HP accelerates towards China departure as tariffs take a toll
HP Inc. has expedited its departure from China for manufacturing North American-bound products due to the substantial negative impact of U.S. tariffs on Chinese imports, which have dented the company's profitability. Initially targeting less than 10% of North American products shipped from China by September 2025, HP now plans for almost no such products to be sold in the U.S. by June 2025 - a significant acceleration of its relocation plan.
During its Q2 2025 earnings call, company president and CEO Enrique Lores announced the expedited transition. "A quarter ago, we shared that our goal was to have less than ten percent of the products in North America being shipped from China by September," Lores said on the call. "We have accelerated that and we share that now almost no products will be coming from China sold in the US by June. It's a very significant acceleration of the plan that we have."
HP will achieve this goal by shifting its factories out of China to Southeast Asia, Mexico, and some U.S. locations. Additionally, the company will no longer use the U.S. as a distribution hub for products sold in Canada and Latin America to avoid tariffs on those shipments.
The tariff-related challenges have affected HP's financial performance. In Q2 2025, HP reported revenue of $13.2 billion, up 3.3% year over year, but earnings per share (EPS) were $0.71, disappointing analyst expectations of $0.79. The shortfall was primarily due to additional tariff costs. CFO Karen Parkhill explained that tariffs and spending to move manufacturing out of China trimmed profits by roughly 12 to 20 US cents per share, and the company expects these costs to persist until at least Q4 2025.
Gross margins have contracted as well, with gross margins declining by 1.2 percentage points to 26.2%, and operating cash flow turning negative at -$95 million in the quarter. Due to these ongoing challenges, HP lowered its full-year EPS guidance to a range of $3.00–$3.30, down $0.49 from previous estimates, signaling a prolonged period of margin pressure and supply chain restructuring costs.
In conclusion, HP’s exit from China manufacturing for North American markets is a strategic response to tariff-induced profit erosion. While the shift to Southeast Asia, Mexico, and U.S. sites should reduce tariff exposure in the longer term, the transition is costly and has already resulted in reduced profitability and lowered earnings outlooks in 2025. This supply chain realignment will continue to impose strains on HP’s production costs and revenue quality through the rest of the year.
- The technology industry's financial performance of HP Inc. has been affected by the tariffs on Chinese imports, particularly in computing and business, as the company has reported a shortfall in earnings per share (EPS) due to additional tariff costs.
- To mitigate the impact of these tariffs, HP is making significant changes in its business, accelerating its relocation plan to shift its laptop manufacturing from China to Southeast Asia, Mexico, and some U.S. locations, thereby reducing tariff exposure in the longer term.
- The current transition in HP's manufacturing is not without consequences, as the company has experienced a contraction in gross margins, operating cash flow has turned negative, and the full-year earnings per share (EPS) guidance has been lowered, signaling a prolonged period of margin pressure and supply chain restructuring costs in the technology sector.
