HP reveals memory now accounts for 35% of PC costs as company races to secure cheaper supplies

HP Inc. has revealed that memory now accounts for 35 percent of the cost of materials it needs to build a PC, up from between 15 and 18 percent last quarter. And the company expects RAM's contribution will rise through the year.

Speaking on the company's Q1 2026 earnings call, interim CEO Bruce Broussard said the company has secured long-term supply agreements for the year and also "qualified new suppliers [and] built in strategic inventory positions for key platforms and cut the time to qualify new material in half to accelerate our product configuration changes."

That sounds a lot like HP Inc is signing up new suppliers at a brisk pace. Broussard said the company has also "expanded lower-cost sourcing across our commodity basket, lowering logistics costs with agile end-to-end planning processes."

The company is using its internal AI initiatives to power those new processes. The company is also "configuring our products and shaping demand to align the supply we have with our customer needs" and "taking targeted pricing actions to offset the remaining cost impact in close partnership with both our channel and direct customers."

Broussard mentioned the US Supreme Court's recent decision striking down the Trump administration's tariffs, and said "Right now, we do not expect to be negatively impacted by the subsequent developments following the court decision."

The most obvious subsequent development was the administration's decision to increase tariffs from 10 percent to 15 percent. Another is the possibility that importers who paid tariffs may seek refunds from Washington, or face demands from consumers for refunds.

The company reported $10.3 billion revenue from its personal systems division, up 11 percent year over year. Consumers bought 14 percent more PCs than in the previous year, sending revenue up 16 percent. Business buyers bought 11 percent more boxen, meaning revenue rose nine points.

Ketan Patel, HP Inc's president for personal systems, said Windows 11 adoption propelled PC sales, and that demand for AI PCs is helping, too, with 35 percent of the PCs HP sells now AI PCs.

"The local models on AI PCs started to deliver results, with more and more ISVs developing applications, which are using [AI] locally and more effectively than ever before," he said, adding that HP is working with over 100 software developers to encourage creation of more apps ready to take advantage of AI PCs.

Revenue from printing products dipped two percent, to $4.2 billion. However the printer biz achieved 18.3 percent operating margin, well beyond the five percent achieved by personal systems.

Total revenue for the quarter was $14.4 billion, up almost seven percent year-on-year. Non-GAAP earnings per share came in at $0.81, the top of the company's past guidance range.

But CFO Karen Parkhill warned she expects full-year outcomes will be "closer to the lower end of our guidance range" as the company struggles to cope with the tumultuous business environment and keep margins high as memory prices rise.

The company's shares opened the day at $18.33. In after-hours trading, they dipped to $17.15, a six percent retreat that suggests investors were not excited by HP Inc's prospects.

Memory Cost Surge Forces Strategic Supply Chain Overhaul

The dramatic increase in memory costs represents a fundamental shift in PC manufacturing economics. When a single component category jumps from 15-18% to 35% of total material costs in just one quarter, it signals either a supply shortage, increased demand, or both.

HP's response strategy reveals several key tactics:

Rapid Supplier Qualification: By cutting the time to qualify new suppliers in half, HP is attempting to inject competition into the memory supply chain. This suggests the company may have been overly reliant on a limited number of memory suppliers, creating vulnerability to price increases.

Strategic Inventory Building: The mention of "strategic inventory positions for key platforms" indicates HP is likely stockpiling memory components to hedge against further price increases, a common practice when facing volatile component costs.

AI-Driven Supply Chain Optimization: HP's use of internal AI initiatives to power new planning processes suggests the company is attempting to optimize its supply chain in real-time, potentially using machine learning to predict demand patterns and adjust sourcing strategies accordingly.

Product Configuration Changes: The ability to "accelerate our product configuration changes" implies HP may be adjusting which memory configurations it offers in different markets or product lines to balance performance requirements with cost constraints.

AI PC Momentum Provides Silver Lining

Despite the memory cost challenges, HP is finding success in the AI PC segment. With 35% of PCs sold now being AI-capable devices, the company appears to be capitalizing on the industry-wide shift toward AI-enhanced computing.

Patel's comments about local AI models delivering results suggest HP is seeing tangible benefits from the AI PC transition, rather than just marketing hype. The company's engagement with over 100 software developers indicates a serious commitment to building an ecosystem around its AI PC offerings.

This AI PC momentum could help offset some of the margin pressure from rising memory costs, as AI PCs typically command premium pricing and may use higher-margin components overall.

Printing Division Remains Profitable Anchor

The printing division's 18.3% operating margin, compared to personal systems' 5%, highlights the stark contrast between these two business segments. While printing revenue declined slightly, the division continues to generate significantly higher profits per dollar of revenue.

This margin differential explains why HP has been reluctant to fully exit the printing business despite ongoing declines in printing volumes. The printing division essentially subsidizes the lower-margin PC business, providing financial stability during turbulent times in the personal systems market.

Market Reaction Suggests Investor Skepticism

The six percent drop in after-hours trading following the earnings announcement suggests investors are concerned about HP's ability to navigate the current challenges. The memory cost increases, combined with the uncertain tariff situation and CFO Parkhill's warning about full-year guidance, appear to have dampened enthusiasm for the company's prospects.

However, the strong revenue growth in personal systems and the momentum in AI PCs provide some counterbalance to these concerns. The key question for investors will be whether HP can successfully execute its supply chain transformation while maintaining its competitive position in the rapidly evolving PC market.

Broader Industry Implications

HP's memory cost crisis reflects broader challenges facing the PC industry. As components become more sophisticated and in shorter supply, the traditional PC manufacturing model may need to evolve.

Companies may need to:

• Diversify supplier relationships more aggressively
• Invest more heavily in supply chain technology and optimization
• Consider vertical integration for critical components
• Develop more flexible product configurations that can adapt to component availability
• Build stronger relationships with component manufacturers to secure priority access

The PC industry's ability to navigate these challenges will likely determine which companies emerge stronger from this period of component cost volatility and supply chain disruption.