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Computacenter Looks to Double Profitability, Grow IT Services Business

NelsonHall recently attended Computacenter's second ever analyst and advisor day.  The company highlighted recent achievements, its connection with hardware and software reselling and its immediate strategic priorities.

CEO Mike Norris referred back to 2002 and the acquisition of Compaq by HP, which led to it losing a major source of revenues and profits and which forced a change in its strategy, to become a services- rather than product-led business, backed by hardware.

Computacenter has grown through a number of acquisitions, the most important of which was that of GE / Compunet in 2003. This brought in a presence in the key European market of Germany, which today accounts for 41% of Computacenter’s global revenues - the same as its traditional stronghold of the U.K. A recent key decision was to implement a company-wide SAP ERP system to help it achieve consistency across geographies. The implementation has just been completed with a rollout in France, its third largest geography, in 2013.

Today, Computacenter is a £3.07bn business with a headcount of 14,000. Despite its increased focus on services since 2002, they still account for under a third of total revenue today. The company has no intention of giving up its reselling business; the emphasis is on cross-selling services to its client base. 

There is a clear focus on the desktop (hardware, software and services): 

  • Workplace hardware represents 26% of worldwide revenues
  • Computacenter services 2.4m workplaces and 3m users (through service desks). This makes the company the largest Europe-headquartered company in terms of desktops serviced, ahead of Atos (~2.1m). 

Computacenter has traditional strengths in field services, with 2.5k field engineers in Europe. The company has a slightly larger headcount in its service desk operations (~2.6k).  The company is looking to increase the productivity of its service desk business. Computacenter notes that around 30% of inbound Level 1 calls are password related, and another 15% are related to end-users calling and following up with requests. In response, Computacenter is taking several steps including:

  • An end-user service portal for password resets and that will include a KM tool. Another feature of the self-service portal will be chat capabilities: chat agents can conduct chats with 5 to 7 users concurrently
  • A mobile app, initially for providing end-users with a service request follow-up. Mobile apps could open up new functionality in the service desk e.g. verifying the identity of the caller using the device's camera; using a device location to provide contextual information, for instance the location of the closes printer.

Computacenter is introducing new services largely around mobile device management and the convergence of management software around mobile devices and enterprise workplaces. It is planning to deploy its device management service internally with the intent of offering the service to external clients soon. Along with traditional end-user role-based and related application mapping, the company is taking a centralized view of applications, sometimes through corporate app stores. It is also investing in increasing its capabilities around security and networking.

Computacenter has been fine-tuning its client segmentation. The company now primarily targets

  • Large enterprises, focusing on end-user computing services
  • The upper tier of the mid-market for a wider range of services, across network services to datacenter and end-user computing services.

Computacenter included three client presentations in its event: Lloyds Banking Group (LBG), Daimler and Sanofi, all of whom mentioned Computacenter’s flexibility and partnership approach. These clients between them cover Computacenter’s three largest geographies.

  • LBG: Computacenter has had a relationship with the bank since 2007, initially around products and related services. Following the merger of Lloyds and HBoS, LBG selected Computacenter for onsite desktop services and servers. The relationship has since expanded to include network cabling and services; datacenter managed services and video conferencing hardware. Computacenter also provides services around Windows XP migration and server virtualization
  • Daimler: Computacenter provides largely network services to the car maker, connecting 490 locations. The relationship has seen some geographic expansion
  • Sanofi: a recent (2013) desktop services client. Sanofi has grown through a number of mergers and acquisitions. Its priority is around business processes and desktop service standardization.

Computacenter performed relatively well in 2013 with services revenues up 3.7% at CC and supply chain up 2.0% at CC. But the margin clearly shows its continued dependence on h/w reselling: its EBIT margin was just 1.6% (adjusted EBIT margin 2.7%). Margin was also impacted by poor performance in France.

Computacenter has ambitious targets to further improve its profitability from 48 pence per share in 2013 to £1 per share by 2020. Levers to improve profitability include:

  • Increasing the proportion of revenues coming from higher margin IT services. This will require strengthening account management capabilities around up-selling
  • Reducing the cost to serve in its service desk business, as discussed above
  • Overhauling its loss-making French business. Work is underway on eliminating unprofitable accounts and re-energizing the sales force in France. The French business is workplace oriented and Computacenter needs to hire staff to expand into other service areas such as datacenters
  • A targeted 50% increase in revenue. Computacenter intends to increase its share of the larger enterprise market with acquisitions in Northern Europe.

One distinct attribute of Computacenter is people-related, in particular their ability to discuss both strategy and go deep in terms of service offerings or technical attributes. This combined market and technical understanding within in service offerings remains uncommon in the industry.

In spite of the shift become service-centric for over a decade, Computacenter is still primarily a reseller. Acquisitions (in Belgium, Switzerland, Germany, U.K. and France) have been reseller centric. Computacenter appears to have been opportunistic in some of these, purchasing several companies at attractive prices. The company claims it does not now want to acquire another reseller addressing the mid-market, as the focus is more clearly on large accounts. Will we see an IT services acquisition in Continental Europe (where several local champions are struggling), as Norris hinted?

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