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Best Practices


This Week’s Tech Q1 Fiscal Results May Make the Channel Uneasy

  • Written by Kris Blackmon
  • April 19, 2016
It was a tough week for the tech sector as several industry leaders reported results ranging from "meh" to "apocalyptic." Some trigger-happy analysts are taking the numbers as signs of a major slowdown in tech, but The VAR Guy is more optimistic.

It was a tough week for the tech sector as several industry leaders reported results ranging from “meh” to “apocalyptic.” Some trigger-happy analysts are taking the numbers as signs of a major slowdown in tech, but The VAR Guy is more optimistic—at least for now. 

For the record, none of the numbers put up by the companies on this list should give anyone reason to celebrate. But some indicators point toward encouraging trends, especially for channel partners. Though results clearly reveal that big companies continue to struggle with the slowdown in hardware sales, PCs in particular, they also show that investments in cloud computing, data analytics, data centers and the IoT are bearing fruit. Revenues from those industries are not yet making up for diminished hardware sales, but they are growing by impressive multiples.  

What’s more, M&A activity continues (albeit at a slower rate than the frenzy we saw in 2015) as companies with cash decide to buy new capabilities instead of developing them in-house. And smaller VARs and service providers, which tend to be more agile than their huge and ponderous vendor partners, face a glut of options as vendors and distributors throw elbows trying to grab a larger share of the channel.

Related

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IBM Net and Revenue Fall in First Quarter

So while the news this week is pretty grim, don’t despair. 2016 is a year of big, exciting transformation in tech, with plenty of opportunity for the channel. Here’s a recap.

IBM

The VAR Guy reported earlier this week on IBM’s (IBM) less than stellar showing in Q1. Sales for the tech giant totaled $18.7 billion, off 5 percent from one year ago. Earnings totaled $2.0 billion, down 17 percent from the first quarter of 2015. Still, there are encouraging signs from IBM’s “strategic imperatives,” including cloud, analytics and engagement. Revenue is up sharply in all of these areas. Still, it’s too little, too slow to please most stockholders. Will Big Blue’s pivot from traditional hardware sales to solution-based technology services like Watson Analytics succeed? Spoiler alert: the VAR Guy’s Magic 8 Ball just told us “all signs point to yes,” but if things don’t improve soon we suspect it may read “ask again.”​

Intel

What happens when the market a tech giant is built on disappears? Just ask Intel (INTC), which still gets 60 percent of its revenue from the sale of chips for PCs. Despite a seven percent rise in revenue year-over-year, the company is struggling against the PC quicksand as it tries to find firmer ground in emerging spaces such as its “data center, IoT, memory and connectivity businesses, as well as growing client segments such as 2-in-1s, gaming and home gateways,” according to an announcement of restructuring plans that accompanied its earnings report Tuesday. In addition to lowering revenue projections for the remainder of the year, Intel announced it’s cutting 12,000 jobs, or about 11 percent of its workforce. Apparently, the road to success in these new segments will be rough and not without casualties. 

Yahoo

Yahoo’s (YHOO) news wasn’t entirely horrendous when it announced quarterly earnings after the bell on Monday. Its results actually exceeded analysts’ predictions, albeit slightly, for revenue and share price. Of course, the reported $1.1 billion in revenue is still a dismal number; it was down year-over-year from $1.23 billion. Worse yet, the company lost nearly $100 million compared to a net gain of $21 million reported one year ago. CEO Marissa Mayer said that she’s doing everything in her power to broker a strategic acquisition following Monday’s deadline for bids. “Our board, our management team, and I are completely aligned on this top priority for shareholders,” Mayer said. If true, this may be the first time in a long while Mayer seems to be willing to give stakeholders what they want. Hey, we’ll take our silver linings where we can find them.

Alphabet

The mixed news continued when Alphabet, Inc. (GOOG), Google’s parent company, made its announcement Thursday. Revenue and profit showed significant increases, but that wasn’t good enough for Wall Street. Revenue, while up 17 percent, still fell short of analysts’ predictions. The result? Google’s stock dropped about six percent in after-hours trading as investors punished the company for not being perfect. The company is still in the process of shifting their business model to focus more on mobile ad sales than desktop ad sales. And while revenue from “other bets” outside of Google doubled to $166 million year-over-year, the associated operating costs also jumped from $633 million to $802 million. Did investments in such “moonshots” overshadow Google’s advertising revenue? Maybe, but The VAR Guy would rather write about self-driving cars than ad-clicks any day.

Microsoft

Microsoft hopped on the “not good enough” bus with reported revenue of $20.5 billion, down from $21.7 billion a year ago. What’s more, executives were quick to blame everything from the high dollar to a high value-added tax in Japan for depressed results (excuses, excuses). The company’s announcement on Thursday illustrates the changing nature of business IT. Revenue from Microsoft’s PC-related business continued to fall, but its investment in cloud computing is paying off. The subscription-based version of Office for Business, Office 365, reported nearly double the number of subscribers from a year ago, up to 22.2 million from 12.4 million. Its Azure offering is second only to Amazon in the business of renting computing infrastructure in Microsoft-owned data centers. And revenue from Microsoft’s intelligent cloud business rose 8 percent year-over-year. All in all, the announcement wasn’t the disaster that some other tech companies experienced this week, but stock prices still fell five percent in after-hours trading. Because, you know, Wall Street.

The fun continues next week as Apple, Facebook, AT&T and more open their books. We suspect the news will be sunnier…but we bet Wall Street still finds reasons to cry “downturn.” 

 

Tags: Cloud Service Providers Digital Service Providers MSPs VARs/SIs Best Practices

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