MOODYS.COM 16 OCTOBER 2017 NEWS & ANALYSIS Corporates 2 » Preliminary PC Sales Data Bodes Well for Hewlett-Packard » Micron's Stock Sale Is Credit Positive » Royal Philips' Suspension of Defibrillator Production Is Credit Negative » Voyage's Application of National Minimum Wage to Sleep-In Workers Is Credit Negative » Sinochem International's Proposed Asset Disposals Are Credit Positive » Agung Podomoro Land's Reclamation in North Jakarta Is Cleared to Proceed, a Credit Positive » Ascott REIT's Equity-Funded Acquisition of Ascott Orchard Singapore Is Credit Positive » SMCP's IPO Is Credit Positive for Shandong Ruyi Infrastructure 14 » Public Service Company of New Hampshire's Sales of Power Generation Plants Are Credit Positive Banks 15 » Slovenian Banks' Lending Recovery and Declining Nonperforming Loans Will Benefit Profitability Insurers 17 » Trump Administration's Changes to Healthcare Regulations Are Credit Negative for Insurers » California Wildfires Threaten Significant Losses for P&C Insurers Sovereigns 22 » The Netherlands' New Ruling Coalition Agreement Is Credit Positive CREDIT IN DEPTH US Treasury’s Capital Markets Report Has Mixed Credit Implications 24 The report identifies reforms designed to promote economic growth, capital formation and market efficiency while maintaining strong investor protections and avoiding taxpayer-funded bailouts. We weigh the credit implications of the report’s key recommendations for US banks, securities exchanges, online brokers, market makers and central counterparty clearing houses. RECENTLY IN CREDIT OUTLOOK » Articles in Last Thursday’s Credit Outlook 31 » Go to Last Thursday’s Credit Outlook Click here for Weekly Market Outlook, our sister publication containing Moody’s Analytics’ review of market activity, financial predictions, and the dates of upcoming economic releases. NEWS & ANALYSIS Credit implications of current events 2 MOODY’S CREDIT OUTLOOK 16 OCTOBER 2017 8 Corporates Preliminary PC Sales Data Bodes Well for Hewlett-Packard On 10 October, International Data Corporation reported that HP Inc. (Baa2 stable) led worldwide personal computer sales with nearly a 23% market share. HP buoyed its market share with strong business PC demand, led by Windows 10 upgrades and an improvement across all geographic regions, especially in Asia/Pacific. Among the top five PC venders, HP was the only one to manage more than a 1% unit shipment increase with year-over-year growth of 6%. The unit growth bodes well for HP because we estimate the company earns $20-$25 for every PC it sells. We expect HP’s strong execution and solid product offerings across the commercial and consumer segments will keep it in a very strong position in the PC market. Its PC unit market share has grown for the past six consecutive quarters to a worldwide lead and company record of 22.8%. Through the first three quarters of 2017, HP increased PC unit shipments by 8.2% as compared to a decline of 1.4% for second place Lenovo (unrated), 3.4% growth for third place Dell Inc. (Ba1 stable), and a 1% decline for the overall PC market. Amid a stabilizing but still soft overall PC market, HP and other top players (Lenovo and Dell) have a combined record 60.5% unit market share and we expect that they will continue to take share as smaller competitors that lack scale recede (see Exhibit 1). EXHIBIT 1 PC Sales Are Stabilizing and Top Three Sellers Are Gaining Share Sources: International Data Corporation and company reports We project HP’s PC revenue will increase 9% in fiscal 2017, which ends 31 October, compared with a decline of 5% in 2016. We expect higher revenue based on market share gains in a slightly down worldwide PC unit market this year and average selling price increases, in part reflecting a premium-mix shift and effective market segmentation. In addition to selling more PC units, improved mix and successful supply chain efforts will lead to slightly higher operating profitability and stronger margins (see Exhibit 2). 0%5%10%15%20%25%050100150200250300350400Q410Q111Q211Q311Q411Q112Q212Q312Q412Q113Q213Q313Q413Q114Q214Q314Q414Q115Q215Q315Q415Q116Q216Q316Q416Q117Q217Q317MillionsTotal PC UnitsHPLenovoDellRichard J. Lane Senior Vice President +1.212.553.7863 richard.lane@moodys.com NEWS & ANALYSIS Credit implications of current events 3 MOODY’S CREDIT OUTLOOK 16 OCTOBER 2017 EXHIBIT 2 HP PC Units Sold and Implied Operating Profit per Unit Sources: Company reports and Moody’s Investors Service estimates We forecast operating profit of $1.2 billion for HP’s PC segment in fiscal 2017, with operating margins approximating 3.8% (3.8% in 2016 and 3.3% in 2015). Over the next few years, we believe HP’s PC revenue growth will depend on continued share gains aided by higher-end mix shift. Operating profit margins will remain 3%-4% after considering competitive market pricing, periodic component shortages whose costs are difficult to pass through to consumers, an