Insight's relationship with its top vendor Microsoft is a mixed blessing for the company. It caused hardware sales to jump from XP expiration in its last quarter but with a future profit hit on the horizon as Microsoft continues to make partner program changes, the company said in its first-quarter earnings release Thursday.
Net sales for the solution provider's first quarter, ended March 31, increased 3 percent over the same quarter last year to $1.2 billion, resulting in a 27 percent increase in net earnings to $11.55 million for the same period.
In particular, Insight saw a jump in hardware sales, including desktops, notebooks, tablets and mobile, up 4 percent in North America over the same quarter last year.
Insight CEO Ken Lamneck said the company is also seeing "slight" growth in servers and storage, though he said it was the hardware "wild card."
"Part of the credit for the jump is the increase in hardware sales as a direct result of the expiration of Microsoft support for XP in April," he said. Lamneck said on the earnings call that Insight expects to continue to see more of these "accelerated" refreshes going forward.
"It's hard to tell how much is left in the pipe there. There certainly are numerous clients, of course, who have not completely converted or are in the process of doing that. We don't have a real good view of how many are left to do that. But we are certainly seeing that there is some runway left for that to occur," Lamneck said.
In its predictions for the full 2014 fiscal year, Insight said that it expected to see an "adverse effect on gross profit" directly related to partner program changes from Microsoft. Those program changes will result in negative gross profit effects of between $15 million and $20 million, the company said.
"We're focusing our efforts on other partners in the software space and focusing our efforts on Microsoft on where it is they are going to be allocating more dollars," Insight CFO Glynis Bryan said in an interview with CRN.
Microsoft is incentivizing the company to push toward Office 365, education markets and Azure, she said, and Insight would work to support them there.
"We're going to be focusing our resources in areas around Microsoft willing to move rebate dollars and expanding [our] software portfolio with other software vendors out there," Bryan told CRN.
Over the full year of 2014, Insight said that it expects to outpace market growth "slightly" faster than the overall market, resulting in an earnings per share of between $1.97 and $2.07. For the first quarter, earnings per share was $0.28, up from $0.20 the same quarter last year.
"I think that we've put some investments in place around growth. I would anticipate that maybe not in the next quarter but maybe in this year ... we'll see higher growth," Bryan said.
PUBLISHED MAY 1, 2014