CDW’s Client Sales Fall, CEO Talks Layoffs During Earnings Call

CRN breaks down CDW’s first-quarter 2023 earnings results, which included discussion about recent layoffs and a year-over-year revenue drop of 14 percent.

CDW CEO Christine Leahy

CDW’s total revenue dropped 14 percent during its first-quarter 2023 due to a decline in the sale of client devices and IT hardware, as CEO Christine Leahy commented on the company’s recent decision to lay off an unspecified number of employees.

During CDW’s first-quarter earnings call Wednesday, Leahy said economic uncertainty, the company’s sales outlook and operating cost “discipline” led the $20 billion Vernon Hills, Ill.-based company to recently let go of some employees.

“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 the current demand environment,” said CEO Leahy.

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

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CDW did not disclose how many employees were laid off.

However, it is key to note that CDW’s employee head count actually increased in first-quarter 2023 compared with fourth-quarter 2022 due to the company’s acquisition of Sirius Computer Solutions for $2.5 billion.

“Coworker count at the end of the first quarter was approximately 15,300, up slightly from the fourth quarter, principally due to the most recent acquisition, which added to our technical resources in professional and managed services,” said CDW CFO Al Miralles.

Miralles said the layoffs were due in part to the company experiencing a sales slowdown in some key areas.

“We’re looking at where are the areas and the practice areas that the demand vectors are stronger and we should allocate more resources to, and areas where maybe that demand could be softer for a more prolonged period. So that was part of the calculus in going through that,” said Miralles. “We believe while obviously difficult to go through, ultimately it will add the greatest value for customers and obviously improve efficiency.”

CDW Sales Drop Due To Devices And Large Commercial Customer Softness

First-quarter 2023 marked the first time CDW reported a decline in year-over-year revenue since the company went public in 2013.

CDW generated total sales of $5.1 billion during the quarter, down more than 14 percent year over year compared with nearly $6 billion in first-quarter 2022.

“Hardware and client devices really was at the core of the [sales decline] impact. The largest impact came from our larger commercial customers,” said Leahy.

Corporate segment net sales for CDW dropped over 17 percent year over year to $2.2 billion in first-quarter 2023.

“On the client side, the market generally is in an extreme softness right now and that continues. That had an impact. We saw the client space moderating even further down as we progress throughout the quarter,” said CDW’s CEO. “You continue to see staff reductions across every industry and those things are impacting client device purchases. The large commercial customers’ client device category was the biggest downshift in the corporate space.”

CDW’s gross profit slightly dropped 1 percent year over year to $1.09 billion in first-quarter 2023.

Gross profit margin was 21.3 percent in the first quarter of 2023 versus 18.6 percent in the year-ago quarter. The increase in gross profit margin was primarily driven by higher product margin, including notebook mix and rate, and a higher mix of netted down revenue, primarily software.

CDW’s operating income was $355 million in the quarter, representing a decrease of 8 percent year over year. Net income dropped 8 percent from $250 million in first-quarter 2022 to $230 million in first-quarter 2023.