Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 1 of 20
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`KESSLER TOPAZ MELTZER
` & CHECK, LLP
`JENNIFER L. JOOST (Bar No. 296164)
`(jjoost@ktmc.com)
`One Sansome Street, Suite 1850
`San Francisco, CA 94104
`Tel:
`(415) 400-3000
`Fax:
`(415) 400-3001
`
`BERNSTEIN LITOWITZ BERGER
` & GROSSMANN LLP
`JONATHAN D. USLANER (Bar No. 256898)
`(jonathanu@blbglaw.com)
`2121 Avenue of the Stars, Suite 2575
`Los Angeles, CA 90067
`Tel:
`(310) 819-3470
`
`Counsel for Plaintiff Electrical Workers Pension
`Fund, Local 103, I.B.E.W.
`
`[Additional counsel appear on signature page.]
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
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`
`
`ELECTRICAL WORKERS PENSION
`FUND, LOCAL 103, I.B.E.W., on behalf of
`itself and all others similarly situated,
`Plaintiff,
`
`v.
`HP INC., DION J. WEISLER, CATHERINE
`A. LESJAK, and STEVEN J. FIELER,
`Defendants.
`
` Case No. 3:20-cv-01260
`
`COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
`
`CLASS ACTION
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`DEMAND FOR JURY TRIAL
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
`CASE NO. 3:20-cv-01260
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`Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 2 of 20
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`Plaintiff Electrical Workers Pension Fund, Local 103, I.B.E.W. (“Plaintiff”), by and
`through its counsel, alleges the following upon information and belief, except as to those
`allegations concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff’s
`information and belief are based upon, inter alia, counsel’s investigation, which included review
`and analysis of: (i) regulatory filings made by HP Inc. (“HP” or the “Company”) with the United
`States Securities and Exchange Commission (“SEC”); (ii) press releases, presentations, and media
`reports issued by and disseminated by the Company; (iii) analyst and media reports concerning
`HP; and (iv) other public information regarding the Company.
`I.
`INTRODUCTION
`1.
`This securities class action is brought on behalf of all persons or entities that
`purchased shares of HP’s common stock between February 23, 2017 and October 3, 2019,
`inclusive (the “Class Period”). The claims asserted herein are alleged against HP and certain of
`the Company’s current and former senior executives (collectively, “Defendants”), and arise under
`Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule
`10b-5, promulgated thereunder.
`2.
`Based in Palo Alto, California, HP is a global provider of personal computers,
`printers and related supplies, solutions, and services. The Company conducts its business
`primarily through two segments: Personal Systems and Printing. The Personal Systems segment
`offers commercial and consumer computers and related software, support, and services. The
`Printing segment provides consumer and commercial printer hardware, supplies, solutions, and
`services.
`3.
`The Company’s Printing segment includes the Supplies business unit which
`comprises consumable products, including ink and laser cartridges, for recurring use in consumer
`and commercial printing hardware. The Supplies business has been a significant revenue driver
`for the Company. Prior to the Class Period, on June 21, 2016, HP reported that its Supplies
`business was facing challenges from price variability among Supplies products available to
`customers in an omnichannel world as well as a decreasing impact from the Company’s
`promotional pricing of its supplies. As a result, the Company announced a one-time investment
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`Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 3 of 20
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`of $450 million to buy back supplies from its channel partners to better align supplies inventory
`levels with demand, with the goal of stabilizing supplies revenue in constant currency by the end
`of fiscal 2017. HP also announced the fundamental shift in its supplies business from a push
`strategy to a pull strategy, which involves aligning channel supplies inventory levels with current
`demand and marketing efforts to drive print relevancy and strengthen HP’s Supplies brand value.
`4.
`Accordingly, at the start of the Class Period, HP assured investors that its new
`approach to managing and aligning demand and inventory in its Supplies business would avert the
`types of problems that necessitated the $450 million buy-back. The centerpiece of this new
`approach was focused on what the Company called its “four-box model.” For several years, the
`Company measured its Supplies business through this model, which focuses on the four key drivers
`of revenue growth: in-store base, usage, market share, and price.
`5.
`With the shift to the pull strategy to manage its Supplies business, the Company’s
`four-box model became the primary focus of the Company and its investors because HP assured
`investors that its use of the four-box model enabled it to accurately assess demand for products in
`its Supplies business and manage the inventory placed in its sales and distribution channels.
