U.S. IT Hardware Sales Slump Hits Insight

The company noted that North American legacy hardware sales declines impacted the company most, but analysts expect the impact of the recession will soon hit global markets as well.

While net sales for its third quarter ended Sept. 30 increased 5 percent year-over-year to $1.17 billion, net earnings from continuing operations for the quarter decreased to $6.7 million from $9.1 million, hurt by declines in net sales for the company's legacy hardware business.

"In the third quarter, the demand environment for IT solutions continued to be very challenging as the overall economy worsened, especially in September," Insight President and CEO Rich Fennessy said in a statement. He added that as the company finishes out the year, it would take unspecified actions to reduce base infrastructure costs and discretionary spending.

The company added that it expected demand to remain soft in the fourth quarter and expected that diluted earnings per share for the period would range between 27 cents and 34 cents per share. The company noted "the reason for such a wide range is that, worldwide, the current environment is quite unprecedented making forecasting more difficult."

Insight noted, however, that the acquisition earlier this year of Calence, one of Cisco's largest solution providers, is paying off. Insight said that the net hardware sales of Calence during the quarter more than offset the decline in net sales in the company's legacy hardware business. In North America, for example, sales of networking and connectivity hardware increased 63 percent year-over-year, while notebook and PDA sales declined 15 percent and server and storage sales dropped 17 percent.

Software and services sales, however, continued to remain strong with growth of 2 percent and 126 percent, respectively, in the third quarter, the company said.

Raymond James Associates, St. Petersburg, Fla., in an equity research report on Insight issued Friday, noted that Insight management's subdued comments on weakening demand, "supports our pessimistic stance on IT spending, as we believe demand related headwinds should intensify."

Raymond James went on to say that while much of the weakness has been in the consumer and SMB markets, it believes the slowdown would soon impact large enterprise spending, especially as foreign economies weaken.