ScanSource 3Q Sales Shortfall Due To Avaya's Program Changes

The company said most of the shortfall is due to disappointing sales in its Catalyst Telecom [Avaya-focused] business unit. In particular, changes to Avaya's vendor program caused delays in purchases during the quarter, the company said. The program changes could have led to loss of market share to other vendors, according ScanSource.

"Orders were delayed and possibly lost due to problems associated with the rollout of a new software and support strategy associated with our Avaya enterprise products," said Richard Cleys, ScanSource CFO, on a conference call with analysts. "We did not anticipate that the problems would affect our revenue so dramatically and fully expect the issues to be resolved before the end of the quarter, when a large percentage of our Catalyst revenue is historically booked and shipped.

"Significant changes to the new product strategy were just announced by Avaya and will take effect this week," Cleys told analysts. "We are still analyzing the potential impact of the changes announced but are encouraged as to the significance of the changes."

The Greenville, S.C.-based distributor expects revenue between $509 million and $515 million for the quarter ended March 31. Analysts were expecting sales of about $563 million, according to Thomson Financial. Normally, the bulk of Catalyst Telecom business occurs at the end of a quarter, when the distributor sees a dramatic surge in orders, Cleys said. Executives did not comment on margins or other financials. ScanSource will disclose full sales results on April 24.

The second area of weakness was the international POS and barcode business, where revenue growth slowed to 17 percent, 8 percent on a constant currency business.

"We are in the process of analyzing results and will be prepared to give more color on our April 24 earnings call," Cleys said on the call.