HP Won’t ‘Speculate’ on List 4 Tariffs' Impact ‘Until We Know All the Facts,’ Says CEO
HP’s forecast for fiscal 2019 ending Oct. 31 only factors in the expected financial impact to the company from the List 3 Section 301 tariffs currently in place, including the increase to 25 percent from 10 percent that took effect May 10 (see 1905090018), said Chief Financial Officer Steve Fieler on a fiscal Q2 earnings call Thursday. “We have not included the impact from any future tariffs,” he said, referencing the List 4 duties proposed May 17 on $300 billion in Chinese imports not previously tariffed (see 1905140025).
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The PC vendor expects in the second half of its fiscal year “an increased headwind from currency,” plus the impact from the List 3 tariffs and from “CPU supply constraints” that will continue through calendar Q3, said Fieler. “We did bring down our share assumptions for the remainder of this year,” he said. The stock closed 4.9 percent higher Friday at $20.08.
HP continues to operate “in a dynamic environment that includes ongoing industry component constraints as well as macroeconomic, geopolitical and tariff uncertainties,” said CEO Dion Weisler. “But we have a highly experienced team and know how to navigate through complex market conditions.”
The buzz surrounding the proposed List 4 tariffs is “an industrywide situation in the U.S. that has continued to be very dynamic,” said Weisler. “We don't speculate or comment on potential impacts until we know all the facts, and we're still hopeful” the U.S. and China will strike a trade deal that would avert List 4 from taking effect, he said. Best Buy CEO Hubert Joly took a similar tack earlier Thursday when he told investors it’s “premature” to speculate about List 4's potential impact on the retailer’s fiscal 2020 results (see 1905230019).
Uncertainties abound about the List 4 tariffs, including whether they “will happen at all,” said Weisler. “If they do happen, we don't know when they would happen, and the timing on that really does make a big difference.” It's also unknown “what the final list of products will be,” and at what rate they will be dutied, he said. Like Joly, Weisler suggested the List 4 tariff rate could be subject to flux, perhaps taking their cues from the wording of the Trump administration’s May 17 notice proposing new duties of “up to 25 percent.”
Any shift in the many “variables” surrounding List 4 “can change the calculus quite significantly,” said Weisler. “So we continue to assess the potential impact to the business, and we're very active. We are not sitting idly by. We're looking at multiple scenarios.”
HP is working with the administration, and with “others in the industry,” as the List 4 comments period unfolds, said Weisler. “We're working with our supply chain on mitigations to ensure the best outcome for our ecosystem of customers and partners as well as our shareholders. So clearly, the implementation of incremental tariffs on the complete list of products imported from China would have industrywide impacts.”
The vendor has “a number of levers that we would expect to use to mitigate the gross exposure from these tariffs down to a net exposure,” said Fieler. “This does include optimizing our manufacturing facilities around the world, adjustments to pricing and other items.” Knowing the “specifics” of List 4 is “absolutely essential around any assumptions or any quantification of what this net impact could be,” he said. He expects “we would experience more of a shorter-term impact that would diminish over time,” he said.