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US titans roll out the numbers... wow, reselling is a tough game

Systemax losses make Insight look like a challenge-free biz

Calendar Q1 numbers are out for shape-shifting resellers Insight Enterprises and Systemax, with the former reporting flat sales and profits but the latter faring much, much worse.

Both are trying to rapidly develop services operations based on consulting, managed services and the cloud to replace commoditised or 'empty calorie' hardware and software licensing sales.

Insight last week reported net sales of $1.22bn, flat year-on-year but stripping out the impact of unfavourable for-ex conversions, sales would have grown six per cent, so in terms of the top line the underlying business did OK, though still slower than US peers.

Turnover in North America was up five per cent to $822.7m: hardware and software were up three and five per cent respectively but services were up 28 per cent (albeit off a relatively smaller base).

In EMEA, sales fell nine per cent to $354.8m as hardware and software dropped four and 13 per cent respectively and services jumped 35 per cent (three per cent of overall revenues). Currency conversions were at fault here - in constant currency sales went up six per cent.

In APAC, sales were down eight per cent to $42.1m but were up three per cent excluding the for-ex impact.

Gross margin declined 20 basis points to 13.3 per cent and CEO Ken Lamneck pinned the decrease on lower profits from product sales based on the “business and client mix transacted in the quarter”.

He said PCs sales dropped, as expected after last year’s boost from the Windows XP refresh, but noted higher demand for kit upgrades in the data centre.

On the services side, Lamneck talked up the progress made in EMEA though the firm’s president on this side of the pond told us previously he expects its local cloud investments to start paying off next year.

Operating expenses in the quarter dropped year-on-year to $140.8m from $142.4m leaving an operating profit of $20.3m, marginally down on Q1 2014 and after tax/interest repayments, profit was flat at $10.9m.

Over at Systemax where it is closing 31 consumer outlets in the US the challenges are perhaps even greater: net sales dived ten per cent year-on-year to $785.8m.

Revenue generated by the North America Technology Group fell 16 per cent to $352.8m and it reported an operating loss of $19.2m, as the EMEA unit declined 15.6 per cent to $272.6m and reported an operating loss of $4.8m with Blighty blamed.

“EMEA Technology sales were negatively impacted by currency exchange and less-than-stellar execution in the UK, offsetting continued strong performance in France,” said CEO Richard Leeds.

“Our UK sales have been disappointing and we’re implementing a number of actions to improve the efficiency of the sales systems and processes.”

Systemax set up a shared services centre in Hungary in 2013 to cut costs and last year acquired SCC’s Dutch business in a bid to bolster services.

“We should bring more annuity-based longer-term revenue streams,” the CEO predicted.

He said the numbers in North America tech biz “reflect the impact of our in-progress restructuring actions, as well as the continuation of the challenging market trends that led us to our decision to implement the strategic changes”.

Only the Industrial Products Group managed to expand in the quarter, up 23.1 per cent to $158.9m, while operating profit was $9.7m. Corporate and other costs swiped $4.7m from operating profit.

Gross margin for the three months ended 31 March fell to 13.7 per cent from 14.6 per cent in the prior year’s quarter, due to higher discounts and a mix between the products.

Sales and admin expenses were clipped by nearly $5m to $122m but despite this, operating losses widened to $19.5m from $1.3m, and after interest repayments and tax, the net loss was $26.9m versus $2.1m.

The business didn’t take questions from financial analysts on its conference call and instead asked for questions to be submitted to its PR function ... which sums up the situation pretty well. ®

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