Product commoditisation forcing Data#3 into cloud and services

Continued product commoditisation, lower margins due to competitive pressure, and longer decision cycles combined with smaller transactions have taken the blame for business technology solutions provider Data#3 posting a 38 percent decline in net profit after tax, coming in at AU$7.5 million for the 2014 financial year.

Although profits were down, revenue for the company grew 8.1 percent to AU$833.6 million for the year.

Data#3 managing director John Grant said that, on balance, the result was a reasonable outcome in a tough market.

"We are pleased to have been able to return to top line revenue growth, but with continued commoditisation of our traditional product centric businesses, margins came under significant pressure over the last 12 months," Grant said.

"Responding to the changing industry dynamics, we have repositioned the business with investments in managed services and cloud. While we have had some notable success to date and customer take up of these new technologies and delivery models is growing, it is yet to reach significant scale."

While the company is looking to bump up its profit next year, Grant warned that market conditions would remain challenging for Data#3, with the growth to be driven by on premises, outsourced and cloud services.

The year started poorly for Data#3, with revenue down by 1.8 percent by the halfway mark, and profit falling by 11.7 percent when compared to the same period in 2013.

A restructure and consolidation of the company's business lines saw the aborting of a plan to create a new consulting business, with the company saying in its report that it would not be able to sustain the investment needed.

During the year, Data#3 struck an acquisition deal with Australian Wi-Fi analytics company, Discover Technology. Under the terms of the deal, Data#3 paid AU$1.5 million to acquire an initial 42.5 percent of Discover Technology, along with an option to acquire an additional 14.2 percent on the same terms by 30 June 2015 and a further option to acquire the balance of the shares in the company at market price by 30 June 2017.

The results posted by Data#3 follow a pattern set by enterprise IT consultancy company Oakton, who also reported this week an increase in revenue and a fall in profitability.

Oakton said that customer focus on cost and value was leading to demand for its cloud and offshore services.

For the 2014 financial year, Oakton experienced a 9.1 percent decline in full-year net profit to AU$8.3 million, with revenue increasing by 1.4 percent over the period.