As Enrique described, we've experienced significant changes since our last earnings call. This is creating both challenges and opportunities across our businesses and geographies.
Importantly, as we have seen over history, we believe the strong can become stronger in the years ahead, and therefore we’re not standing still. This requires leadership and agility coupled with strong execution and leveraging HP’s foundational strengths, including our geographic breadth and scale, portfolio and customer segment diversity from the office through the home, as well as our balance sheet and strong liquidity position.
We have multiple levers of value creation in the company, both in the short term and long-term to adapt and manage the ups and downs in our business.
Now let's look at the details of the second quarter. Net revenue was $12.5 billion down 11% year-on-year or down 10% in constant currency, regionally in constant currency EMEA declined 7%, Americas declined 10% and APJ declined 16%. Gross margin was 20% up 60 basis points year-on-year driven primarily by disciplined execution and improved rates in Personal Systems. Non-GAAP operating expenses were $1.6 billion, down $136 million sequentially and $138 million year-over-year.
We’re seeing tangible, structural cost savings achieved through our transformation program as well as the benefits of additional temporary discretionary cost actions taken in response to current economic headwinds. Non-GAAP net OI&E expense was $57 million for the quarter, we delivered non-GAAP diluted net earnings per share of $0.51 with a diluted share count of approximately 1.4 billion shares. Non-GAAP diluted net earnings per share excludes the net benefits totaling $23 million related to non-operating retirement related credits and other tax adjustments partially offset by amortization of intangible assets and restructuring and other charges.
As a result, Q2 GAAP diluted net earnings per share was $0.53.
Before I get into the details by business, let me expand on Enrique’s remarks regarding the supply chain impacts. I'll cover three points.
First, as expected we experienced manufacturing disruptions early in the quarter due to the China factory closures. This impacted both Personal Systems and Print. This created a backend loaded supply quarter, and a higher Personal Systems backlog entering Q3.
For reference, we recorded roughly 50% of our PS revenue in month three, which is historically high.
Second, later in the quarter, we began to see manufacturing disruption in Southeast Asia, which directly impacted our Print business, both hardware and supplies, and we’re monitoring any impact to PS component suppliers.
Our Print manufacturing capacity returned to normalized levels in early May.
So the supply disruption should primarily impact the first part of Q3.
Third, logistics were challenging.
We have certain challenges delivering to our end customers and countries with full lockdown such as India and in general our logistics costs were elevated. All together, Q2 was a complicated supply chain quarter that our teams are highly experienced to manage through short-term disruptions.
Turning to Segment performance in Personal Systems, we’re proving that the PC is essential. We���re pleased with the profit growth of this business despite factory supply constraints that pressured our top line during the quarter. The business benefited from strong demand related to working and learning from home, particularly in notebooks. Revenue was $8.3 billion down 7% or 6% in constant currency. Drilling into the details by customer segment, both commercial and consumer revenue were down 7%. By product category, revenue was flat for notebooks, down 18% for desktop and down 23% for workstations. Personal Systems has been consistently delivering profit growth and improved mix over time. Year-over-year commodity favorability which was partially offset by higher logistics costs drove another quarter of exceptionally strong profitability. Operating margins remained high at 6.6% and operating profit dollars were up 43% year-on-year to $552 million. Personal Systems op represented 50% of HP’s profit mix for the quarter. We remain confident in our long-term operating margin target of 3.5% to 5.5%. In Print, we remain uniquely well positioned in the market by being leaders across both consumer and commercial print.
However, we’re facing near-term challenges driven by both supply and demand issues. Starting with Q2 demand, we saw a decrease in commercial print across our office and graphics businesses, especially in March and April. This includes a negative impact of both hardware and supplies as businesses have temporarily closed and office workers transition to working from home.
Let me illustrate this with some additional detail that we don't typically provide. In managed print services, we saw a roughly 40% monthly decline in pages from February to April. And in graphics, Indigo impressions went from being up 9% year-over-year in February to down 24% year-on-year in April.
On the other hand, in an environment where much of the globe has moved to work from home, we saw an increase in overall demand for consumer inkjet during the quarter.
Looking at the details, Q2 total print revenue was $4.2 billion down 19% nominally and 18% in constant currency, print operating margins were 13.2% down 280 basis points sequentially driven by lower hardware and supplies volume, especially in commercial print and the negative impact from supply chain disruptions and higher logistics costs. That said, despite our Q2 results we remain confident in our long-term operating margin targets of 16% to 18% once workers return to the office and demand improves. By customer segment, commercial hardware revenue was down 31% and consumer hardware revenue was down 16%. Total hardware units were down 23% with commercial units down 25% and consumer units down 22%.
