that we released today.

Shows that we’re taking the investment that we said we would do last

year and it’s manifesting itself in 2018 and so you kind of put all

of those things together and I think we have a very balanced plan.

We’re going to continue to have a fiercely competitive environment,

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but I’m really confident together with the rest of the team that we

will deliver on the FY18 plan.

CATHIE LESJAK: And then specifically around commodities, we’ve talked

about, and Dion been asked before, I think on earnings cost, okay,

what is the cycle in which, you know, more capacity would be brought

on, that ultimately take some of the pressure off of the commodity

because and we just don’t see that manifesting itself in FY18. We

don’t think that they’re going to go a lot higher; we do think that

they will peak out but we don’t expect real reason for them to come

down. On operational costs and operational productivity

improvements, you know, coming out of the separation, we really

believed that A. the separation was great for our company but also

it was going to allow us to streamline operations, tools, and

systems in such a way that we would be a leaner and more nimble

company. And we’re making progress but we’re not done. In the

first two years, we will have taken out one billion dollars of cost

each of those two years and now we’re looking at taking out another

roughly 400-450 million dollars. We feel really good about the work

that we’re doing and I think I said it in my prepared remarks, as

well. Cost is a never-ending for us. We will always be going after

cost and we will be looking at every line item of cost any place

there’s an opportunity, we’re going to kind of tighten the belt and

continue to tighten belt pretty much every year.

WAMSI MOHAN: If I could ask a quick follow-up, in the 4 box model, you

seem to do a little bit better on than your expectations on the

pricing lever and I was wondering is that really a function of the

changes that were made in channel inventory and we’re yet to see the

pricing improvements that you spoke about, about your big data

analysis. Is that the right way to think about it? Thank you.

DION WEISLER: Good one for you prince of print.

ENRIQUE LORES: It’s actually a combination of many different factors. I

explained before we had been able to reduce the discounts that we

offered to channel partners. This is helping. We have also been

able to increase selectively prices in some areas. This is also

helping. Working with lower channel inventories is helping us to

prevent gray marketing around = the globe, this is also helping. So

there is not one factor alone, but the combination of all them drive

the assumptions that we have been sharing.

STEVE MILUNOVICH: All right, Steve Milunovich at UBS. Wanted to

continue on the channel discussion, you said over 85 percent of your

products go through the channel. Can you talk about the, sort of,

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competitive dynamics in the channel; there’s been a lot of changes

the last year, particularly the PC side, you’ve got Dell, maybe you

could talk a little bit about what you’ve seen from them. Lenovo

recently made some changes which I don’t think are being

terrifically well-received and on the printer side, are we through

any breakage? I mean, you made some dramatic changes a year ago you

just alluded to and they seem to have gone very smoothly but maybe

you could talk a little bit more about exactly how the channels

reacted to the changes that you’ve made.

DION WEISLER: Well, I think there’s clearly change all around us a lot

of it being driven by the omni-channel and its implications on how

people consume and produce in the future; in much the same way that

our big industries, the personal systems industry and the print

industries are consolidating. I think there’s some consolidation

going on even at the distribution level with some of our partners

and at the resale level. But the channel remains the most efficient

route to market possible, in my view, I firmly believe it. We do 87

percent with or through the channel because they’re an amplification

of our sales force and they’re able to reach many more people in

more efficient ways than we would be able to do, and add incremental

value to our base platform. So, generally speaking, I think, you

know, when you look at each of the competitors, it varies from

region-to-region. It varies from quarter-to-quarter. We have our,

you know, different competitors deploying different strategies.

