So if there are strategic buys that make — that fit that profile and that character, we’ll absolutely take advantage of them. But I think the overall environment is we’re seeing those positive trends. But I’d just add that the favorable trends in CPUs, we’re starting to expect to see those to flatten out.
Sidney Ho: Thank you.
Operator: Your next question comes from the line of David Vogt with UBS. Your line is open.
David Vogt: Great. Thank you guys for taking my question. Can I just go back to the margin dynamic, Marie, given all of the moving pieces, particularly around lower, obviously, PC sales, smaller TAM, and sort of the mix, I guess, away from Chromebooks in the fiscal fourth quarter? I guess I’m still going back to Toni’s question. I’m still trying to struggle with how, kind of walk through again all the different moving factors on why PSG margins are going to be towards the high end, given a smaller sort of unit base with, obviously, pricing pressure that’s leading to maybe a slower uptick in price in the fourth quarter than you had originally expected. And then I have a follow-up.
Marie Myers: So why don’t I walk you through Q3 first, what happened, and then through Q4, because I think that paints the context on how to think about Q4? So if you look at the Q3 rate, which was 6.6%, it was really a cost story. Whether we talked about just the way we manage costs, the results of sort of the structural costs that we’ve driven through the Future Ready program. And then I just spoke about with Sidney about the commodity costs. So we saw that cost benefit clearly in Personal Systems in Q3. Much of that is frankly going to be a rinse and repeat into Q4. And there’s just a couple of additional sort of drivers in there that help to sort of buffer the rate into the higher end of the range. And that is I think what Enrique clearly articulated was that gradual improvement in pricing that we expect to happen Q3, Q4, and that’s really due to the stabilization of the CI level.
So that’s sort of like an additional factor over and above what we had in Q3. And that’s really sort of, I think, the best way to think about the rates, particularly in Personal Systems as you think about Q4. And then obviously, we still got — underpinning all of that is the enterprise softness that continues to be out there in the market as well. But that’s really what’s driving it. I hope that provides you some more context.
David Vogt: Okay, okay, thank you. And then on capital allocation, I know you took down some debt in the third quarter. And I think if I heard you correctly, and I jumped on late, I apologize, but it sounds like you’re going to restart the buyback in the fourth quarter. I guess from a cadence perspective, does that suggest that you think you’ll be under the gross leverage target in fiscal ’24 that you have sort of laid out there, that two turns of gross leverage, given the cost initiatives that you talked about in the prior remarks, and we should expect sort of a more consistent capital return going forward? Or could we see another situation where maybe there’s a bit of a pause if we hit that gross leverage target or maybe still above it for a little bit?
Marie Myers: Well, I’ll just say that sort of our strategy remains the same. We intend to manage our leverage under 2. And I’d say we should also look at it over the longer term and not just sort of quarter-to-quarter. Obviously, we’re pleased with where we landed Q3 and we’re slightly under two times debt to EBITDA. And in terms of then how to think about leverage and share repurchasing, just — you might have missed the call so let me just clarify. We said in the call that we expect to start to buy back shares to start to manage dilution in Q4. And I think that comment is really important because I’m not sure if you caught the comments on the call, but that’s just sort of how we’re thinking about it. And obviously, key to us is the commitment we’ve made around returning 100% of our free cash flow to shareholders. So I’ll turn it over to Enrique to probably, I know he’s got some thoughts around this as well.
Enrique Lores: Yes. I think two comments. First is our strategy remains the same, so no change, and I think that’s important for investors to know. At the same time, the way you asked the question, I think, is the right way to ask it. We are not managing our leverage ratio for one quarter. We need to manage it for the long term. And therefore, we think it’s important to restart in a prudent way. We are going to restart by compensating quarterly dilution and this is how we are going to start. And we will solidify our plans for ’24 and beyond once we — and we have conviction that we will be able to maintain the leverage ratio below 2 times, we will accelerate our plans. But we’re going to restart prudently, which we think, given the environment where we are, is the right thing to do.
David Vogt: Great. That’s helpful. Thanks for clarification.
Operator: Our next question comes from the line of Asiya Merchant with Citigroup. Your line is open.
Asiya Merchant: Great. Thank you for the opportunity. If you could just unpack a little bit of what’s going on, on the supply side. Given that the Print hardware unit, I think even on the inkjet side, on the consumer side are guided down, what gives you some confidence that supplies revenue is, I guess, unchanged here, I think down low digits in constant currency terms? Thank you.
Marie Myers: Yeah, I’m happy to. Hi, Asiya. So in terms of supplies, we still do expect to be in the range of low to mid for FY ’23. And there’s really two primary drivers. One is the usage trends and the second is the share trends. And I would say usage is very much, it’s declining in line with what we expected. But what we’ve seen is that pricing remains resilient. And another important factor is the fact that our inventory in the multi-tiered ecosystem remains in a healthy shape. And just one thing to think about when you do the comps, don’t look for the sort of year-on-year because last quarter, we had a relatively easy compare because we had a tough Q4 in ’22. So look over the long term, I think that’s the right way to think about supplies. I don’t know, Enrique, if you’ve got anything else to add.
Enrique Lores: Maybe add one. One additional comment. I think if we think about supplies, there are multiple drivers of supplies performance. Once clearly the number of units that is being installed, which as I told, I think it was Toni before, this is going to create some pressure as well as we are saying. On the other side, we also have the levels of price, which is something that has been working for us during the last year and especially share. And as we have said before, we have been growing our share of supply during the last quarter. It continued to happen this quarter and this is also a part of our strategy going forward.
Asiya Merchant: Great. And then just on the Japanese competitors, anything — I think there was some comments made on taking advantage of the yen, I misheard that. But if you could just kind of talk to us about the competitive dynamics in Print and how you guys are kind of thinking about that over the next couple of quarters.
Enrique Lores: Yes. So we have clearly seen an increase of aggressive pricing from some of our Japanese competitors. Of course, if you look at the currency rate between dollar and yen is at one of the lower level it has been in a long time, and this clearly gives them an advantage. Our strategy has not changed. We think we need to continue to sell positive NPV units, units that will not create unprofitable customers. And this is why in some areas of the segments like in the low end, where really are not very attractive around profitable units, we are losing share because this is not a business that we’re going to go after. And based on what we see, we don’t think this is going to be changing anytime soon. And this is why we also mentioned that we are going to be accelerating our cost actions in Print, both to be more competitive in the short term but especially also to be able to maintain our profitability going forward. Thank you.
Asiya Merchant: Thank you.
Enrique Lores: And I think this was the last question, so let me use this opportunity to close. First of all, I think we delivered a solid quarter in Q3 in a clearly tough environment where we continued to improve our sequential performance while also continuing to invest in the future. And we — this is really at the core of our Future Ready plan that is enabling to do both, savings that we can use to continue to invest and also to respond to short-term challenges. And then to close, I’m really looking forward to see all of you in person or most of you in person on October 10 here in Palo Alto, where we will be talking about our plan for ’24, innovation and long-term plans. So thank you for joining the call and looking forward to see all of you in a few weeks from now. Thank you.
Operator: This concludes today’s conference call. We thank you for joining. You may now disconnect your lines.
