Logicalis edges towards optimal services balance

We recently caught up with Mark Starkey, UK MD of reseller and services player, Logicalis (see New UK MD at Logicalis named). One of the central pillars of Starkey’s strategy is the growth of a “high quality” IT services revenue stream that ultimately accounts for 40% of total revenues. High quality turnover, in Starkey’s view, is higher margin annuity revenues. In other words, the intention is not to grow the proportion of IT services revenue just for the sake of it.

Starkey gave us a little more insight into how the UK services business performed in the last financial year (to end February). Services revenue was £71m (i.e. 36% of total revenue), representing 6% growth on the previous year. That’s a little lower than our estimated growth rate of 10%, but still not bad in today’s market. Starkey says that 85% of this is annuity revenue. In all, that’s a solid performance and shows Logicalis is edging towards its objective of a 60/40 balance of product versus services. Indeed, a steady pace of change is important in order to ensure the existing business stays healthy while the new business grows on the best foundations.

A key investment area in the past few years has been the Logicalis cloud platform (see more here Logicalis UK: Growth and evolution). In particular, the company is gaining traction with mid-sized companies who want to buy a service and not own infrastructure assets. Since we last caught up with Starkey, there has been progress made around the creation of a methodology to help transition customers from their existing infrastructure to the Logicalis platform.

My view is that any firm attempting to transition revenue (whether they be a reseller, a telco or a low margin IT services provider) needs to combine a very focused strategy (i.e. which customers and contracts to target, and which to walk away from) with a realistic investment strategy (i.e. have you underestimated the financial cost?). Change requires the rights assets and people – not to mention confidence and patience. Thus far, Logicalis appears to be getting the balance right.

Posted by Kate Hanaghan at '08:51' - Tagged: results   infrastructure