Some are very consistent; some seem to move around a lot. What we

need to do is, obviously, keep our finger on the pulse, insure that

we’re playing our own game, not playing anybody else’s game, that we

understand where the end markets are going and where we want

innovate in our product portfolio, how we want to work with our

channel partners to layer value for our customers, and then deal

with our competitors in a very aggressive, but responsible way where

we take profitable share. And so, I don’t expect, and never has

been static over the 30 years I’ve been doing this. Different

players do different things from time to time and we just need to

continue to adapt. As it relates to printing, I would say that the

supply cells model change has been incredibly well-received by

partners. We recently conducted our HP partner forum that we do

every single year. I met with many, many of our partners and I know

the rest of the team did, as well. And I was at Canalys, I think

about a week ago, two weeks ago, the weeks kind of blend at the

moment, I’m not quite sure when it was and I was speaking to another

cohort of channel partners there and I would say the change that we

made to the supplies sales model actually helped their business. It

was short term painful as they went through the withdrawal symptoms

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of how we’ve operated this business over the last 30 years but it’s

made their business more predictable and in this omni-channel world,

it stabilized pricing and that’s good news for their business.

CATHIE LESJAK: I had two channel partners that I met with come out and

thank me for making the changes that we made in the supplies sales

model so it’s a very well received-

ENRIQUE LORES: I think about the implication for them when we say we

operate with lower channel inventory means they need to invest less

capital in managing our business. So, there’s a very clear benefit

from that on top of what Dion was saying about price stabilization.

This really helps their business model.

RON COUGHLIN: Let me just add two pieces of color: first, we’re growing

double digits and we’re mix-shifting to channel which means our

channel’s growing faster. Nobody else in this industry is near that

type of growth rate with the channel. Second, if, with the shift to

DaaS, which clearly our channel partners are seeing, we’re the only

company who has experience doing this because we did it, I think,

six years ago with channel MPS. So, we know how to enable the

channel which is a very, very difficult.

DION WEISLER: By the way, they trust us. They don’t always trust other

people.

AMIT DARYANANI: Thanks. It’s Amit Daryanani RBC Capital. I just two

questions from me, as well. First, in PSG side, you guys have

obviously done a really good job in terms of picking up share over

the last few quarters and you’ve talked about commodities as being a

bit of a headwind for you. I’m wondering, don’t you think

commodities may have had some benefit, as well, on the share side

because the smaller players probably can’t D-RAM and compete with

you. So, as commodities ease up, don’t you think the profit pools

could strain because you have more competition. Is there a way to

think about that scenario, I guess, that would be great. And then

just to follow up, Samsung, I know you reiterated a timeline to

close. Could you just remind us of the accretion, of that still

holding up? And does the 16 to 18 percent IPG margin change when

Samsung is rolled in? Thanks.

DION WEISLER: Okay, I’ll let Ron and Enrique answer most of those

questions but I think it’s incumbent on me to say, because it’s not

very cool when he says that I think, Ron, together with the regional

presidents Christoph, Nick, and Richard, and Stu Pann who leads our

supply chain team, are an incredible example of what I call

stitching the seams. It’s not working individual silos but that

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connection between the business unit, the region, and the supply

chain in understanding the dynamics of commodity costs means that we

turned change into opportunity exactly to your point. So, I think

on the one hand, it was a very, very big headwind, Ron talked about

a one billion dollar headwind in the business, but then Christoph,

and Nick, and Richard went out to our customers and had very

difficult conversations with our customers but did it in an

empathetic way where often we would reengineer a solution or change

a solution out and we had incredible retention with our customers

but our scale, the scale of the supply chain when Stu was able to go

to Asia and have conversations about securing commodities so that we

can continue to ship. It was a very different conversation than

what many of our competitors had because they didn’t have that

scale. So, I think you, we like to take all change whether you

initially think it’s bad and see how we can lean into it and turn it

into an opportunity. I think the success that the entire team’s had

is off the back of doing exactly that.

RON COUGHLIN: Clearly, our ability to get supply at a rational price was

an advantage for us, this year. So, your second part of the

question do we think with more supply coming on, well, the reality

of it is PCs are less of our supplier base than they were two,

three, four, five years ago so the import of scale is only

increasing. So, what you’ll see is that advantage from scale only

growing over time.