`6.
`Throughout the Class Period, the Company emphasized the four-box model as an
`accurate, reliable tool to determine demand and revenue in the Supplies business, and reassured
`investors that, based on the four-box model, HP had a “clear line of sight to supply stabilization.”
`Defendants repeatedly highlighted the reliability of the Company’s four-box model and the
`revenue growth of the Supplies business, touting their “continued confidence in the predictive
`value of the four box model” and stating that the Company’s “Supplies revenue is in line with the
`expectations that we set, and that our 4-box model continues to drive predictability.” These
`statements were false. In truth, Defendants knew HP lacked reliable, automated data for the four-
`box model and, as a result, the four-box model was not a reliable tool and provided HP with only
`a partial, outdated indicator of the demand for Supplies products. As a result of Defendants’
`misrepresentations, shares of HP’s common stock traded at artificially inflated prices during the
`Class Period.
`7.
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`The truth began to emerge on February 27, 2019, after the market closed, when the
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`Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 4 of 20
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`Company reported disappointing total Supplies revenue for the first quarter of fiscal 2019 due to
`weaker than predicted demand from commercial customers in HP’s Europe, the Middle East, and
`Africa (“EMEA”) market. The Company blamed these results on an increase in online sales, where
`the Company had a lower market share and faced more competition from cheaper third-party
`alternatives than with traditional commercial resellers and in-store retailers, in addition to price
`sensitivity due to increased macro uncertainty. Significantly, in reporting these results, the
`Company admitted that its four-box model had been based upon incorrect data concerning
`inventory, market share, and pricing assumptions. Accordingly, due to its limited “visibility into
`the downstream channel ecosystem,” the Company “did not see clearly enough that we had an
`issue.” The Company also revealed that it lacked telemetry data to determine reliable market share
`assumptions for its Supplies business.1 The Company revised its market share and pricing
`assumptions and announced a plan to lower channel inventory levels once again—as it had done
`in the second half of 2016—which created a $100 million headwind to the Company’s Supplies
`revenue for the remainder of fiscal 2019. As a result, the Company revised its previous estimate
`of Supplies revenue for fiscal 2019 to a decline of 3%, versus prior guidance of flat to slightly up
`revenue year over year. These disclosures caused the Company’s stock price to decline from
`$23.85 per share to $19.73 per share, or over 17%, on high trading volume.
`8.
`On May 30, 2019, at the Sanford C. Bernstein Strategic Decisions Conference,
`Weisler disclosed additional detail on HP’s lack of telemetry data, admitting that the consumer
`segment of the Supplies business had had telemetry data for years, meaning that management had
`known all along the importance of telemetry data for an accurate model and that the commercial
`Supplies business lacked this key input. This was because the Company “started that effort much
`later” for its commercial customers and faced “problems . . . getting through commercial firewalls”
`to obtain telemetry data. The lack of sufficient telemetry data for the commercial Supplies
`business, in contrast to its availability in the consumer segment, meant that management knew or
`
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`1 Telemetry data is data provided automatically by remote units, such as printers that have been
`sold to customers, which apprise HP about the level of usage and need for new toner.
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`Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 5 of 20
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`recklessly disregarded that the use of the four-box model was critically impaired. As a result of
`these disclosures, by the end of the following day, the Company’s stock price dropped over 2%,
`from $19.14 per share to $18.68 per share, on high trading volume, wiping out $690 million in
`shareholder value.
`9.
`On August 22, 2019, after the market closed, HP announced that Defendant Weisler
`would step down at the end of October 2019 due to a family health matter. HP also announced
`mixed earnings results for the third quarter of fiscal 2019, with Supplies revenue down 7% year-
`over-year. On this news, the price of HP stock dropped nearly 6%, from $18.93 per share to $17.81
`per share, on high trading volume.
`10.
`Then, on October 3, 2019, after the market closed, HP announced that it was
`“departing from the purely transactional Supplies-centric business model” and moving away from
`using the four-box model, transitioning instead to a hardware-driven business model. The major
`change to the Company’s business model would give customers the choice between a discounted
`HP printer that can only function with HP supplies or a higher-priced HP printer with the option
`to choose third-party supplies. Under the new business model, the Company would de-emphasize
`Supplies revenue as “the singular metric to determine our progress” and instead focus on “the key
`metrics [of] service growth and operating profit dollars, which better reflect[] the system
`profitability.” The Company also announced mass layoffs as part of a major restructuring, in
`which it expects to cut between 7,000 to 9,000 positions, or up to 16% of its global workforce,
`over three years. As a result of these disclosures, the price of HP’s stock dropped from $18.40 per
`share to $16.64 per share, or nearly 10%, on unusually high trading volume.
