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Logicalis: World Cup and IBM kit drop-off hit us hard in H1

Services, Westcon help to rescue Datatec... sort of

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Excitable Brazilian firms initiated a network spending freeze during the World that led to a $50m drop-off in kit sales for Logicalis, the integrator’s parent company Datatec said today.

Turnover for the first half of fiscal 15 ended August came in seven per cent below the same period a year ago at $714.4m, which when coupled with a four per cent spike in operational costs led to a seven per cent dip in operating profit to $30.5m.

Product sales, which accounted for 65 per cent of Logicalis’ revenues, fell 13.1 per cent in H1.

“Logicalis experienced a reduction in sales as anticipated; largely due to delays as a result of the FIFA World Cup in Brazil, said the wonderfully named Datatec CEO Jens Montanana.

Sales in Brazil - the integrator’s highest turnover country operation - declined 21.7 per cent. But the company said demand for IT gear was also “weak” in other territories.

“This was due to customers’ increasing shift to services-based solutions, impacting Logicalis as it results in lower demand in the server and storage segments. Product revenues were lower in all regions with the exception of Asia Pacific.”

Europe, and in “particular the UK”, continued to be hit by the drop in product revenues “experienced by IBM”.

Logicalis UK boss Mark Starkey claimed the Big Blue stumble was more than offset by growth in services margins.

He said declining IBM sales mirrored the wider market where enterprises are moving away from Unix mainframes, while System X sales - it is the largest seller of this in Blighty - are in the Khazi (our words, not his).

“We had significant growth with Cisco [last year] that is now slowing down, its lumpy and tends to be project based. But by far the most important thing for us is profitability,” he told El Chan.

As customers start to buy and consume technology like a utility, suppliers are shifting more focus to services. Logicalis has just launched its Common Services Platform in a bid to provide a standard managed service to customers anywhere in the world. It launched in the UK last week and will land in the US next.

Logicalis’ services biz was up 7.6 per cent in the six months, accounting for 35 per cent of sales, including professional, maintenance and managed services.

But in a boost for Datatec, its distribution arm Westcon has reversed declining numbers in recent years: to grew 14.3 per cent to $2.24bn, ($12m on this bounce was revenues inherited from the buy of sister company Intact Integrated Services).

Growth showed up across all regions, including North America where a botched ERP upgrade led to operational hiccups last year - sales expanded nearly 27 per cent in that territory.

Operating costs went up 14 per cent to $201.8m but operating profit soared 23 per cent to $42.9m.

The distie arm, Westcon, is also building a future based on tech services; it set up the Service Solution Practice in April and acquired a small cloud brokerage platform some months ago.

The remaining Consulting Services division declined from $27.8m from $37.1m and reported operating profit of $900k, down 47 per cent year-on-year.

“Most regions experienced significant sales pressure at the start of the year,” Datatec said of the unit.

The combined performance of the divisions saw group revenues grow eight per cent to $2.98bn, but operating profit dipped two per cent to $65.7m, once corporate costs of $8.6m were accounted for. ®

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