IT distribution

ScanSource Explains Point of Sale (POS), UC Revenue Weakness


ScanSource (NASDAQ: SCSC) delivered surprisingly weak Q4 2016 results on Monday, blaming the revenue and income shortfalls on multiple IT industry challenges. But the specialty distributor also completed the Intelisys buyout -- a move that could unlock new revenue and partner opportunities.

First, the downside issues. ScanSource's Q4 2016 profits and revenues were far below industry expectations. The company blamed the shortfalls on such factors as:

  • Weakness in the point of sale (POS) equipment market, where multiple retail customer contracts were delayed -- though some may materialize in the current quarter.
  • Weakness in the unified communications market.
  • Merger and acquisition activity in the technology market, which is forcing VARs to decide where to make future bets.

"Almost all of our sales forecast miss was in the Worldwide Barcode & Security segment from weak point-of-sale big deals in North America and our networking business," said ScanSource CEO Mike Baur. "We expected big deals more in line with our typical trend. That did not happen in the fourth quarter."

More ScanSource Challenges, Opportunities

ScanSource also saw problems in the Unified Communications market. "We've got vendors that are being acquired or some are exploring strategic options," said Baur. "And so I think that affects the VAR channel. The VAR channel has got some challenges to decide where do they make their bets for the future."

Still, that challenge also creates new opportunities, Baur asserted. He pointed to the Intelisys acquisition as an ideal way for VARs to find new alternatives in cloud computing. "Those VARs have to find a way to get higher margins and they will love to have that be a recurring profitable business," he said. "And Intelisys and their partners provide that. We're trying to provide a solution for the VARs that we believe they will benefit from while some of our traditional vendors are going through some challenges."

ScanSource Q4 Earnings

ScanSource's net sales were $877.5 million for Q4 2016, up only 2 percent from Q4 2015. Net income for the fourth quarter was $12.9 million, down sharply from $16.4 million in Q4 2014. The revenue and income figures were far below Wall Street's expectations.

ScanSource's earnings miss comes only about a week after Tech Data delivered weaker-than-expected quarterly results, a two months after Verifone Systems -- a PoS device specialist -- warned of weakness in the retail vertical.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.