CDW CEO: 5 Big Remarks On Sales Drop, Layoffs, 2023 Forecast

‘We are operating in choppy waters right now,’ said CDW CEO Christine Leahy during the company’s Q1 2023 earnings results today.

CDW CEO Christine Leahy weighed in today on her company’s significant revenue drop during its first quarter 2023 as well as recent layoffs conducted by the $20 billion IT giant.

“We are operating in choppy waters right now,” said Leahy during CDW’s earnings report this morning with media and analysts.

CRN breaks down the five biggest remarks made by Christine Leahy during CDW’s earnings call today around recent layoffs, why the company witnessed such a large drop in sales, and how total revenue in 2023 is expected to be lower than 2022.

[Related: CDW’s Client Sales Fall, CEO Talks Layoffs During Earnings Call]

CDW Q1 2023 Earnings Results

Before jumping into Leahy’s boldest statements during today’s earnings call, CRN takes a look at CDW’s Q1 2023 results.

CDW generated total revenue of $5.1 billion in the first quarter, representing a sales decline of more than 14 percent year over year, compared to nearly $6 billion in first quarter 2022.

“Large commercial customer client device declines had the greatest category impact as corporates worked through the impact of slower hiring and layoffs,” said CDW’s CEO Leahy.

The Vernon Hills, Ill.-based company reported net income declining 8 percent year over year from $250 million in first-quarter 2022 to $230 million in first-quarter 2023. CDW’s gross profit slightly dropped 1 percent year over year to $1.09 billion in first-quarter 2023. The company’s operating income was $355 million in the quarter, representing a decrease of 8 percent year over year.

CDW’s stock is currently trading at $167.70 per share as of Wednesday afternoon, which is nearly flat compared to Tuesday.

Here’s what Christine Leahy had to say about CDW’s first quarter financial earnings results.

Sales Drop Stems From Large Commercial Customer Slowdown

Leahy said the main driver of CDW’s 14 percent revenue drop was a “downshift” in its commercial business, particularly from larger customers, that impacted hardware, software and services.

“When our customers got cautious and exhibited a lot of concern, they went into decisions around deferring and pausing, and reducing costs generally, which is a playbook for larger customers,” said Leahy. “And that brought greater scrutiny to projects. That brought a focus on shorter term ROI. That brought a focus on overarching cost reductions—all of which created longer sales cycles, and shorter duration contracts.”

This downshift in demand amongst CDW’s large commercial customers was the leading cause of CDW’s revenue drop in first quarter 2023, she said. CDW’s commercial business represents more than 50 percent of CDW overall business. “That impact just created a major headwind for our top line sales,” she said.

“So as a full stack, full lifecycle provider, there’s a cascading impact across hardware, software and services. So if you’ve got large delays in deals, then you have less attachment of services and other solutions,” said Leahy.

CDW Layoffs A ‘Really Hard’ Decision

Although not specifying how many employees were recently laid off, CDW’s CEO spoke about the “tough decision” to reduce its workforce that now stands at 15,300 workers.

“Our operating cost discipline is something that is evergreen. We are always focused on finding productivity and efficiencies. It’s just how we operate,” said Leahy.

“What we’ve done is really pull every lever we can pull to align our current cost structure with the demand that we’re seeing. When I say every lever, I mean all the things you would imagine: discretionary spend, hiring, promotions, staffing, geographic locations, etc. And one of the decisions we had to make was to adjust our staffing to current demand environment,” she said. “Now, look, these are really hard decisions.”

CDW executives said cuts were made in areas where “demand” was soft and could continue to be soft for “a more prolonged period.”

“We’re pivoting to the future and focused really heavily on our customers. But you’re right, it was a tough decision, but the right decision for the business and for the customers ultimately,” said Leahy.

It is key to note that CDW’s current headcount of 15,300 is up from the prior quarter due to the company’s acquisition of Sirius Computer Solutions for $2.5 billion.

Industry Layoffs, Slower Hiring Effected Client Device Sales

One of the biggest issues CDW has relating to sales declines is a drop in client device revenue as many companies are conducting layoffs or hiring freezes, according to CDW’s CEO.

“Large commercial customer client device declines had the greatest category impact as corporates worked through the impact of slower hiring and layoffs,” said Leahy. “You continue to see staff reductions across every industry and those things are impacting client device purchases.”

Countless tech companies have announced hundreds, sometimes tens of thousands, of job cuts in a single layoff round in 2023. For example, Amazon cut 27,000 employees, Google is laying off 12,000 employees and Microsoft is terminating 10,000 employees.

“On the client side, the market generally is in an extreme softness right now and that continues. That had an impact. We saw in the client space moderating even further down as we progress throughout the quarter,” said Leahy. “The large commercial customers client device category was the biggest downshift in the corporate space.”

CDW’s corporate segment revenue dropped 16 percent year over year to $2.2 billion, compared to $2.6 billion in the first quarter of 2022.

Customers Cut Hardware Spending To ‘Save Money’

Besides the drop in client device sales, CDW’s IT hardware sales took a significant hit in the first quarter of 2023 as customers look to save costs.

“Server, storage, hardware—this [is what] our customers are looking at and finding ways to save money— that’s another source of the downshift,” said Leahy. “What happens when you’ve got hardware either being delayed or pause—it’s like a cascading effect. If projects are delayed, the services that go with the project obviously aren’t implemented, at least some of them, until the integration of the product.”

U.S. hardware sales decreased by 21 percent year over year in the first quarter of 2023.

CDW’s CEO said customers are currently looking to “extend the useful life” of hardware assets, while at the same time purchasing more one-year software deals “instead of a three year deal.”

“They’re pausing on making decisions on things because they don’t want to get locked in. But it does start with the areas of hardware,” she said.

CDW Expects ‘Low-Single Digit’ Revenue Decline In 2023

With customers looking to contain IT costs due to the uncertain economic outlook, CDW said it expects total 2023 revenue to decline compared to 2022 by “low-single” digits.

Leahy said although CDW expects a pickup in activity during the second half of 2023, her company is currently projecting annual sales to drop in the low-single digits compared with last year’s $23.7 billion in total revenue.

“This outlook assumes that we will see a moderate pickup an activity in the back half of the year and anticipates that ongoing economic uncertainty will continue to impact customer behavior. Wildcards include deeper recessionary conditions, heightened credit tightness and debt ceiling driven liquidity events,” said Leahy.

“We are operating in choppy waters right now,” she said. “We have the strategy, capabilities and discipline to continue to profitably outgrow the market.”