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Insight Enterprises (NSIT) |
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WIKI ANALYSIS
Insight Enterprises, Inc. (Nasdaq: NSIT) is an IT reseller and currently the world's largest software reseller.[1][2] The company sells software to small businesses, educational institutions, and government organizations.[3] With operations in North America, Europe, the Middle East, Africa, and the Asia-Pacific region, Insight has clients in over 170 countries and serves more than 80% of the firms in the 2008 Fortune 500.[1] The Company's biggest source of revenue in FY07 was hardware sales, which accounted for 65% of revenue.[4]
For FY07, total revenues increased 33.6%, or $1.21 billion YoY to $4.8 billion.[5] Much of this increase can be attributed to the purchase of Software Spectrum, a software reseller and the world's largest Microsoft Large Account Reseller, from Level 3 Communications (LVLT) in September 2006.[6] Because Insight's only international operations before the acquisition were in the UK, Software Spectrum gave the company access to the global software resale market and the resulting revenue stream from greatly expanded international operations.[7]
On January 24, 2008, Insight agreed to a merger with privately held Calence, LLC,[7] a technology service provider specializing in Cisco Systems (CSCO) networking products. This acquisition will increase Insight's ability to market and sell high-end Cisco products.[7]
Business Overview
Insight Enterprises (NSIT) is a value-added reseller (VAR) specializing in the resale of brand-name IT products and the provision of IT networking and support services to its global client base.[8] As a reseller, the company buys products directly from over 1000 manufacturers, then sells these products to its customers via phone, catalogue, and website.[9] In 2007, Insight's product lineup included over 250,000 hardware, software, and IT services.[9] Insight has increased international (non- North America) sales from 14% of net sales in 2004[10] to 30% of net sales in 2007, due largely to the $287 million acquisition of software reselling firm Software Spectrum in Semptember 2006.[11] The company focuses on sales to small-medium businesses (SMB, defined by NSIT as companies with 500 or fewer technology users),[12] as well as governments and educational institutions. In FY07, no single client accounted for more than 3% of consolidated net sales.[13]
Software Spectrum Acquisition
NSIT formally agreed to acquire Software Spectrum in September 2006 for $287 million in cash.[11] Before this purchase, Insight's only international presence was its operating segment in the United Kingdom, which in FY05 accounted for 15% of net sales.[14] After the purchase, international contributions to net sales doubled to 30%[7] and Insight gained Software Spectrum's offices in Australia, Austria, Belgium, China, Denmark, Finland, France, Italy, Japan, Germany, Hong Kong, Netherlands, New Zealand, Norway, Russia, Singapore, Spain, Sweden, and Switzerland.[15]
Business and Financial Metrics
The following table[16] shows NSIT's total revenue and net income for FY05-FY07.
| (thousands USD ($)) | 2007 | 2006 | 2005 |
| Revenues | $4,800,431 | $3,593,256 | $2,931,209 |
| change YoY | 33.6% | 22.6% | 5.4% |
| Net Income | $77,795 | $76,818 | $54,660 |
| change YoY | 1.2% | 42.2% | (32.9)% |
- 34% YoY growth in revenues from FY06 to FY07 was due primarily to increased software sales as a result of the acquisition of Software Spectrum in September 2006, in addition to organic growth in the hardware and service categories.[17]
Business Segments - Geographic Breakdown
Insight is organized into three geographical operating segments: North America, EMEA (Europe, Middle East, and Africa), and APAC (Asia-Pacific).[7] The following table[18] shows NSIT's performance based on geographical segment.
| Segment | Total Revenue | % Total Revenue | % Net Income |
| NA FY07 | $3,362,955 | 70% | 69% |
| EMEA FY07 | $1,329,682 | 27.7% | 27% |
| APAC FY07 | $107,794 | 2.3% | 4% |
North America (NA) - 70% revenues, 69% net income
Insight's North American operations consist of brand name IT hardware, software, and services sales in the United States, Canada, and Mexico. In the region, revenues increased 18% YoY for FY07, caused primarily by the acquisition of software distributor firm Software Spectrum in September 2006, and gross profit increased by 27.3% to $471.8 million.[20] The largest source of revenue in the NA segment was the 'desktop and servers' category with 12% of NA revenue, followed by the 'notebooks and PDAs' and 'network and connectivity' categories, both with 11% of NA revenue.
Europe, Middle East, and Africa (EMEA) - 27.7% revenues, 27% net income
Insight's EMEA regional sector increased revenues 87%, or $619.4 million YoY for FY07, due to organic growth, the acquisition of Software Spectrum, and favorable currency exchange rates.[21] Gross profit increased 77.1% to $168.6 million.[20] With the exception of Insight's United Kingdom operations, only software and certain software related services - not IT hardware and related services - are offered.[21] The product line in the UK is the same as that in North America.
Asia-Pacific (APAC) - 2.3% revenues, 4% net income
The Asia-Pacific contingent of Insight Enterprises consists solely of assets and clients developed by Software Spectrum. In the first full year of operation under Insight, net sales were $107.8 million and gross profit was $20.7 million.[20]
Key Trends and Forces
Information Technology (IT) market health affects demand for NSIT's products and is forcing price reductions
The health of the IT market is possibly the most influential factor in NSIT's success. The recent financial crisis has directly affected demand for the IT products and services Insight provides. As a result revenue has decreased over 10% in the North American SMB market, and over 3% in the European market.[3] The economic slowdown has also caused Insight to lower prices, which has reduced its profit margins from 2.4% in FH07 to -10.0% in FH08, a 12.4% YoY reduction.
