Microsoft has stopped cutting sales fees for resellers? Yep

Microsoft has quit hacking into fees paid for channel software sales, and reselling clouds is getting more profitable – these seemed to be the major takeaways from top brass at Insight Enterprises in an enterprising Q2.

Revenue at group level went up two per cent to $1.46bn, but this top line expansion was driven purely by the North America teams, where sales went up six per cent to $1.04bn.

Hardware in the region was up eight per cent on back of demand for PCs, servers and storage; services jumped 11 per cent on the BlueMetal acquisition; and software grew two per cent.

CEO Ken Lamneck said software growth had been “impacted by product mix including more cloud sales” but outpaced top line gross margin rises and was “the single largest driver gross margin improvement in the quarter”.

“We continue to see traditional software licensing sales convert to a cloud based solution which like software maintenance sales recorded net in our financial statements. It is important to know that this shift in consumption of software products in the marketplace has no effect on our profitability.”

EMEA and APAC dropped five and 10 per cent respectively to $361.7m and $58.3m - in constant currency the declines for the regions were two and seven per cent.

Insight reported lower EMEA sales to enterprise punters, said lower demand for PC put a three per cent dent in hardware sales, while services were up 38 per cent on licence consulting and cloud related services. Software declined due to a higher mix of maintenance shifting to cloud.

Lamneck said Microsoft Azure and Office 365 were had “started to contribute meaningfully to gross profit dollars in the cloud” across the group, and he expected this to continue “based on the knowledge we have”.

Gross profit was up nine per cent to $209.2m as gross margin became a little fatter across all of the companies operated segments; up 70 basis points in North America to 13.8 per cent; up 130 basis points in EMEA to 15.2 per cent; and 250 bps in APAC to 18.5 per cent.

“This increase reflects strong sales of software enterprise agreements. Higher services sales. Proceeds from a $2.2 million insurance settlement and the higher mix of software maintenance and cloud sales ,” the CEO said.

Profits were helped by cost reduction of $20m from the North America expense base, something that took place mid-way through Q2.

The company also flagged up more predictability from Microsoft, which started cutting fees paid to enterprise licensing resellers in 2007 and kept on going, a point Insight had often highlighted.

“[The sales programmes] look stable from everything that we have have, certainly for the foreseeable next 12 month period,” said Lamneck.

Selling and administrative expenses were up one per cent to $150.18m, severance and restructuring charges were $909,000 leaving operating profit of $58.12m, up from $43.04m.

Net profit was $35.06m versus $25.49m a year ago. ®