`II.
`JURISDICTION AND VENUE
`11.
`The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
`Act (15 U.S.C. §§ 78j(b) and 78t(a)), and Rule 10b-5 promulgated thereunder (17 C.F.R. §
`240.10b-5). This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
`§§ 1331 and 1337, and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
`12.
`Venue is proper in this District pursuant to Section 27 of the Exchange Act (15
`U.S.C. § 78aa) and 28 U.S.C. § 1391(b). HP maintains its headquarters in Palo Alto, California,
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`Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 6 of 20
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`which is situated in this District, conducts substantial business in this District, and many of the
`acts and conduct that constitute the violations of law complained of herein, including
`dissemination to the public of materially false and misleading information, occurred in and/or were
`issued from this District. In connection with the acts alleged in this Complaint, Defendants,
`directly or indirectly, used the means and instrumentalities of interstate commerce, including, but
`not limited to, the mails, interstate telephone communications, and the facilities of the national
`securities markets.
`III.
`PARTIES
`13.
`Plaintiff is a pension fund based in Boston, Massachusetts that provides retirement
`benefits to active and retired Boston electrical workers. As indicated on the certification submitted
`herewith, Plaintiff purchased HP common stock at artificially inflated prices during the Class
`Period and suffered damages as a result of the violations of the federal securities laws alleged
`herein.
`
`14.
`Defendant HP is a global provider of personal computers, printers and related
`supplies, solutions, and services. Incorporated in Delaware, the Company maintains its corporate
`headquarters at 1501 Page Mill Road, Palo Alto, California. The Company’s common stock trades
`on the New York Stock Exchange (“NYSE”) under ticker symbol “HPQ.” As of November 30,
`2019, HP had over 1.4 billion shares of common stock outstanding, owned by hundreds or
`thousands of investors.
`15.
`Defendant Dion J. Weisler (“Weisler”) served as President and Chief Executive
`Officer of HP from November 2015 until November 1, 2019.
`16.
`Defendant Catherine A. Lesjak (“Lesjak”) served as HP’s Chief Financial Officer
`from November 2015 until July 1, 2018 and served as HP’s interim Chief Operating Officer from
`July 1, 2018 until February 2019.
`17.
`Defendant Steven J. Fieler (“Fieler”) has served as HP’s Chief Financial Officer
`since July 1, 2018. Previously, Defendant Fieler served as HP’s Head of Global Treasury since
`January 2017.
`18.
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`Defendants Weisler, Lesjak, and Fieler are collectively referred to hereinafter as
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`Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 7 of 20
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`the “Individual Defendants.” The Individual Defendants, because of their positions with HP,
`possessed the power and authority to control the contents of the Company’s reports to the SEC,
`press releases, and presentations to securities analysts, money and portfolio managers, and
`institutional investors. Each of the Individual Defendants was provided with copies of the
`Company’s reports, presentations, and press releases alleged herein to be misleading prior to, or
`shortly after, their issuance and had the ability and opportunity to prevent their issuance or cause
`them to be corrected. Because of their positions and access to material non-public information
`available to them, each of the Individual Defendants knew that the adverse facts specified herein
`had not been disclosed to, and were being concealed from, the public, and that the positive
`representations which were being made were then materially false and/or misleading.
`IV.
`BACKGROUND
`19.
`HP is a global provider of personal computers, printers and related supplies,
`solutions, and services. HP’s two primary segments are Personal Systems and Printing. The
`Personal Systems segment offers commercial and consumer computers and related software,
`support, and services. The Printing segment provides consumer and commercial printer hardware,
`supplies, solutions, and services. HP was formerly a part of Hewlett-Packard Co., which on
`November 1, 2015, split into two separate companies: HP and Hewlett-Packard Enterprise.
`20.
