Insight Q2 Sales Flat On Falling Hardware, Software And Services Sales In North America

Insight Enterprises saw flat sales for the quarter globally and struggled in North America on falling hardware, software and services sales, with added missed opportunities of XP support expiration and K-12, the company reported in its second-quarter earnings Thursday night.

Global net sales for the quarter were flat, coming in at $1.4 billion, while gross profits were up 2 percent over the same quarter last year to $194.6 million. While other regions were stronger, North America proved tougher for the solution provider, No. 14 on CRN's 2014 SP500 list. In North America, the company had net sales of $889.3 million, a drop of 4 percent over the same quarter last year, with a flat gross profit of $125 million. Hardware, software and services sales were all down for the quarter, decreasing 1 percent, 8 percent and 7 percent, respectively, over last year.

"For the first half of 2014, we are pleased with the bottom-line performance of our business overall," Insight CEO Ken Lamneck said on the earnings call. "The North America business has not experienced a top-line growth that we originally expected for the first half of the year. This has been offset by the effects of stronger gross margin performance resulting from our increased focus on profitability and continued tight control over our discretionary costs in the region."

Related: 10 Questions For Insight's CEO And CFO

The lower sales in North America were driven down by the low hardware sales numbers, as well as an increase in software maintenance over licenses. Similar to its competitors, Insight saw strong notebook and desktop sales for the quarter. However, on the earnings call Lamneck said that, upon looking back at NPD data, the company did not participate in the XP support expiration refresh cycle as much as others did.

"We have certainly work to do in and around that," Lamneck said on the call.

Lamneck also said that Insight hasn't participated in the booming K-12 market, though he said the solution provider will start to make investments to boost its presence in that area.

"One of the biggest areas that we haven't fully participated is in this K-12 cycle. We do have vertical around that. We are ramping that up, but not nearly to the extent that participation is out there in the marketplace, and certainly many of our competitors are participating in," Lamneck said on the call. "So we own that -- we understand that in a scenario that we are continuing to invest in."

The good news for Insight is that, while the company reported last quarter that it would see negative gross profits effects between $15 million and $20 million from partner program changes announced by Microsoft, its largest vendor partner, in Thursday's earnings call, the company lowered the expected impact of the change to between $10 million and $15 million. It said that it expects to see those effects toward the second half of the year.

Insight helped lower the impact of the changes by refocusing its efforts around Office 365 and Microsoft Azure sales, where the company got higher margins, Lamneck said in an interview with CRN after the call.

Going forward, Insight said it anticipates net sales to increase in low single-digit percentages, including the adverse effects of the Microsoft partner program changes. Earnings per share for the next quarter are anticipated to be between $2.02 and $2.10.

PUBLISHED AUG. 1, 2014