CDW CEO Christine Leahy: Customers are 'exploring the art of the possible' with AI

World's largest reseller is focusing on AI growth potential following a drop in first quarter 2024 earnings

The world's largest reseller CDW Wednesday blamed difficult economic conditions beyond its control for a tough first fiscal quarter 2024.

However, the global IT solution provider said future prospects look brighter as the positive impact from AI is only now starting to be felt.

CDW chairperson and CEO Christine Leahy said in her prepared remarks during the company's quarterly financial analyst call that financial results came in below CDW's expectations as market conditions remain challenging.

"In the first quarter, customers demonstrated caution and concern given tightened macro uncertainty waiting on capital investment decisions," she said.

"At the same time, the complexity of the tech landscape continued to ratchet up, particularly given the additional layer of AI and changes in the IT market landscape. This lengthened decision-making as customers deliberated on both how to navigate technology road map and when to spend on infrastructure in a challenging economic environment."

Investors Wednesday showed their disappointment at CDW's first fiscal quarter financial results by driving the company's share prices down by 11.3 per cent, or $27.25 per share, to end the trading day at $214.61 per share.

CDW is ranked fifth in CRN's rundown of the UK's top 100 resellers by revenue, Top VARs 2024.

While CDW's sales activity was reflected in a solid pipeline, a delay in customers signing deals pushed out the company's sales and caused gross profit to lag, Leahy said.

Broadly speaking, customer priorities included cost optimisation, data protection and workforce productivity, which drove a focus on security, cloud, as-a-service and AI, Leahy said. Those priorities, she added, had different impacts in CDW's five sales focuses: corporate, small business, health care, government, and education end markets.

Corporate top line declined three per cent year-on-year as decision-making further elongated with a heightened focus on ROI and a high level of project scrutiny given interest rate expectations, Leahy said.

"Cloud and security prioritisation continue to drive excellent increases in customer spend, and the team capitalised on client device demand, and year-over-year client sales were up low double digits," she said.

"Corporate saw declines as hardware categories undergoing transition and absorbing capacity, notably servers and netcomm [network and communications]. Storage, however, was a standout category, up double digits, driven by data and workload growth as customers improve efficiency and captured savings from newer solutions."

Small business posted a seven per cent year-over-year top-line decline for CDW, but the company remained focusing on addressing customers' mission-critical priorities around security and productivity, which drove meaningful increases in cloud and software customer spend, Leahy said. As with CDW's corporate business, servers and network and communications sales declined while storage sales increased, she said.

Public sales declined five per cent from the prior year.

CDW by the numbers

For its first fiscal quarter 2024 ended March 31, CDW reported total revenue of $4.87bn, down 4.5 per cent compared with the $5.10bn the company reported for the same quarter of fiscal 2023.

That missed analyst revenue expectations by $160m, according to Seeking Alpha.

By segment, CDW reported corporate segment revenue of $2.14bn, down 3.1 per cent over last year; and small-business segment revenue of $380.9m, down 7.4 per cent.

CDW's UK and Canadian operations were down 6.5 per cent to $631.2m.

Massive opportunities for AI

AI is poised to become a driving force for future growth, Leahy said.

Most of CDW's customers are at the initial stages of the AI assessment process, developing and analysing use cases and adopting data governance best practices to deliver insight and ensure end-to-end security, she said.

"Essentially, they're exploring the art of the possible and working through the science of exactly how do we do this," she said.

The complexity of adopting AI plays to CDW's strengths, Leahy said.

"We know how to bridge the gap between the promise of technology and transformational outcomes.

"And since deploying AI drives a need for technology investments across the full stack, with entry points across the entire stack, we are uniquely positioned to serve our customers."

CDW already offers two AI-focused consulting services, Leahy said. The first is connecting AI to outcomes and ROI via the company's AI Discovery service. CDW also offers a practical approach to implementing AI including data governance and security it calls Master Operational AI Transitions, or MOAT.

"While still early innings, these services are gaining traction," she said.

CDW sees a broad AI opportunity in workforce productivity, notably end-user assistance and edge devices; high-value use cases; broad-scale vertical solutions; and full stack, where customers rely on CDW to provide the infrastructure underlying applications and solutions, Leahy said. The company's broad-scale solutions are vertically based, she said.

"We have expertise across many verticals including healthcare, financial services and many key industry segments, expertise that enables us to deeply understand the unique needs and challenges faced by organisations in these sectors and tailor solutions and services that directly address their opportunities and pain points," she said.

AI will take time to become embedded across CDW's entire customer set, Leahy said.

"We have been here before as we've helped our customers adopt cloud," she said. "And while the hype cycle is much shorter than cloud, the arc of adoption is very similar. Bottom line, we are here for our customers today, and we'll be there for them in the future as they continue to ramp their efforts."