Computacenter facing rocky ride as sales slump

Dell is blamed for undercutting Computacenter's 'Rolls-Royce products', but analysts are concerned by lacklustre growth in the managed services market

Shares in Computacenter fell sharply this week after the IT equipment and services firm warned that it was still suffering poor sales.

Computacenter, which sells IT hardware and services to businesses, revealed on Tuesday that its sales in the first half of this year would be 10 percent lower than the same period last year, sending its share price plunging around 19 percent to 188.25p. The share price later recovered slightly to 196p.

This is the company's second profit warning this year. In April, it said that sales for the first quarter of 2005 were substantially lower than the first quarter of 2004. Computacenter had suggested that market conditions were improving, but this hope doesn't appear to have been realised.

"The improving trend seen at the end of the first quarter was not sustained and product sales in the second quarter have been below our expectations,” said the company in a trading statement.

Chief executive Mike Norris claimed that his company was suffering because firms were choosing cheaper alternatives.

"We have to understand the level of service that customers require for PC products has come down," Norris said during a conference call. "We are building and selling a Rolls-Royce solution and Dell has beaten us because they are delivering a good-enough solution."

Computacenter has been facing increasing commoditisation and tighter margins in the hardware space. In response, it is trying to diversify into managed services, and analysts are concerned that growth in this area was lower than expected.

"While we have come to accept the ongoing issues around pricing pressure on Computacenter's resale businesses, today's announcement regarding its managed services business is a blow," said Ovum analyst Kate Hanaghan, adding that Computacenter needs to accelerate growth, possibly through buying other companies.

"In our past conversations with Mike Norris, the good news has always been around the managed services offering. The double-digit growth here was a beacon of light. If this business does not make a recovery into the second half, Computacenter will be in for an even rockier ride," Hanaghan warned.