PC Connection profits leap 20.4 percent

Shift in sales strategy pays off in first quarter

Merrimack-based PC Connection is no longer getting a big boost from sales of new personal computers as a result of Microsoft’s recent phasing-out of its Windows XP operating system. But that’s a good thing, because the company is trying to shift to selling advanced IT technology systems, a strategy that comes with higher profit margins than replacing outdated pieces of equipment.

The strategy seems to have worked in the first quarter of 2015: While sales growth slowed 3.8 percent to $581 million, profits increased 20.4 percent to $8.6 million, or 32 cents a diluted share.

Indeed, sales of desktop computers went down, though they notebook sales increased. But sales of servers and storage really took of, increasing by 83.5 percent and 25.8 percent, respectively.

The server boom was partly due to the phase-out of Windows Server 2003, but there was also cyclical server replacement and the need for more complicated data center solutions, said CEO Tim McGrath in an earnings call on Thursday.

The shift toward these larger projects paid off in the federal sector as well, with a 48 percent increase in sales. Some of these sales have been in the making for months and just happened to come to fruition this quarter, but sales are expected to be strong in the second quarter, and the third quarter is a strong season for government sales.

All told, the company had a cash positive quarter, increasing its reserves by $19 million to $80 million, with and stockholder equity stood at $363 million, up $13 million.