PC Connection Sees Record Sales, Profit On Bump From Education

Merrimack, N.H.-based PC Connection saw record-breaking quarterly results for the company that were aided by strong demand for notebooks and tablets in the education vertical.

Sales for the third quarter ended Sept. 30 rose more than 10 percent from the year-ago period to $639 million. Third-quarter net income was $12.2 million, up 15 percent from a year earlier.

"We are pleased with our strong third-quarter performance," CEO Timothy McGrath said.

[Related: CA Technologies Q2 Income Rises, Sales Fall]

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The company saw particularly strong growth for notebooks and tablets with sales up 24 percent from a year ago to $143 million. Notebooks and tablets account for 22 percent of the company's overall sales and the segment's results are up from a 20 percent increase notched during the same quarter last year. PC Connection said corporate refreshes and a growing demand for Chromebooks helped drive the demand.

Much of the growth in sales for Chromebooks and notebooks were driven by strong growth in state and education markets. Sales to that market as a whole grew more than 29 percent this quarter. However, McGrath said that demand is expected to decrease in coming quarters as the impact of Common Core and other initiatives wear off. Research firm IDC predicts a 7 percent decline in the education market.

"It will be interesting growing next year, especially if the education vertical starts slowing down. That’s been a real winner for us this year," McGrath said.

As PC Connection see the tailwinds from the expiration of XP start to dwindle, with "almost 0" impact from the expiration of XP on PC sales this quarter, McGrath said the company is preparing for increased demand for disruptive technologies, especially around the data center as Server 2003 expiration comes to the forefront. However, he said the company has yet to feel the benefits yet from the second expiration wave.

"We're pretty confident that that expiration is going to give us the opportunity to have really meaningful conversations with our customers around building the optimized data center. But we're also confident that this is going to open up a lot of conversations in a lot of areas. ... We're watching that closely but there's nothing that we've seen that’s significant in the quarter," McGrath said.

PC Connection, he said, sees a lot of opportunity around advanced data center technologies such as converged infrastructure, software defined networking, security and storage. PC Connection will continue to invest and add resources in those areas, he said.

As the market continues to undergo significant changes, McGrath said PC Connection will have to place increased emphasis on emerging technologies. He specifically cited the splits of HP and Symantec as well as the Lenovo acquisition of IBM's x86 server business as drivers of that industry change.

"In order to maximize channel incentives and overall profitability, we need to continue to transform our business and invest in emerging technologies," McGrath said.

Going forward, McGrath said he expects sales levels to remain consistent with industry expectations, but the record-breaking growth seen this quarter is not likely to continue in the current quarter due to one-time factors such as the expiration of XP and an increase in project rollouts. He said he expects PC Connection to match the overall IT growth rate in the low-single digits.

PUBLISHED OCT. 23, 2014