Editor’s note: HP Inc, the business group for PCs, printers and more that split off from parent HP, battles declining revenues with new products. But a review of its latest earnings shows HP Inc remains “mired among many of the same challenges” facing the group before the split, writes Technology Business Research Analyst Jack Narcotta.

HAMPTON, N.H. – A flurry of new PC, Chromebook and printer product releases in the first six months of calendar year 2016 highlights how HP Inc. is aware of the trends shaping its addressable market and the opportunities within its customer base.

TBR expects HP to gain momentum in the more lucrative segments of the computing devices and printing marketplaces by focusing on premium PCs, higher-performance Chromebooks, and printing segment-wide advances in commercial printing technology However, the company’s financial performance contrasts with the optimism touted by executives.

While HP Inc. forecasted year-to-year declines in 1Q16, the declines show that HP Inc. remains mired among the many of the same challenges Weisler grappled with prior to HP Inc.’s split from the old HP. Revenue and operating profit declined 10.7% and 15.6% to $11.6 billion and $841 million, respectively, with unfavorable foreign currency exchange rates contributing to both declines.

Gross and operating profit volumes continued to decline in 1Q16 as weaker demand for PCs dampened Personal Systems revenue 9.9% year-to-year to $7 billion, while Printing operating profit – which accounts for the majority of HP Inc.’s total operating income and is typically nearly four times that of Personal Systems – fell 18.2% from 1Q15 to $802 million. While Weisler commented that HP Inc. is in line with the plan it outlined earlier in 2016, TBR believes the challenge for HP Inc. will be crafting the right mix of products and strategy that enables it to reverse declines instead of enduring them.

More selective sales approaches carry greater risks

On HP Inc.’s earnings call in February 2016, Weisler outlined that the “current environment is the new normal. This implies that controlling, and ultimately reducing, HP Inc.’s cost structure will enable the company more easily adapt to changes in PC and printing markets, helping shield PC margins from revenue declines and bolstering protection for the important operating income generated by the Printing segment.

Since then, Weisler has reiterated that HP Inc. continues to be more selective in the deals it pursues, emphasizing a balanced approach that incorporates lower-priced devices to boost revenue volume and higher-end PCs and printers that increase profits. However, shrinking pools of gross and operating profit complicate Weisler’s long-term strategy for HP Inc., even if the company is able to secure larger share in more lucrative segments of the market. With the bulk of HP Inc.’s revenue residing in lower-priced PCs, a more cautious sales approach risks protecting margins at the sake of conceding revenue and profits to competitors.

Growth is returning to select PC and printing segments

HP Inc. CEO Dion Weisler said “[HP Inc.] delivered strong results and solid progress towards [its] long-term strategy” and “[HP Inc.] grew in strategic areas of our business, despite tough market conditions. Indeed, cost-cutting measures, particularly through headcount reductions and streamlining supply chains and inventory, have helped HP Inc. protect its corporate and PC segment margins, keeping them on par with its two largest competitors, Dell and Lenovo.

Year-to-year growth in commercial notebooks and commercial mobility helped Personal Systems operating income climb 8.7% year-to-year to $245 million. In consumer markets, High-end PCs such as the Spectre aim to expand to HP’s footprint in a growing premium consumer PC market segment. The new Intel Core M-powered Chromebook 13 bolsters the productivity capabilities of the popular cloud-powered computing devices. New Indigo and PageWide web presses, as well as continued innovations in its emerging 3D printing segment, will extend HP Inc. leadership and mindshare in commercial printing markets.

The above segments are high-margin segments, and a shift in sales mix to these areas will first protect, then increase, profit per unit, positioning the company for margin and profit growth. Capitalizing on these segments, however, will depend on HP Inc.’s ability to endure declines in other product segments. HP Inc.’s balance sheet is recovering after its separation with Hewlett-Packard Enterprise, but a prolonged period of operating profit decline will complicate HP’s intended path in 2016.