`HP’s Printing segment includes the Supplies business unit which consists of
`consumable products, such as ink and laser cartridges, for use in consumer and commercial
`printing hardware. HP’s Supplies business is a significant revenue driver for the Company. For
`example, Supplies accounted for 66% of the Company’s total Printing revenue in the third quarter
`of fiscal 2017. At an analyst conference in New York on September 6, 2017, HP’s then-Chief
`Financial Officer (“CFO”) Catherine A. Lesjak stressed the importance of Supplies for the
`Company, stating that “a big portion of the [Company’s] profits is really coming from Supplies
`because we typically have a business model, where you place the units at very low margins or
`negative margins and you basically then get the Supplies annuity to give you a positive [net present
`value].”
`21.
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`Following the 2015 split from Hewlett-Packard Co., HP experienced ongoing
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`difficulties in its Supplies revenue, with the Company experiencing declining market share due to
`competition from third-party ink suppliers, remanufacturers (vendors who refill HP ink cartridges),
`and counterfeiters.
`22.
`On June 21, 2016, following a large decline year-over-year in Supplies revenue,
`HP announced that it would be making a one-time “investment” of $225 million in each of the
`next two quarters (a total of $450 million) to reduce the level of Supplies inventory across the
`channels by buying back product from its channel partners to right-size inventory levels. HP stated
`that this step would enable a fundamental shift in its Supplies business from a “push” strategy,
`which relied on promotions to sell supplies into the broad channel network at the end of each
`quarter in anticipation of future demand and then leveraging additional funds to push the inventory
`through to end users, to a “pull” strategy, which aligns channel supplies inventory levels with
`current demand followed by investment in marketing to drive print relevancy and strengthen HP’s
`supplies brand value.
`23.
`To assure investors that HP could accurately manage demand and inventory, and
`avoid a recurrence of the excess inventory problem that resulted in the $450 million repurchase of
`inventory, HP stressed its reliance on its four-box model. That model, which had been in use for
`several years, focuses on four key drivers of revenue growth: in-store base, usage, share, and price.
`Specifically, the first driver is to place positive net present value (“NPV”) units, while the second
`driver is to ensure higher usage of printer hardware units. The third driver is market share supply,
`which focuses on driving customers toward HP-branded supplies. Lastly, the fourth driver is
`product pricing, in which HP sets a price point for its supplies products to maximize profit without
`impacting demand. The four-box model relies on “big data,” according to Defendant Lesjak, who
`on November 24, 2015, told investors, “We have found that our four-box model is, in fact, very
`good. And as we have collected more big data – and every week we collect new data, we update
`[] the model.”
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`Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 9 of 20
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`DEFENDANTS’ MATERIALLY FALSE AND MISLEADING
`STATEMENTS CAUSE SUBSTANTIAL LOSSES TO INVESTORS
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`V.
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`24.
`The Class Period begins on February 23, 2017, the next trading day after HP issued
`a press release after the close of market on February 22, 2017, which it also filed with the SEC on
`Form 8-K, announcing its financial results for the first quarter of fiscal 2017. The Company
`reported total revenue of $12.7 billion for the quarter, well above Wall Street consensus estimates,
`as both its Personal Systems and Printing segments outperformed estimates. Later that day, the
`Company held an earnings conference call with analysts and investors to discuss its financial
`results for the first quarter of fiscal 2017. During the call, Defendant Weisler stated that “total
`Supplies revenue was down just 2% year-over-year in constant currency. As we always say, it’s
`all about Supplies, and we continue to drive a number of initiatives within the four-box model to
`return this revenue stream to growth.” He also stated that “[a]ctual performance continues to meet,
`and sometimes beat the four-box model forecast, which means we firmly believe the strategy that
`we’re executing to is the right strategy, and that you’ve seen those metrics play out inside the
`business results.”
`25.
`On May 24, 2017, after the market closed, HP held a conference call with analysts
`and investors to discuss the Company’s financial results for the second quarter of fiscal 2017. The
`Company reported an improvement in its Supplies business, with Supplies net revenue up 2% in
`constant currency, after adjusting for the changes to the Company’s Supplies sales model that HP
`made in 2016, which materially outperformed Wall Street estimates. During the conference call,
`Defendant Lesjak stated that, based on the four-box model, “[w]e have clear line of sight to supply
`stabilization.”
`26.
`On August 23, 2017, after the market closed, HP held a conference call with
`analysts and investors to discuss the Company’s financial results for the third quarter of fiscal
`2017. The Company reported that Supplies net revenue was again up 2%, after adjusting for
`constant currency and the changes to the Company’s Supplies sales model that HP made in 2016.
