US VAD giant ScanSource has revealed that it is selling off its hardware business across Europe, to focus on software and services.
Its CEO Mike Baur (pictured) told CPI that the drastic overhaul in global strategy will see it focus on generating higher-margin recurring revenues for European partners.
"We have a different identity now, divided by region," he said.
"In Europe our business will be software and services, not physical hardware."
On Tuesday, the South Carolina-headquartered VAD announced plans to make divestments worth $623m in "non-digital" assets globally.
Baur confirmed that "non-digital" refers to its hardware business, adding that "much more than half" of the $623m will come from Europe, in the UK, Belgium, Germany and France.
In Europe, that means that every hardware operation is being sold, including all warehouses. ScanSource added that most of its European warehouses are run by third parties.
The planned sale comes a little over six months after ScanSource announced it would open a new warehouse facility in Southampton, in the UK.
The US distributor previously shuttered its German warehouse for its Communications arm in 2011.
Baur confirmed that a number of firms have already shown an interest in buying ScanSource's hardware assets.
"A few people have contacted us on this," Baur said.
"We've not set ourselves any deadlines. We've told our investors and our staff that the best buyer will be the one that respects our staff."
ScanSource launched into the telecom and cloud services market and began a recurring revenue model with its acquisition of Intelisys in August 2016.
Baur said that since then, the comparison between its hardware business in Europe and its burgeoning software and cloud services business has become starker.
"When you ask why we are selling, it's two things," Baur said.
"It is difficult to get scale across Europe in hardware. It is a much more fragmented market, and that is definitely an issue.
"And the market maturity is different than in North America. The VAD market in barcode is behind the curve when it comes to cloud services...For instance, in comparison with datacentres," he said.
"And because of the Intelisys and intY acquisitions, we have plans to do much more in software."
Baur highlighted its success with Cisco in selling digital solutions such as WebEx as indicative of the growth it wants to focus on in Europe.
"Cisco is an example of the kind of high-margin business our partners are looking for. As I mentioned on the call [the Q4 2019 earnings call], our Cisco subscription business has more than doubled year over year. That vendor is great at transitioning to recurring revenues, which is really going to help our partners offset some of the hardware margins which are going down over time," he said.
However, Baur reiterated that ScanSource will maintain a mix of hardware, software and services for its business in the US, Canada and Brazil.
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