Second quarter supplies revenue was $2.8 billion down 15% in constant currency, that's office and graphics printing were significantly impacted by the COVID-19 lock down orders in the last month and a half of the quarter. In Q3 and until workers return to the office and businesses reopen, we expect supplies revenue to be more pressured than Q2. Overall in Q2, the team remains disciplined in managing channel inventory, keeping Tier-1 channel inventory levels below the ceiling, despite the sudden demand declines in the commercial space.
Let me now turn to our transformation efforts, and specifically our cost savings actions and opportunities ahead, a few points.
First, we’re making good progress on our announced plans and currently tracking ahead of the 40% first year target, we set last quarter as part of our three-year $1.2 billion gross run rate cost reduction plan.
Second, we plan to accelerate cost reductions as much as possible and look for new opportunities including real estate.
Third, we're taking prudent steps to reduce discretionary costs as much as possible.
While these are more temporary than structural benefits, we believe it's the right thing to do in this environment. Shifting to cash flow and capital allocation. Q2 cash flow from operations and free cash flow are negative $0.5 billion and a negative $0.6 billion respectively.
As I signaled last quarter, cash flow was negatively impacted due to the delayed manufacturing timing and backend loaded quarter in our business. That said, HP’s businesses are strong cash flow generators over multiple periods and we maintain a strong balance sheet to meet liquidity needs. In Q2, the cash conversion cycle was minus 34 days, timing of procurement and production drove higher AP, inventory and other assets and liabilities. Accounts receivable increased both due to revenue linearity, and also because of the payment extensions we’re providing in specific cases to help customers and partners weather the crisis, we've returned $123 million to shareholders through share repurchases and $252 million via cash dividends in Q2.
Our share buybacks were limited in the quarter due to the Xerox situation and closed repurchase windows.
As Enrique stated, the principles of our value plan remained in place. This includes how we manage our balance sheet, including the importance of investment grade credit rating and one and a half to two times gross debt leverage targets. In the near-term, we’ll be prudent to focus on managing through changing dynamics in our business operations as our top priority. Therefore, we expect to be at the lower end of our debt-to-EBITDA range and to hold higher cash on the balance sheet.
Our return of capital principles also remains intact, including our commitment to a robust dividend and share repurchase program. In the near-term, we expect to be active in the market and return greater than 100% of our free cash flow in FY 2020.
Beyond FY 2020, we remain committed to returning 100% of free cash flow.
In addition, consistent with our previously announced strategy, we intend to pursue a significant enhanced share repurchase program.
Although the specifics will be determined once market conditions stabilize, we will update you in Q3 on how these plans progress.
Looking ahead, we would like to make the following comments starting with FY 2020. Since the COVID-19 crisis started, we've been stress testing our model and running a number of scenarios based on a range of assumptions.
For FY 2020, given the level of uncertainty around the duration of the pandemic, the timing and pace of economic recovery and the potential impact of a resurgence in cases, there's a much wider range of outcomes for the year.
As a result, we will not be providing an outlook for full-year 2020. That being said, we expect our business to generate positive cash flow for the second half of the year.
For Q3, we’re factoring in our best assumptions at this time, recognizing the situation remains highly dynamic. Specific to Personal Systems assumptions, we expected strong demand given the elevated backlog and surge from working and learning from home.
We will closely monitor supply constraints, whether it be CPU or from other select commodity suppliers and we expect the overall cost from the basket of components and logistics to be higher than we saw in the second quarter. In printing, we expect Q3 to be more challenging than Q2 from a demand perspective until office buildings and businesses reopen. This will impact hardware and supplies especially in commercial print.
We expect continued positive demand for printing at home. But supply challenges from Southeast Asia will be constraining consumer print early in the quarter across hardware and supplies.
As a result, we expect print revenue and margins to be lowered in Q3 than Q2 with improvements beginning in Q4 for our own offices reopening. Taking all these considerations into account, we’re providing the following outlook.
We expected Q3 2020 non-GAAP diluted net earnings per share to be in the range of $0.39 to $0.45 and Q3 2020 GAAP diluted earnings per share to be in the range of $0.35 to $0.41. In closing, our strong balance sheet and ample liquidity provide a solid foundation to manage through this uncertain environment while also providing capacity to capitalize on emerging opportunities, which we expect to arise out of this disruption.
We will continue to take the necessary actions to manage through the near-term challenges, while remaining focused on executing our strategy to drive long-term value creation. And now, I would like to hand it back to the operator and open the call for your questions.