`During the call, Defendant Weisler reported that the Company’s Supplies revenue had stabilized
`in the third quarter of 2017, a quarter earlier than expected, which he touted as an “important
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`milestone” for the Company. During the call, Defendant Lesjak also touted “better than
`anticipated” supplies revenue growth which was “driven by improving four-box model drivers.”
`She also reported that, for the third quarter; supplies channel inventory levels were below the
`ceiling HP had set and stated that the Company “expect[s] to consistently operate with supplies
`channel inventory levels remaining at or below our ceiling.”
`27.
`On November 21, 2017, after the market closed, HP held a conference call with
`analysts and investors to discuss the Company’s financial results for the fourth quarter of fiscal
`2017. During the call, Defendant Weisler touted that the Company’s “[q]uarter 4 Supplies revenue
`grew again, demonstrating the huge progress we’ve made with this business during the year.”
`Additionally, in response to an analyst’s question regarding the Company’s four-box model,
`Defendant Lesjak stated, “We have really proven to ourselves and hopefully to you that you should
`have confidence in our four-box model.”
`28.
`On February 22, 2018, after the market closed, HP held a conference call with
`analysts and investors to discuss the Company’s financial results for the first quarter of fiscal 2018.
`During the call, Defendant Weisler again touted that the Company’s “Supplies revenue grew 10%
`year-over-year, marking another quarter of substantial progress and supporting our confidence in
`the four-box model to drive health in the Print business for the long term.” After adjusting for
`HP’s acquisition of Samsung’s printer business, which closed on November 1, 2017, Supplies
`revenue grew 4% year-over-year. Defendant Weisler also stated that “the four-box model has been
`the strong predictor of outcomes for us” and “as a result of that, we believe that Supplies in ’19
`will be flat to slightly up.” Similarly, on the call, Defendant Lesjak stated that “[w]e believe that
`the four-box model remains a good predictor of our Supplies performance, and we continue to
`operate below our channel inventory ceiling.” Defendant Weisler assured investors that “we have
`really high confidence in the four-box model.”
`29.
`On February 27, 2018, Defendant Lesjak represented HP at the Morgan Stanley
`Technology, Media & Telecom Conference in San Francisco. During the conference, in response
`to an analyst’s question regarding the Company’s confidence about Supplies stability as informed
`by the four-box model, Defendant Lesjak stated, “[W]e have a lot of confidence in the predictive
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`capabilities of our four-box model. We have seen that it has been very reliable.”
`30.
`On May 29, 2018, after the market closed, HP held a conference call with analysts
`and investors to discuss the Company’s financial results for the second quarter of fiscal 2018. The
`Company reported that Supplies revenue for the second quarter was up 6% in constant currency
`with the Company “continu[ing] to operate below our ceiling for Supplies channel inventory.”
`During the call, Defendant Weisler touted the Company’s “continued confidence in the predictive
`value of the four-box model.”
`31.
`On May 31, 2018, Defendant Weisler represented HP at the Sanford C. Bernstein
`Strategic Decisions Conference in New York. During the conference, Defendant Weisler stated
`that “the four-box driver model has been a good predictive tool for us” and “when we
`retrospectively go back and look at what actually happened versus what the model told us would
`happen, it is pretty consistent. So we feel good about the guidance that we’re giving.”
`32.
`On June 6, 2018, Defendants Lesjak and Fieler represented HP at the Bank of
`America Merrill Lynch Global Technology Conference in San Francisco. During the conference,
`Defendant Fieler stated that “what’s really important about the [four-box] model is the
`predictability around it,” touting the model as “highly predictive.” Defendant Fieler also stated
`that “we have increasing confidence as we get more data and insight into the four-box model.”
`33.
`On August 23, 2018, after the market closed, HP held a conference call with
`analysts and investors to discuss the Company’s financial results for the third quarter of fiscal
`2018. The Company reported that Supplies revenue for the third quarter was again up 6% in
`constant currency with the Company “continu[ing] to operate below our ceiling for Supplies
`channel inventory.” During the call, Defendant Fieler stated that “we have been pretty predictive
`with what we call the four-box model” and “we reflect on the four-box model and what it’s
`predicting” and “[w]e have confidence that [Supplies revenue] will be flat to slightly up next year.”
