Expensive restructure is still not paying off
Insight's EMEA business continued to shrink in Q4, its third quarterly decline of 2017 aside from a momentary respite in Q2 when earnings increased by 16 per cent.
But operating profits in EMEA again went south over the last three months of 2017, falling sharply by almost a quarter (23 per cent) year on year to $7.1m (£5.0m), representing just 1.9 per cent of net sales.
Another poor quarter in EMEA paints a gloomy picture for Insight's second-largest geographical region for the full year 2017. Operating profits tumbled by 27 per cent year on year to $17.4m.
Insight posted a loss in EMEA for the first quarter of 2017, due to incurring $3.5m as part of a Europe-wide restructure to address "some inefficiencies" in its operations, taking profits $1.1m into the red.
The company's CFO Glynis Bryan told analysts at the time that Insight will see most financial gains from the restructure in 2018, but said some benefits would be felt in the second half of 2017.
Yet it seems that the restructure has had no material effect on Insight's last six months of 2017, as profits continue to slide on a year-on-year basis.
As with its last financial quarter, Insight blamed its declining earnings on the absence of its Russian business, which the firm sold off to Moscow-headquartered VAR Softline in Q3.
But services in EMEA are starting to grow nicely
A silver lining in Insight's otherwise unimpressive EMEA performance stems from a bright spot in its services business.
This segment posted a 25 per cent increase in sales to €33.3m, now representing almost a tenth of the firm's overall revenue slice in EMEA.
Services were undoubtedly helped along by Insight's acquisition of Dutch Microsoft partner Caase.com during Q3.
The firm has been named Microsoft's Dutch partner of the year for the last three years in a row.
EMEA boss Wolfgang Ebermann described the acquisition as a vital digital transformation play for Insight, around Office 365, Azure and EMS mobile management.
Speaking to analysts on the firm's Q4 earnings call transcribed by Seeking Alpha, Insight CEO Kenneth Lamneck claimed that its EMEA services business grew by around 50 per cent over the course of the year.
"[EMEA] executed well on its base business while continuing to transform to [become] a leading cloud and solution provider across the region. As part of this strategy we invested in technical… sales and services delivery teammates, focused on cloud technologies, and grew our services sales by 50 per cent for the full year and [we] were named number one in Microsoft Azure consumption in the region for 2017," he said.
North America now accounts for more than 75 per cent of Insight's business
While EMEA and APAC have seen profits shrink year on year, with the latter experiencing a 20 per cent decrease in sales and a steep 48 per cent drop in profits, North America improved by leaps and bounds, both in Q4 and on an annual basis.
Sales grew by almost a third (30 per cent) in Q4 to $1.38bn, while operating profit hit 28 per cent growth to $37.24m. On an annual basis, Insight's North American business now represents 77 per cent of total sales.
The firm's homeland business is certainly enjoying material benefits stemming from its blockbuster $258m acquisition of US datacentre player Datalink, which turned over $764.8m in 2015. The deal helped push services up by 47 per cent in Q4, while hardware sales grew by 34 per cent.
This year will be all about improving profitability
Europe has been a big target for Insight in terms of ironing out inefficiencies, but Lamneck claimed that more measures will be taken this year to improve the firm's profitability.
"Wrapped under the new go-to-market structure is a continued focus on driving operational excellence across our business. In 2018, we'll focus on profitability across every deal in every category. We have launched initiatives around order processing, procurement, pricing review and partner programme execution to better optimise our deal level profitability," he said.
"We are also looking at process automation and business intelligence solutions to help us manage our back-office processes and data sharing more efficiently."
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