CompuCom Transformation Continues To Pay Off

CompuCom posted a sequential and year-over-year increase in earnings for the third quarter, even though product revenue for the period declined.

Third-quarter net income for the solution provider was $5.46 million, up from $1.16 million in the year-earlier period. Revenue for the quarter was $414.1 million, up 2.3 percent from a year ago. Third-quarter product revenue was $333.1 million, while services revenue was about $81 million.

The earning increase was driven primarily by CompuCom's higher service revenue, even though service gross margin declined to 32.6 percent from 36.9 percent in the second quarter of 2002, said Ed Coleman, chairman, president and CEO of the Dallas-based company. That decline was due mainly to an increase in lower-margin services provided to the federal government, Coleman said.

The decline in product revenue, meanwhile, came from a decrease in software license sales and from CompuCom's move to act as an agent for several hardware deals rather than reselling the hardware and recognizing the top-line revenue, he said.

During the quarter, CompuCom inked several new vendor agreements, including alliances with BEA Systems, EMC, Hitachi Data Systems, Lexmark and Network Appliance, to continue decreasing its dependency on hardware systems vendors. Also during the quarter, the company saw its hardware business with IBM increase. This came, in part, at the expense of Hewlett-Packard, although CompuCom expects to become a Platinum partner under the vendor's new PartnerOne program, set to go in effect on Nov. 1.

"The way [PartnerOne] is designed, it's focused more on partners who can generate demand for HP as opposed to those who are fulfilling product," Coleman said.

Over the past quarter, the "slow, tortoiselike" adoption of Windows XP continued, and Coleman said more enterprise accounts are planning for the migration.