`During the call, Defendant Weisler stated that “I, like Steve [Fieler], also have a lot of confidence
`in the predictive value of our four-box model, which is the basis for what we guided for the rest of
`FY ’18 and ’19.”
`34.
`On October 3, 2018, the Company held its annual Securities Analyst Meeting in
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
`CASE NO. 3:20-cv-01260
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`Case 3:20-cv-01260 Document 1 Filed 02/19/20 Page 12 of 20
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`New York. During the conference, Defendant Weisler stated that “I’m … pleased that our Supplies
`revenue is in line with the expectations that we set, and that our four-box model continues to drive
`predictability.”
`35.
`The statements set forth above in ¶¶24-34 were materially false and misleading. In
`truth, Defendants knew that the four-box model was severely deficient and not a strong predictor
`of Supplies demand and outcomes, because HP lacked telemetry data from its commercial printers
`and had to use unreliable and stagnant market share data to develop assumptions for the four-box
`model. Defendants knew the lack of telemetry data for commercial printing was a critical
`shortcoming of the four-box model because HP possessed telemetry data on its personal printing
`side and knew it was a necessary element for an accurate understanding of the Supplies channel.
`As a result, the Supplies inventory in the Company’s channel exceeded demand by at least $100
`million and HP’s Supplies revenue growth was grossly inflated.
`VI.
`THE TRUTH EMERGES
`36.
`After the close of trading on February 27, 2019, HP reported that total Supplies
`revenue was down 3%, with a 9% decline in EMEA, for the first quarter of fiscal 2019. On an
`earnings call held that day, HP management attributed the shortfall to weaker than predicted
`demand from commercial customers in EMEA driven by an increase in online sales, where HP
`had a lower market share and faced more competition from cheaper third-party alternatives than
`in the US. HP admitted to a larger problem with its four-box model: it had been using incorrect
`Supplies market share assumptions and, contrary to its previous statements, in fact had limited
`“visibility into the downstream channel ecosystem” and had failed to accurately predict “a decline
`in share and, to a lesser extent, pricing,” most significantly for Supplies in HP’s commercial
`channels. As a result, the Company had too much inventory in its Supplies channel network that
`was not selling through. When an analyst from Morgan Stanley asked why the four-box model
`was not flagging these problems ahead of time, Defendant Weisler responded by explaining that
`HP “did not have a statistically significant sample from the system telemetry” and that the
`Company used “periodic third-party survey data and market research aggregators to estimate”
`commercial Supplies market share. These “lagging and incomplete market share surveys” failed
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
`CASE NO. 3:20-cv-01260
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`to indicate that HP’s commercial Supplies market share “was significantly lower than what we had
`assumed.” Thus, HP announced a plan to lower channel inventory levels, which would create a
`$100 million headwind to the Company’s Supplies revenue for the remainder of fiscal 2019. As a
`result, the Company stated that it “no longer expect[ed] Supplies to be flat to slightly up in fiscal
`’19” and expected Supplies revenue to decline 3% for fiscal 2019. These disclosures caused the
`Company’s stock price to decline from $23.85 per share to $19.73 per share, or over 17%, on high
`trading volume.
`37.
`Despite these revelations, HP misled investors on the call as to how fundamental
`the problems were with the four-box model’s ability to provide visibility into the Supplies channel,
`characterizing the revenue shortfall for the first quarter of fiscal 2019 as the result of “an
`unexpected challenge in Supplies.” But on May 30, 2019, at the Sanford C. Bernstein Strategic
`Decisions Conference, Defendant Weisler disclosed additional detail on the lack of telemetry data,
`admitting that the consumer segment of the Supplies business had had telemetry data for years,
`meaning that management had known all along the importance of telemetry data for an accurate
`model and that the commercial Supplies business lacked this key input. This was because the
`Company “started that effort much later” for its commercial customers and faced “problems . . .
`getting through commercial firewalls” to obtain telemetry data. The lack of sufficient telemetry
`data for the commercial Supplies business, in contrast to its availability in the consumer segment,
`meant that management should have known that the use of the four-box model was critically
`impaired. As a result of these disclosures, by the end of the following day, the Company’s stock
`price dropped over 2%, from $19.14 per share to $18.68 per share, on high trading volume.
`38.
`On August 22, 2019, after the market clo