ENRIQUE LORES: And in terms of Samsung, I mention it during the

presentation, our goal is to or our plan is to close the acquisition

during Q4. We will do that, we will disclose what are going to be

our financial goals for the first year, but as I said in the

presentation, we are even more bullish today than we were in the

past about the value that Samsung is going to be bringing to HP and

we just need to wait a few more time to be able to work with a new

team.

DION WEISLER: Q4 calendar.

ENRIQUE LORES: Q4 calendar.

CATHIE LESJAK: But let me add just the math of it. Just assume that if

the accretion that we talked about a year ago, or a little over a

year ago is one to two cents and just assume that they have revenue

of over one billion dollars, the 16 to 18 percent has to come down

in the short term; that’s the math.

KATY HUBERTY: Thank you, Katy Huberty, Morgan Stanley. Everything

you’re doing, changing the printers supplies model, reinventing the

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core, investing in growth, really that should lead to increased

visibility and durability of earnings and free cash flow and so, in

that regard, Cathie, should we think about the high single digit

earnings growth guidance that you just gave for fiscal 18 is the

sustainable earnings growth for this company given all the work that

you’ve done? And then I’ll just throw my follow up in there for

Enrique. You talked about the 4 box model only one thing changed,

which is the laser-installed base is now flat versus declining and

so why should we think about a supplies growth that’s better than

the two percent that you’re running at today given the 4 box model

is moving in your favor? Thanks.

CATHIE LESJAK: So, I’ll start. One year at a time. You know, you

should look at the bridge. The bridge certainly has a nice tailwind

from currency of about six cents. You know, so I would try to

normalize a little bit for that; that’s probably the biggest

feedback I’d give you but one year at a time.

ENRIQUE LORES: And in terms of the supplies projection, the comment I

was making about the supplies revenue being flat or slightly

positive is really driven by the projections that the 4 box is

driving and given the experience that we have had in the last

quarters and how predictable the model is, we really believe it’s

giving us good guidance on what is going to happen with the supplies

business next year. As you were saying, there is only one change in

the assumptions which is the assumption of the install base in the

office growing but we still have a balance of headwinds and

tailwinds that we’ll have to manage and this is driving the overall

projection.

STEVE FIELER: Chris, you want?

TONI SACCONAGHI: Toni Sacconaghi from Bernstein, I have one for you,

Cathie and one for you, Enrique. Cathie, I was wondering if you

could just elaborate more on your thinking about capital allocation,

company rating, etc. So, you know, you’ve, were espousing today

this notion that you have very predictable cash flow and the value

proposition to investors arguably should be that you have very

predictable cash flow. And so, the question is why wouldn’t that be

mirrored more in your capital allocation priorities, I mean dividend

at 900 million dollars on a base of maybe two, three being given

back next year, why isn’t that dividend higher? And similarly, when

you think about just the capital structure, why isn’t there some

debt on the capital structure, if there is predictability of cash

flows? You talked about rating agency concerns, why don’t the

rating agencies understand that you have predictability of cash

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flows and that you could take on more debt? And then I think

finally, you mentioned we buy back stock based on when we think it’s

attractive, maybe you can comment on whether you think it’s

attractive now? And Enrique, a shorter one for you, you said that

you want to double share in A3 over the next three years, so from 6

to 12, so 6 points of shares, 3.2 billion dollars which would add 17

percentage points of revenue growth to the printing business over

the next three years. Are you signing up for that? And I presume

it’s back and loaded otherwise we should see a much bigger growth

rate in printing next year.

DION WEISLER: You sound like me, Toni.

ENRIQUE LORES: Let me start from that and then maybe we’ll go into your

question. So, I said that we will be doubling our market share in

units from six percent to 12 percent. When you look at the copier

market, it is 55 billion dollars of hardware, supplies, and

services. And the supplies and services business always lags the

placement of the units. So, to get ten percent of the supplies

business you need to have ten percent of hardware shipment for a

sustained period of time. And this is really what would be driving

the overall size of the revenue that we are going to be generating

in the business.

CATHIE LESJAK: And that’s the story, and he’s sticking to it.

