Insight's EMEA business shines as global revenue declines
Kenneth Lamneck the latest reseller boss to warn of a slowdown
Off the back of an extremely positive first half of the year, Insight raised its adjusted earnings per share forecast for full-year 2018 to between $4.50 (€3.94) and $4.60.
But Insight proceeded to miss its earnings estimates of $1 per share in the three months ending 30 September, as group revenues declined by one per cent.
We take a look at the key takeaways from Insight's Q3 results.
EMEA Insight's only region to post revenue growth
Insight's EMEA business has been logging healthy financials ever since the completion of an expensive $3.5m restructure last year, which put a short-term dent in the firm's profitability for the region.
Q3 proved to be another three months of positive developments for Insight's EMEA business this year. Revenues surged by 11 per cent to $345.2m, while earnings from operations rocketed by more than 100 per cent on a year-on-year comparison. Earnings climbed from $2.1m in the red from Q3 last year to a positive $4.6m this year.
The EMEA business performed significantly better than Insight's US and APAC businesses. The US suffered a three per cent dip in overall revenues to $1.21bn, with hardware sales declining by five per cent, while APAC sales were down 22 per cent to $19.1m.
Services continue to shine
Insight's services business in EMEA - which regional boss Wolfgang Ebermann recently revealed would receive $10m in investment over the next 12 months - saw sales surge by 38 per cent to $29.1m, while product revenues jumped by nine per cent to $316.1m. Services accounted for eight per cent of total sales in EMEA in Q3.
Profitability remains healthy across the group, growing 21 per cent to $49.9m during the three-month period.
Kenneth Lamneck latest CEO to warn of slowdown in hardware business
Insight's CEO Kenneth Lamneck attributed Insight's revenue decline during the third quarter to one large customer transaction set for completion this year being pushed into 2019.
He also pointed to a general slowdown in customer spending on devices and an overall maturing of refresh cycles which could put a strain on product revenues in the coming quarters.
The fact that Insight confidently raised its earnings-per-share forecast for the year at the end of Q2 clearly indicates that Insight did not anticipate a slowdown in customer spending for the second half of the year.
CFO Glynis Bryan admitted on an earnings call that Insight had made some assumptions for the latter part of 2018 "which didn't materialise".
Lamneck said: "We began to see trends soften in September as compared with the first two months of the quarter. We attribute this softness partly to the maturing refresh cycle within our large enterprise client base and the completion of certain client-related projects."
Bryan added: "When we look at Q3 we had some assumptions on the second half of the year that didn't materialise, due to some of the softness as we mentioned in September.
"The biggest driver in the difference between Q3 to Q4 today, relative of what we said back in July, is related to differences we are seeing in our large enterprise clients primarily. We are seeing a little bit of a slowdown with those large enterprise clients as it relates to devices. We also had a large deal that we assumed was going to transact in the second half of the year that has moved into the first half of next year. Those are the primary drivers in the difference of our results that we saw in Q3 and ultimately in Q4 based on the guidance that we gave."
The remarks from Insight's Lamneck and Bryan echo observations made by other top executives that traditional reselling is starting to slow down after the industry enjoyed an extremely healthy 2017.
Softcat CEO Graeme Watt, World Wide Technology CEO Jim Kavanaugh and Canalys' Steve Brazier have come to similar conclusions regarding the health of the IT market next year. Computacenter also pointed to a weaker infrastructure market in its recent Q3 results as revenues fell by three per cent.
US-China trade war is affecting customer spending
Upcoming US trade tariffs on products being produced in China are causing Insight's customers to reconsider their IT spending, according to Lamneck.
He said that some customers are looking to make a big splurge on IT spending this year, before the higher tariffs come into effect in January, while others are reluctant to commit.
"It is a very current topic. We didn't see any real impact in Q3 and we are monitoring it very closely. We are in a cost-plus environment so for us we completely pass cost on to our clients and we have good systems and tools to ensure that occurs," he said.
"It is a mixed bag. We have seen a bit of both. Some clients have hunkered down a little bit with regards to considering whether they should continue to buy at these inflated prices, then we've seen other clients say ‘if tariffs are 10 per cent and going up to 25 per cent in January, maybe I should accelerate'. It is hard to call right now exactly what is going to flush out during the next couple of months."