HP revealed during its Q1 2026 earnings call on Tuesday, Feb. 25, that memory now accounts for 35% of the cost of materials needed to build a PC, up from between 15% and 18% last quarter. The PC maker's CFO, Karen Parkhill, said memory costs increased roughly 100% sequentially from Q1 to Q2, with expectations for further increases throughout the year.
Interim CEO Bruce Broussard told investors the company has responded by securing long-term supply agreements for the year and has "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." The company has also "expanded lower-cost sourcing across our commodity basket, lowering logistics costs with agile end-to-end planning processes," he said. HP is using internal AI initiatives to power those new supply chain processes.
This dramatic increase in cost pressure of course reflects the ongoing DRAM shortage, which is being driven by AI and datacenter demand. Memory manufacturers Samsung, SK hynix, and Micron have been prioritizing production of high-bandwidth memory for AI accelerators over consumer DRAM, creating severe supply constraints for PC makers. TrendForce projects PC DRAM contract prices will increase 90% to 95% quarter-over-quarter in Q1 2026, setting a record for quarterly price surges.
Despite the cost pressures, HP reported strong Q1 results with total revenue of $14.4 billion, up 7% year-over-year. The Personal Systems division saw unit sales increase 14% in consumer and 11% in commercial segments, driven by Windows 11 upgrade cycles and growing AI PC adoption. HP's president for personal systems, Ketan Patel, said AI PCs now represent 35% of the company's PC shipments, up from 30% in the prior quarter.
However, Parkhill warned investors that Personal Systems operating margins will remain below HP's long-term range for the remainder of fiscal 2026 due to memory cost pressures. The company maintained its full-year guidance but expects results to land at the lower end of the range.
HP is not alone in facing these challenges. Dell and Lenovo have issued similar warnings about rising component costs and tighter margins. Parkhill said HP is “aligned with industry experts” projecting the PC market will contract by double digits in calendar year 2026 as manufacturers pass higher costs to consumers through price increases.
Meanwhile, HP says that it’s continuing to work with over 100 software developers to drive AI PC adoption as one strategy to maintain demand despite higher prices.