DION WEISLER: It’s a long term math, Toni; I’ve said it on many earnings

calls. I’ve said, this is a 55 billion dollar market, imagine if we

could take ten points a share, that’s 5.5 billion dollars of top

line and that’s how you’re doing the math, as well and the

associated drop. The issue is it takes time for that to run

through. We forget it because we’ve doing this business for 30

years and we’ve built an entire install base and data and everything

else that sits behind it. As we get into this new business, it

takes time to fill up those buckets.

ENRIQUE LORES: It’s the difference between the vision of the CEO and the

reality of the operational manager

[laughter]

CATHIE LESJAK: And, Toni, I’d love to take you with me to the rating

agencies. The rating agencies tend to look at kind of debt to

EBITDA. That’s one of their really big, kind of, metrics that they

really zero in on and so they’re not really looking at the

sustainability of cash flows in the future as much as, kind of, this

year and next year’s debt to EBITDA. And that’s really, it’s

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actually interesting to think about whether or not that their

metrics change, if we have US tax reform that includes a forced

repatriation because as a result of that, our debt, our real debt,

or our gross debt, should, will likely be much lower than what it is

today. Now, our net debt will be about the same but it’s really the

way they look at and so at its core, our belief is that an

investment-grade credit rating is important to our long term success

and so we, we basically target that. And then the mix between share

buybacks and dividends, you know, we look at this on a regular

basis. Our long term model is that dividends grow in line with our

net earnings growth and that’s pretty consistent with now what we’ve

done if you look at the cumulative over the last two years, in terms

of buying back shares? Yes, we’re active in the market buying back

shares.

DION WEISLER: I think the other thing that Cathie and I see very

frequently and hear from our various investors is that there are

some investors that want high dividends. There’s other investors

that want high share repurchase. It’s not a very uniform message

that we get across a very broad investor base.

CATHIE LESJAK: But it’s important that when we do share repurchase that

we believe that it’s, the price that we’re paying is lower than what

we think the intrinsic value is.

SHERRI SCRIBNER: Hi, thank you, Sherri Scribner from Deutsche Bank. I

have two questions, also. First, on the PC side you guys have had

an incredible year on the PC side. It’s driven a lot of the growth

that you’ve seen and you’ve gained a ton of share. I think the

question that I continue to get from investors is, “Is there more

opportunity to gain share in the PC market?” So, I know Dion you’ve

said you’re not focused on gaining share in the PC market but is

there further opportunity or maybe should we think about it as the

other markets, where, which will be driving the revenue growth? And

then, for my second question on the printer side, one of the

questions I get from investors is, the hardware business didn’t

really grow or it’s kind of bouncing around sometimes negative,

sometimes positive this year. Hardware’s really what drives the

long-term sustainability of the supplies business so how should we

think about hardware growth next year or are we going to start to

see some, you know, consistent revenue growth in that, that would

make investors feel more comfortable that the sustainability of the

supplies business is there? Thank you.

DION WEISLER: So, I’ll start and then I’ll let Ron and Enrique chime in.

I just want to clarify what I have said very consistently is that I

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don’t chase shares for shares, for shares’ sake. Not that I’m not

interested in share but I’m only interested in profitable share.

And I kind of, opened with my opening remarks about this time last

year, we were one in five, which meant as I was talking to Ron on

the team, there’s still four out there that don’t have an HP logo on

it, so wouldn’t that be better if we could go get some of that and

through the course of this year, they have done incredible job of

doing that. We’re fast approaching one in four, but that still

means that’s there another, you know, 75 percent market share out

there that we don’t have. And if we can do that in a profitable

way and if we can make shift and change our business and transform

our business that gives us the capacity to take that shared

profitably, then absolutely we’ll go after it.

