Thursday, 9 July 2009

Computacenter’s services – a game of two halves

(By Anthony Miller – Thursday 9th July 2009 10:00am). The current downturn clearly shows how Computacenter’s services business plays as a ‘game of two halves’. Professional services – the bit most closely linked to product sales – are suffering; if customers aren’t buying kit, then they don’t need the services to plan and install it. But Computacenter’s contractual managed services business just keeps on growing – up 10% in the UK, as reported in today’s H109 trading update (see here). This is against an overall 8% decline in group revenues at constant currencies.

CEO Mike Norris observed that before the downturn, clients were less likely to take the perceived risk of outsourcing desktop services for, say, a 10% saving; now they go for it! Indeed, Norris told me that about half the growth in their contractual services business came from new clients, echoing a conversation I had with him a few months back (see Services drives Computacenter's growth). Meanwhile, current clients, such as GSK, are significantly extending the scope of their existing contracts. Pricing pressure is still fierce, of course, but Norris said this comes more from the customer than from the market; "Customers pick the supplier they want then kick them to death to get the best deal they can", was his wry assessment.

Norris doesn’t expect product sales to recover this year, though he noted that spending was ‘less worse’ in large corporates than in the mid-market, which seems to be seeing greater costs stress. Though this will keep product and professional services sales depressed, Norris thinks that the contractual services momentum will keep overall services gross profit around 50% of group total (see Services nearly half of Computacenter’s gross profit). Desktops, notebooks and servers et al may well still dominate Computacenter’s top line – but there’s absolutely no doubt that it’s services that’s driving the margin.

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