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Insight Enterprises CEO: Edge Computing ‘Still In Very Early Innings’

Insight Enterprises sees the edge as the leading the way for clients to move forward with the cloud. ‘As things move more and more to the edge with technologies like AI and IoT, that will drive a significant amount of hardware that we haven't seen in the past,’ CEO Ken Lamneck tells analysts.

Insight Enterprises on Wednesday said it expects growth in 2020 as customers continue to move to the cloud, and to edge computing in particular, which the company sees as the real cloud growth market.

Ken Lamneck, president and CEO of the Tempe, Ariz.-based global solution provider, told analysts on the company's fiscal fourth quarter 2019 conference call that there is a lot of opportunity for growth in the cloud, particularly at the edge.

[Related: Insight Enterprises: Impact Of $581M PCM Acquisition Just Starting]

It is at the edge where Lamneck said cloud opportunities will ultimately exceed those of public and private clouds.

"As things move more and more to the edge with technologies like AI and IoT, that will drive a significant amount of hardware that we haven't seen in the past," he said. "We're still in very early innings. I'd say we're probably in the second inning there, but we remain bullish that our hardware will be alive and well. And going forward [the cloud will be] primarily driven by what will occur in the intelligent edge which, again is just starting to formulate, and we're starting to see some interesting successes there in our solution areas for those type of engagements."

In other news, the company is keeping an eye on the coronavirus crisis for possible impact not only on its China and Hong Kong operations but also on its worldwide supply chain.

When asked by another analyst about any impact Insight Enterprises saw during the fiscal quarter from the ongoing coronavirus situation, Lamneck said that his company has three locations in China and one in Hong Kong where employees are currently working from home.

"[Government orders to work from home were] extended another week, as you know, so [it's] certainly impacting business in the region," he said. "No question about that. For us, of course, it's a small portion of our business, so we're not going to see any material effect there."

Insight Enterprises is also closely monitoring supply chains for impact from the coronavirus, Lamneck said.

"I think [the virus impact] overlapped a little bit with the Chinese New Year, so many of the OEMs of course account for that already," he said. "So this is sort of now an extension of maybe ... Chinese New Year, which everybody accounts for, looking more like a three-week Chinese New Year situation. So if that goes beyond that, I think it definitely starts to impact the supply chain. But at this stage, we're monitoring closely but haven't seen any impact or sort of hoarding of product or anything. But again, it's a pretty dynamic situation. If that continues beyond that, then I think we might see some impact there. But today I’d say nothing at this stage."

The fiscal fourth quarter was also an opportunity for Insight Enterprises to start wrapping up the integration of its PCM acquisition as a step towards future growth, Lamneck said.

Insight Enterprises in 2019 acquired PCM in a $581-million deal that created a channel juggernaut with expected annual sales of over $9 billion.

Insight Enterprises was ranked number 14 in CRN's 2019 Solution Provider 500 list, while PCM was ranked number 30. Combined, they would have had the number 11 spot in the list.

Insight completed its PCM acquisition in the third fiscal quarter, and by December had on-boarded PCM's Canadian business, followed by its EMEA (Europe, Middle East, and Africa) business in January, Lamneck said. This month, Insight began migrating PCM's U.S. clients to its SAP system, he said. When finished, Insight expects to add over 70 cents per share of adjusted diluted earnings per share from its PCM business, he said.

Strategically, Insight is very excited about the opportunity for growth in the combined client base, Lamneck said.

"As a reminder, the PCM acquisition expands our share in the mid-market, a target market that we believe values our expertise around modern workplace, cloud and data center, and digital solutions," he said. "We've completed the internal organization alignment to ensure we bring our solutions to this market with the right technical skills, sales engagement, and standardized delivery to grow profitably and at scale, and look forward to realizing on the cross-sell opportunity beginning in 2020."

The new Insight Enterprises expects to exceed market growth in 2020 in an IT market characterized by flat to low-single-digit growth in hardware sales and mid-single-digit growth in software and services sales, Lamneck said.

"In 2020, we will continue to empower clients to manage their IT environments more efficiently for today as they continue to drive meaningful business outcomes and transform their own business for the future," he said.

While Insight Enterprises traditionally focused its solutions in the enterprise IT market, the acquisition of PCM gives it a chance to do so for the midmarket, Lamneck said.

"We will work to consolidate our sales and service delivery teams across the business to ensure a common client experience and ability to sell across the Insight portfolio of offerings," he said. "We also see an early cross-sell opportunity to bring certain packaged cloud solutions wrapped with Insight managed services to this market segment."

Insight, with PCM, has a single united global leadership team, integrated and scalable IT systems and operations, a highly-engaged workforce, and a clearly-defined go-to-market framework, Lamneck said.

"We believe we are well-positioned to compete in the marketplace as we head into 2020 and beyond," he said.

Lamneck admitted that Insight Enterprises' organic, non-PCM growth was relatively flat compared to last year, and cited a drop in repeat hardware business in 2019 vs 2018.

"These large enterprise clients drive substantial volumes, and it depends upon where you're positioned for that sort of cycle as they don't repeat each other every year," he said. "So I would say it really has to do solely with that. Again, we're pleased with where PCM came in for the quarter, very pleased with where we are from an integration point of view."

When asked about the PC refresh cycle, Lamneck said the IT industry seems to be approaching the end of the Windows 10 cycle.

"There’s still certainly some runway still left there," he said. "But as we’ve said, it’s more about sort of a consistent refresh cycle that we see from our largest clients. So it all depends upon where you’re positioned with those large enterprise clients in our business from a refresh perspective. So, we still think that there is certainly some gas left in the device cycle refresh. I don’t think it’s going to be double-digit this year like we’ve experienced in the last three years, but I don’t think it’s going away."

When asked about IT industry consolidation and the impact on Insight Enterprises, Lamneck said his company for now is focused on fully digesting PCM before considering doing any larger acquisitions.

"But for the foreseeable future, you might see us continue to do more sort of tuck-in acquisitions as we continued to digest PCM and make sure, of course, we started paying the debt down here over the next couple of years," he said.

For the fourth fiscal quarter of 2019, which ended December 31, Insight reported net sales of $2.30 billion, up 31 percent over the $1.75 billion the company reported for its fourth fiscal quarter of 2018. That included sales of about $560 million from PCM, Lamneck said.

Sales in North America rose 38 percent year-over-year to reach $1.86 billion.

Net earnings on a GAAP basis for the quarter reached $43.0 million, or $1.20 per share, down from the $47.0 million, or $1.31 per share, the company reported for the same period last year. On a non-GAAP basis, sales for the quarter reached $56.2 million, or $1.57 per share, up from last year's $50.8 million, or $1.41 per share.

For all of fiscal 2019, Insight reported net sales of $7.73 billion, up 9 percent compared to last year's $7.08 billion.

GAAP net earnings for the year reached $159.4 million, or $4.43 per share, down from last year's $163.7 million, or $4.55 per share. Non-GAAP net earnings was $194.8 million, or $5.42 per share, up from last year's $178.4 million, or $4.95 per share.

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