RON COUGHLIN: Absolutely, so from a macro-view, we still have the prelim

roughly 32 percent in the category that’s in others after the top

four. You’ve seen steady consolidation. We’ve been leading that

consolidation. So, you’re still 32 percent of the market that we

believe, given our scale, that we can take share from. Second, I

talked about premium and gaming, right? We are nowhere near our

fair share of the stake gaming. We’re ten percent of the gaming

market. There’s no reason why we can’t be 22, 23 percent of the

gaming market. So, there’s profitable pockets there. Let’s take

detachable. Obviously, Microsoft and Surface created that category.

We have lots of head room and faces like detachables. And then the

last place I’d go is these PC-adjacencies. We’re going to source a

lot of growth from those PC adjacencies, including DaaS, which has a

double benefit: a recurring revenue. But because we think we can

do it better than anyone else, that should drive hardware share, as

well.

DION WEISLER: Love it when he gets the memo.

ENRIQUE LORES: I’m going to your question about print. We have actually

been growing both unit placement and hardware revenue during the

last quarters. So, we changed the trajectory of the business from

that perspective but even more important than that, is that we

continue improving the quality of the units that we place because

this is really what drives supplies revenue. So, it’s not totally

about how many units we place; it’s the combination of the number of

units and the value of those units. And as I was showing in the

charts, we have been improving that very steadily in the last five

years and this literally is what is driving the growth in this

supply side.

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DION WEISLER: I’m going to thank, hats off to the print team. They’ve

taken what seems to be a fairly simple business; is actually pretty

complicated, used a lot of data and analytics and modeling to really

understand what was driving the business and then built plans that

didn’t just do one or two things did a whole handful of things

across many customers, many geographies around the world to, you

know, not just chase again share for share’s sake but take quality

share, drive print relevance through incredible marketing campaigns

that Antonio and his team do to bring print to life. One of the

things, I love it when Enrique says, you know, “You kind of click

what you like and you print what you love.” And, sort of, exposing

a new generation of customers that have never printed before to the

power of print is very cool. Very carefully managing pricing, very

carefully looking to grow after market share. This business

returned a growth that’s been growing for the last couple of

quarters; it hasn’t done that since, like, 2011. This is off the

back of incredible work, a real, as Ron put it, a real print

renaissance around our, around our divisions all around the world

and I think you just starting to see the beginning and Ron was, sort

of, a couple of years ahead in the transformation of personal

systems. You’re just starting to see what Enrique and the teams are

beginning to deliver.

STEVE FIELER: We have time for either one or two more questions, so-

SHANNON CROSS: I’ll try not to talk too long. So, Dion, I’m not real-,

this is Shannon Cross, Cross Research. I’m not really asking you to

choose among your children, but you’ve covered several new emerging

technologies initiatives and this meeting, you know, A3, 3D print,

DaaS, corrugated textiles, there’s been a lot. So, I’m just trying

to understand when you think about it, how do you think about the

materiality of each one of these, when do you think they’ll really

start to benefit and, sort of, how should we watch? And then

Cathie, my question for you is, as you shift to DaaS, how do we

think about the impacts, earnings, and well, revenue really, and

then cash flow over time especially if Ron is successful in getting

it, you know, 20 percent?

DION WEISLER: So, that’s a great question, Shannon, thank you for it.

You know the word, “materiality,” has different meanings depending

on which lens and which time horizon you look through. Is 3D

printing financially material to our results today? Absolutely not.

Is 3D printing materially important to the strategic direction of

this company? Absolutely, yes, and you know, I think whenever you

have a 12 trillion dollar market that you have the ability to

transform that becomes incredibly transformative for a company like

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HP, much in the same way that the laser printer and the ink jet

printer did for Hewlett-Packard company many years ago. So, I think

the answer really lies in our strategy if it wasn’t abundantly

clear, always, I do things in threes. It’s called growth and

future. We have to be excellent in our core today. We’re operating

in large and very mature categories and we have to ensure that we’re

innovating, we have to insure that we’re delighting customers, we

have to make sure that we’re generating the cash flow that our

shareholders expect today but creating the capacity for us to invest

in new growth areas over the next two to three years which is really

how I think about the growth column. The core is the here and now,

growth is over the next two to three years. There’s only three

things we’re doing in there. Now, they’re big things but they’re

three things. It’s growth in A3, it’s growth in our graphics

business, and it’s growth in, you know, commercial transformations.

