Amcom's IT revenue crashed before Vocus buyout

Amcom's IT services revenue plummeted 35 percent in the year before the company was bought by Vocus Communications.

While Amcom’s overall revenue was relatively steady at $165.7 million, revenue from IT services was a different story, crashing from $43.7 million in 2014 to $28.2 million for the 2015 financial year, according to a Vocus investor presentation this week.

The decline might give some pause for thought about the fate of systems integration and other IT services as part of the combined telco giant, which has a $1.3 billion market cap.

Amcom ramped up its IT services portfolio in 2011 when it spent $15 million to acquire two-time CRN Fast50 company L7 Solutions. At the time, Amcom had moved into various cloud services, and 130-person Perth integrator L7 was described as an “excellent strategic fit”.

Among L7’s previous wins were a Cisco-based LAN and IP telephony overhaul for Woodside Petroleum and a Cisco IP telephony deal with Perth International and Domestic Airport announced in 2007. Through L7’s capabilities, Amcom pursued a Cisco strategy using the vendor’s hosted collaboration platform. 

But IT services have since gone backward under Amcom. L7 Solutions was turning over more than $40 million back in 2011; fast forward to the end of the 2015 financial year and Amcom's IT services revenue had fallen well below that.

According to this week's Vocus investor presentation, the Amcom IT services business was “significantly impact” by a slowdown in Western Australia. A Vocus spokesperson told CRN that the Western Australian economy had slowed with the end of the mining boom, which has seen a number of large clients defer decisions on new projects and reduce their IT spend, which had affected products sales and professional services.

The spokesperson said Amcom's move toward as-a-service model also hurt sales – a well-documented dip when companies replace one-off capital injections with recurring revenues.

Not all of the IT services decline is due to poor performance. Some revenue from the division was also converted to other streams, such as Amcom’s cloud and cloud collaboration businesses. Amcom's collaboration wins include a 13,000-seat Cisco deployment for the University of Melbourne earlier this calendar year.

Company culture

Other factors might also have been at play, one former executive told CRN. The executive, who spoke under condition of anonymity, said the businesses were not a good cultural fit and it might have been better to keep L7 Solutions as a standalone entity.

“Amcom is fundamentally in the telecommunication space – it’s a transactional business, whereas L7 as a system integrator was a relationship business,” they said.

The extent to which Vocus pushes its new IT integration business remains to be seen.

In this week's report to the ASX, Vocus indicated that Amcom's IT services unit will be merged with its 'Projects' segment, which accounted for a mere $1.7 million of Vocus revenue in 2015. 

This Vocus division will grow significantly with the addition of Amcom's IT services. While Amcom was acquired after the end of the financial year and its revenue didn't contribute to Vocus' 2015 results, it would have grown Vocus' projects division to approximately 9.5 percent of combined Vocus-Amcom turnover.

A Vocus spokesperson said the IT services earnings profile is “quite different to our telco business model, which is predominantly an annuity revenue stream”.

Whether the telco should even bother focusing on IT services is another matter – the company is booming across networks, data centre, internet and voice. Vocus this week reported revenue up a massive 62 percent to $149.8 million. Profit after tax was up 53.6 percent to $19.9 million.

All this growth was achieved even without the addition of revenue from Amcom, which was acquired in July this year. Amcom's revenue fell slightly by 3 percent to $165.7 million during 2015.