Four key takeaways from Insight's latest results
What have we learned from Insight's Q3 numbers?
EMEA back to posting a loss
For the three months ending 30 September, global earnings from operations for Insight reached $22.4m (£17.1m), up four per cent year on year on revenues that enjoyed 26 per cent growth to $1.76bn on the corresponding quarter last year.
Insight's second-largest geographical region has had a rollercoaster couple of quarters. Recovering from a €3.2m restructure carried out in the first three months of the year which resulted in the firm posting a $1.13m operating loss, Q2 looked more promising, as operating profits grew 19 per cent annually to $69.32m.
Yet Insight's most recent quarter saw a return to old habits. While the firm's North American and APAC regions posted buoyant numbers, with the former posting 34 per cent year-on-year revenue growth to $1.41bn and a 20 per cent hike in earnings from operations to $42.77m, EMEA weighed on Insight's balance sheet.
EMEA revenues declined two per cent year on year in constant currencies to $312.19m for the quarter, while posting a $2.14m operational loss. Gross profits - which Insight believes better represents its bottom line since cloud sales are reported as net earnings - saw a nine per cent boost in EMEA to $41.62m.
Insight claims that two major transactions affected its EMEA business this quarter: firstly, the firm's acquisition of Caase.com, which EMEA boss Wolfgang Ebermann described as a vital digital transformation play for Insight, as well as bolstering its German and Dutch operations.
Secondly, in July, Insight sold off its Russian arm to $1.5bn-turnover VAR giant Softline, which comprises the business of 250 customers. Speaking about the deal on an earnings call transcribed by Seeking Alpha, CEO Kenneth Lamneck explained that "this market did not exceed our long-term plans".
Insight's client business is thriving
While Insight has made something of a fanfare about bolstering its services clout and helping its larger customers migrate workloads to the cloud, the firm's Q3 results show that, if anything, hardware sales are taking an even larger slice of overall revenues than ever before.
Hardware revenues accounted for 44 per cent of EMEA sales in Q3, up from 41 per cent logged in the same quarter of 2016. Software sales declined by six per cent to 52 per cent of revenues, while services peaked a modest one per cent to account for four per cent of its EMEA top line.
A similar story emerged across North America and APAC, where hardware revenues increased by six per cent to 68 per cent of regional sales, and five per cent to 21 per cent of sales respectively.
Speaking on the same earnings call, Lamneck said that all major VARs were experiencing healthy hardware sales this quarter as a result of higher component costs.
"The [device] market was pretty healthy this quarter as we look at the… data across the channel for everybody," he said.
"A couple [of] reasons for that: One is the mix of products [and] selling higher-performing devices helped us there. But also the component price increases that have occurred are now fully [integrated] into the average selling prices (ASPs) of these devices and we attribute that to about a seven per cent increase in the total ASP of the units; just due to the component price pressures that were in the market.
"And we expect that that will probably continue through the first half of 2018… then of course, there is a significant 70 per cent unit growth across desktops and notebooks for us as well, so certainly stronger than what the market is seeing."
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Four key takeaways from Insight's latest results
What have we learned from Insight's Q3 numbers?
Not everyone's jumping on Windows 10
Lamneck, however, stopped short of attributing Insight's growth in its client business to customers shifting to Windows 10. The CEO claimed that he expects Windows 10 upgrades to have a gradual impact on customer refresh cycles, but claimed there won't be a "big sea of change" in client behaviour.
"I think there's certainly some of that. There are certainly mandates, and the government sector is talking about it, but we think there is going to be a little bit slower growth [than expected]. It will certainly be a nice tailwind for us over the next couple of years because the government tends to move a bit slower and we're pretty well positioned with a lot of the big federal contracts we have in regards to the Windows platform. So we feel like we're in pretty good shape there.
"And the commercial clients are certainly moving that way but we don't see it moving in a big sea of change. We think, again, that could be a nice tailwind because that will… of course definitely drive an increase of new unit sales.
"We think that will probably be a nice situation over the next couple of years as that really starts to take root in the business."
Smaller VARs are suffering
Europe's largest VARs have posted bumper financial results of late, with Belgium-based giant Econocom and Sweden-headquartered Proact recently posting exceptional double-digit growth to revenues, while VAR giants Computacenter, ATEA, Softcat and Bechtle have all revelled in impressive numbers throughout the course of the year.
Lamneck however claimed that the positive developments among the world's largest publicly listed VAR giants is coming at the detriment of smaller players in the market.
"We can look at the growth numbers of the public competitive VARs and there are some pretty good growth numbers," he said.
"The only other real public comparisons we have are the distributors, which again we buy a lot of products from. About 50 per cent of our products are brought from people like Ingram and Tech Data and Synnex.
"You would have to say that their make-up is our business and [also that of] small VARs. So if the major players like ourselves, CDW, Connection and Mall and so forth are growing faster, you'd have to say that it's coming somewhere at the expense of the smaller VARs.
"I think the scale certainly is playing to our favour," he concluded.