And then, we’ve got-

RON COUGHLIN: - which includes DaaS.

DION WEISLER: Which includes DaaS. And then, you’ve got that third

pillar of the strategy which is the future and that’s five, ten

years of, and beyond, of incredible opportunity for the company.

So, I do think across different time horizons and I think the

materiality is linked to those time horizons, not necessarily the

financials in any given quarter.

CATHIE LESJAK: And then with respect to moving more to a contractual set

of business models whether it’s print or personal systems. There’s

kind of two impacts that you think about with respect to the

financial statements. One is, are you putting a lot more assets on

your balance sheet? And we have typically not done that. What

we’ve done is we partnered with financial institutions like HPEFS

that basically take those, kind of, off of our balance sheets so we

don’t have that impact and we have not typically had that impact.

And then the other impact is the fact that depending on rev-rec

rules there are definitely times when you’ve then got to recognize

the revenue over a longer period of time. Our belief is that that

will happen will happen but this shift to contractual is relatively

slow, you know, gradual, and so just, we just don’t anticipate it

being a particularly material impact in the near to mid-term.

STEVE FIELER: Okay, this is the last question.

JIM SUVA: Thank you, it’s Jim Suva from Citigroup and since I’m

basically the last one and before we go to cocktails and receptions

I’ll break from tradition and instead of asking two questions, I’ll

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just ask one. Cathie, I think you’d mentioned printing 16 to 18

percent operating margin goals but I think congratulations, you’re

already there right now. So, what prevents it from going higher

since, you know, 3D printing is now selling at a profit, you’ve done

a lot of investments that are paying off and your channel strategy’s

working so why not higher than the range where you’re currently

right now?

CATHIE LESJAK: So, just to be clear, no one said that the 3D printing

was operating at a profit. Okay, we’re still very much in

investment mode. You saw the increase for the total company of

investments, you know, about 8 cents worth next year, a significant

portion of that is for 3D. It’s very much to Dion’s point, we are

focusing on 3D for the long term and maybe one of our big concerns

about 3D is whether or not you all are going to have the confidence

and patience to wait for the actual results. We’re doing really

well, top line’s going well, we’ve really established this business

this year but it will take time and so it’s still in investment

mode.

DION WEISLER: Great, so, I want to conclude by thanking you all for

spending such a significant portion of your day here with us. Many

of you have been here since 11 o’clock today and I’m Australian

which makes it “beer o’clock” right about now. I’ll close by also

thanking you for your support over the last couple of years; this

has been an incredible ride since separation only, I mean it feels

like, you know, 14 years ago, I always say we operate in dog years,

it’s only been two. But we had a working thesis that separating

these companies would enable us to be more flexible, more nimble,

more in tune with our customers, would enable us to invest in our

business and operate and create shareholder value in the short,

medium, and long term. And I think we’re doing, and we take a lot

of pride in doing what we say we were going to do. I know our team,

all across the world, wakes up every day, thinking about printing

and personal systems. We’re very passionate about it. We’re

thrilled about the re-invention and how it’s making its way into our

financial results but also into the roadmaps, then incredible

roadmaps the team is putting together. So, whether it’s the re-

invention of our core, or re-invention of growth opportunities, or

re-invention of our future, re-invention of marketing and how our

brand is perceived around the world, we’re humbled by the work that

we’re doing and the feedback that we’re getting but we’re absolutely

not complacent, nor are we arrogant about the success that we’re

having. I think that worries me most of all, I’m often asked, what

worries me most of all, I think arrogance and complacency have no

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place in an organization and we wake up every day making sure that

we don’t do that. And, I think what I, I will close with is what

I’m most done with and it only happened today which is the re-

invention of Cathie. Did you see her dance on stage? I mean

Cathie’s been doing this a long time!

Thank you very much and look forward to having some cocktails

outside. Cheers! Sure.

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