Manufacturers' option to sell directly to consumer and bypass Insight as a reseller poses risk to top line
As a player in the reselling market, Insight must take into account that manufacturers have the option to either sell through resellers such as NSIT, or sell directly to the consumer and bypass sales through resellers entirely.[22] Major manufacturers such as Dell and HP have started to shift towards a 'direct-sale' model.[22]
International expansion is NSIT's answer to slowing US growth, but exposes NSIT to risks of international operations
NSIT has operation centers in six countries, including the US, as well as sales offices in eighteen countries, and sales presence in four countries. In these markets, demand is growing faster than in the US. In FY07, revenue in the NA segment grew 18% YoY, compared with 87% in the EMEA segment and 260% in the APAC segment.[23] As with any company with international operations, success is subject to political or economic instability, changes in governmental regulation or taxation, changes in trade duties, changes in trade restrictions, worker strikes, and seasonal reduction in business in some parts of the world, among others.[24]
Transportation and energy costs affect margins and increase competition
As a reseller, Insight depends on transportation costs to move its goods both from the manufacturer and to the consumer. Because NSIT relies on third-party shippers such as United Parcel Service (UPS), FedEx (FDX), Dhl, etc. to transport their goods, any increase in these companies' shipping prices will adversely affect NSIT's bottom line. In December 2007, FedEx and UPS increased its shipping rates 4.9%,[25] and announced in September 2008 a further 6.9% rate increase that will take effect on January 5th, 2009.[26]
Competiton
Market Overview
The IT hardware, software, and services industry is highly competitive, involving broad-range resellers such as NSIT; manufacturers such as Dell, HP, and Apple; direct marketers such as CDW; software only resellers such as SoftChoice; systems integrators such as Compucom Systems; local resellers; and global service providers such as IBM Global Services, HP, and EDS.[27] The market landscape is highly dynamic, as technology products rapidly evolve and competitors expand product and service offerings.[27]
Direct Competitors
CDW
CDW Corporation is a reseller of IT products and services, primarily of hardware, but also of software and networking goods.[28] It is a main competitor of NSIT in the United States and Canada, especially in the hardware sales sector, but does not pose an international threat due to its insubstantial presence outside of North America. Because it is a private company, CDW does not release official financial information; however, in FY06, revenue was $6.8 billion.[29]
Dell
NSIT has a two-faced relationship with Dell (DELL), as it competes both domestically and internationally with Dell's 'relationship business' and 'small business' segments of its commercial customer business, and works alongside Dell by purchasing and reselling its hardware and software products.[30] Firms such as Dell pose a real threat to Value-Added-Resellers like Insight, as companies can instead choose to purchase their IT products directly from the manufacturer. In FY07, net revenue was $57.4 billion, and net income was $2.6 billion.[30]
Electronic Data Systems
Electronic Data Systems (EDS) is an international IT services firm that specializes in outsourcing.[31] It provides the technology for and manages the human resource departments of over 400 companies in the Western hemisphere,[32] NSIT only competing with the former segment. In FY06, EDS's net revenue was $26.5 billion, and net income was $470 million.[31]
| Total Revenue | Net Income | Profit Margin
| |
| NSIT FY07 | $4,800,431 | $77,795 | 1.62% |
| CDW FY06 | $6,785,473 | $266,080 | 3.92% |
| DELL FY07 | $57,420,000 | $2,583,000 | 4.50% |
| EDS FY07 | $22,100,000 | $828,000 | 3.74% |
References
- ↑ 1.0 1.1 [1]
- ↑ [2]
- ↑ 3.0 3.1 [Value Line Publishing Report: NSIT, 2008]
- ↑ [Insight Enterprises Form 10-K for Fiscal 2007, Page 36]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 29]
- ↑ [3]
- ↑ 7.0 7.1 7.2 7.3 7.4 [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 9]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 10]
- ↑ 9.0 9.1 [Ativo Research, NSIT Insight Enterprises Report, August 14, 2008]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 2]
- ↑ 11.0 11.1 Press Release
- ↑ [www.insight.com Investor Relations]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 11]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2005, Page 11]
- ↑ [Insight.com Contact Information, International Locations]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 29]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 31]
- ↑ TinyURL Financial Report 10-K
- ↑ Insight Enterprises Form 10-K for Fiscal Year 2007, Page35
- ↑ 20.0 20.1 20.2 [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 78]
- ↑ 21.0 21.1 [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 36]
- ↑ 22.0 22.1 [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 35]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 35]
- ↑ [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 21]
- ↑ [4]
- ↑ [5]
- ↑ 27.0 27.1 [Insight Enterprises Form 10-K for Fiscal Year 2007, Page 15]
- ↑ [www.cdw.com About Us]
- ↑ [CDW Corporation Form 10-K for Fiscal Year 2006, Income Statement]
- ↑ 30.0 30.1 [Dell Incorporated Form 10-K for Fiscal Year 2007, Income Statement]
- ↑ 31.0 31.1 [Yahoo Finance, EDS Financials]
- ↑ [HPQ,2007,10-K,Item-8,Page-75]
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