CDW Corporate Sales Dip Hits Direct-Market Reseller Shares


CDW shares as of Wednesday afternoon were down $4.13, or 6 percent, to $65.15 after the company reported a decline in corporate sales for its fiscal third quarter ended Sept 30. Shares of Insight fell 78 cents, or 3 percent, to $21.91; and shares of Zones dropped 52 cents, or 5 percent, to $10.15. Shares of PC Connection were bucking the trend, up 13 cents or one percent to $10.44.

CDW reported third-quarter sales of $1.739 billion, up 4 percent from $1.670 billion a year earlier. But sales to corporate buyers dipped 2.5 percent to $1.08 billion, compared with $1.17 billion in the year-ago quarter.

CDW's third-quarter earnings came in at $77.7 million, or 98 cents per share, up from $73.1 million, or 88 cents a share, a year ago.

The corporate sales decline stemmed in part from a sales-force reorganization implemented earlier this year that segmented most medium and large customers into geographic regions, according to Vernon Hills, Ill.-based CDW.

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"Medium and large corporate-sector account managers are continuing to build relationships with customers whose accounts have been transferred into regions," CDW Chairman and CEO John Edwardson said in a statement.

"The corporate sector is still in the implementation stage, and we are confident this is the right approach for the long term," Edwardson said. "We are focused on executing the segmentation strategy and accelerating growth in the corporate sector."

That sales-force segmentation strategy paid off handsomely for CDW in the government sector, where the company reported third-quarter sales of $651.1 million, up 18 percent from $553.5 million a year earlier.

The corporate sales shortfall comes as CDW concedes that it's increasingly going up against VARs, rather than Dell, in corporate accounts. CDW said it experienced softness in midmarket accounts and headwinds in the large enterprise business.

CDW said one of the benefits of the sales-force segmentation is the ability to get involved in more corporate opportunities with vendor partners, and the company is altering its strategy every day to capitalize on those corporate sales opportunities.

At the same time, CDW is honing its corporate sales strategy. Edwardson said the company is gearing up to add a significant number of new engineers to Berbee's 300-member team as part of a plan to boost VoIP sales to businesses.

"What is huge is the opportunity for Berbee as they open new offices in new cities," according to Edwardson. "We can move into those cities, and we have a big base of accounts with CDW in nearly every major city in America that we can then work with the Berbee group on those accounts. Most will qualify to use Berbee services."

Greg Starr, COO of IT Works, a Houston-based solution provider, said he expects to see more more competition with CDW in the wake of the Berbee acquisition. "At what point we begin to really see and feel that, who knows? It takes a while to implement plans to grow a business like Berbee," he said.

"We are looking at this and keeping a check on the CDW pulse so we can see and know what is coming," Starr added. "It's a wait-and-see game. Since they purchased Berbee, it is going to open them up to sell more telephony products, and when they get into that, they are going to do it the way they sell the rest of their products: low margin."