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Computacenter hit by PC price tumble

Sales up, but revenue down

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Computacenter, the largest reseller of PCs to European businesses, sold a record number of computers on the back of Microsoft XP upgrades during the first half of the year - but price declines meant that product revenue declined in its core UK market. It may now have to look towards service company acquisitions to improve its outlook.

Computacenter's challenge is to grow its product sales and its services business to counter further PC price erosion. Major acquisitions in Germany and Austria helped Computacenter grow overall revenue last year by 28 per cent to £2.48bn, but without these takeovers, sales fell 6.7 per cent.

It said earlier this year that the cost of desktops, laptops and Wintel servers fell around 15-25 per cent in local currency in 2003, driven in part by the decline in value of the dollar against the euro and sterling. However, Norris ruled out the prospect of any immediate acquisitions outside its main territories of the UK, Germany and France to help grow product sales.

Computacenter's other strategy is to build up its managed services operation, where it takes on the day-to-day running of elements of its clients' infrastructure such as maintenance, helpdesk support and software upgrades under multi-year contracts. This gives it a reliable stream of recurring revenue to counter the fluctuations in product sales cycles.

The company's managed services revenue reached £230m in 2003, or 9.2 per cent of total sales. Computacenter has demonstrated its ability to win significant managed services deals with clients including UK financial services companies HBOS and Abbey.

Despite the current trend for "multi-sourcing" on large IT services deals, CEO Mike Norris said that Computacenter does not pursue many managed services contracts in consortia with other companies: "I feel less in control that way, as your success depends on your choice of partner, and not how good you are."

But if product sales decline over the next couple of years, the company may be tempted to accelerate the growth of its services business, and therefore reduce its reliance on product reselling, through an acquisition. This would follow a recent trend in the US PC reseller community, with resellers such as Pomeroy Computer Resources looking to gain a better balance between product and services sales through buying services companies.

Source: ComputerWire/Datamonitor

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