Agilysys Blames Fiscal Q1 Sales Weakness on IBM ‘Proprietary Servers’

As one of the three master distributors of the System i5 platform, you can bet that Agilysys is keenly aware of when sales of the platform are going up or going down. Agilysys last week announced its preliminary financial results for its first fiscal quarter ended June 30, and blamed IBM’s “proprietary servers” as one of the causes for an expected revenue decline. The company also revised its revenue guidance downward for fiscal 2007.

The Enterprise Solutions Group at Agilysys is one of the main distributors in the world for both IBM and Hewlett-Packard servers; this unit also peddles a wide variety of other hardware, software, and services. During the fiscal fourth quarter, Agilysys expects to post sales of approximately $388 million, down 5.3 percent from the $410 million in sales it had in the year ago quarter. The statement release from Agilysys said that “weaker sales were due to lower-than-expected sales of IBM hardware products, particularly weakness in proprietary servers,” but did not elaborate further. IBM’s sales of its pSeries and System p5 Unix servers boomed throughout calendar 2005, but began to slow as 2005 ended, and I think that these booming Unix sales compensated for lackluster iSeries and System i5 sales in the middle of 2005. With System p5 sales down during the first and second calendar quarter–and off 10 percent in the period that Agilysys is talking about–growth was indeed problematic.

“While we are disappointed in the weakness in hardware products sales, we continue to see growth in our software and services categories, both of which helped drive the increase in gross margin,” said Arthur Rhein, president, chief executive officer, and chairman at Agilysys said in the statement.

IBM said two weeks ago that System i5 sales were down 7 percent in the same calendar quarter that Agilysys is talking about, and attributed some of its woes to a transition to RoHS compliance in the manufacturing of its Power-based computers.

Back at the end of May, Agilysys reported sales of $394.7 million in sales for its fourth fiscal quarter ended March 31, an increase of 10.8 percent, with hardware sales up 3 percent to $304.7 million. The company also predicted that it would be able to grow sales in fiscal 2007 by 6 to 8 percent over the $1.74 billion in sales it booked in fiscal 2006. As of last week, Agilysys cut that estimate for growth in fiscal 2007 to 4 to 6 percent growth over the prior year, but affirmed its guidance for net earnings of $1.15 to $1.22 per share.