PC Connection, a $1.45 billion computer cataloger, announced on March 28 that it was eliminating 125 jobs, or 7.5% of its work force, taking a one-time $1 million charge for restructuring costs. The layoffs come on the heels of a disappointing first quarter.
As of press time, PC Connection had yet to release its final results for its first quarter. But the Merrimack, NH-based cataloger did announce preliminary earnings of $0.10-$0.12 per share before charges and preliminary net sales of $295 million-$300 million. Wall Street analysts had been anticipating earnings per share of $0.21, according to research firm Thomson Financial/First Call.
“Clearly, our earnings are not only lower than we had expected, but significantly lower than levels from last year,” says president/chief operating officer Wayne Wilson. For the first quarter of 2000, the cataloger had posted earnings per share of $0.29 on sales of $334 million. “And with sales declining this quarter, we felt it appropriate” to make the job cuts.
IT slowdown to blame
Wilson blames the lackluster results on a dramatic slowdown in businesses’ investment in information technology services. Several analysts’ reports show IT spending is down 4%-8% from last year. “We’re feeling it. Others are feeling it. Customers are being very careful in their IT spending and taking longer to make decisions,” Wilson says. He adds that buyers are also seeking quotes from more companies than they have in the past.
David Manthey, research analyst for Milwaukee-based investment banking firm Robert W. Baird & Co., agrees with Wilson’s assessment that PC Connection’s problems are strictly related to the lack of IT spending. “This is a high-quality company that just happens to be in an industry downturn now.”
In fact, PC Connection appears to have faith that the downturn will soon reverse. In April, the cataloger mailed a spin-off specifically targeting IT professionals. The book mailed to more than 500,000 “of our more sophisticated purchasing customers” from PC Connection’s 3 million-name house file, Wilson says. The spin-off offers a more extensive line of products, such as server connections, cabling, and routers, than the catalogs that mail to the company’s core audience of small and midsize businesses.