Computacenter sees profits drop on supply chain shortages

Computacenter sees profits drop as supply chain shortages cause move towards lower-margin services

  • Computacenter saw its revenues increase by around £400m to £2.83bn
  • Margins were hit by growing trade with hyperscale technology customers
  • The firm’s shares were one of the worst performers on the FTSE 350 today

IT consulting firm Computacenter has seen half-year profits fall due to supply chain shortages and a shift in demand towards lower-margin products.

The Hertfordshire-based company, which provides computing and cloud services to corporate and public sector institutions, revealed profits declined by 5.2 per cent to £77.8million in the first six months of the year.

This was despite revenues climbing by around £400million to £2.83billion on the back of a strong performance from its technology sourcing business.

Downturn: Computacenter, which provides computing and cloud services to corporate and public sector institutions, revealed profits declined by 5.2 per cent to £77.8million

North America was responsible for much of the turnover growth thanks to significant demand from a small number of Californian hyperscale technology customers looking to modernise their infrastructure and digitise operations.

However, this type of business tends to command much lower margins for the group, given the size of the contracts involved.

Margins in Computacenter’s German division have also been affected by higher handling costs, increased competition and manufacturers preferring large-volume workplace contracts.

In turn, both segments are being impacted by high inventory levels caused by consumers increasingly ordering in advance and supply chain shortages, one of the most significant issues affecting the global technology sector.

Computacenter said that one major unnamed hyperscale customer had seen its product order backlog skyrocket by more than $1.8billion since June last year.

Chief executive Mike Norris said: ‘With the exception of networking products where difficulties still remain, supply chain challenges have eased materially in the last three months.

‘However, our customers have become extremely sensitive about supply chain shortages and, as such, require us to hold more inventory, impacting our balance sheet. In almost all cases, there is a guaranteed sale on the inventory items.

‘The continuing strength of our balance sheet gives us a significant competitive advantage in being able to support our customers’ requirements in this manner.’

Following the trading update, Computacenter shares tumbled by 13.3 per cent to £21.36 by late afternoon trading, making it the second-worst performer on the FTSE 350 Index behind fund manager Bridgepoint Group.

But even before today, the firm’s share price has been on a gradual downward trend as trading restrictions have loosened and people have spent more time outdoors.

Prior to 2022, they had undergone a massive pandemic-induced boom resulting from companies adopting work-from-home policies in response to government guidance and buying IT equipment for their employees.

Computacenter’s customers have comprised many famous names in British business, such as Virgin Media owner Liberty Global, the Yorkshire Building Society, Heathrow Airport, and Magic Circle law firm Linklaters.