© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome. Welcome to the Q3 presentation for the Atea company. Usually, I say welcome to sunny Oslo, but I'm sorry, I can't say that it's been terrible weather the last week or so. The results from Atea, though, are very, very solid, and it comes in with a strong growth on both revenue and EBIT. Revenue of more than NOK 7.8 billion[Audio Gap]certainly more than market growth. We have growth in all business lines, meaning software, hardware and services. And specifically, the growth on software in this quarter is fantastic of more than 36%. I'll be coming back to the software area a little later in the presentation. EBIT of $181 million, up more than 37%. So another quarter where we have revenue growing faster than the market and EBIT more than 2 to 3x revenue growth as we have as our target. The profit on the bottom row is up almost 50%. And to top the whole thing, we are very satisfied with a very strong balance sheet. Before I give over to Robert to give you all the good news, I want to personally say that I'm sorry that we did not break into black numbers in Denmark, which were our plan. But we had a fantastic growth, and we are well on our way to get there. Robert?
Thank you, Steinar. We'll now take a closer look at revenue and profit development across the countries in which we operate. Starting with Norway, where Atea reported strong growth in services revenue but with lower product margins compared with last year. Total revenue in Norway was NOK 2.2 billion, an increase of 2.4% from last year. Product revenue was flat from last year as higher sales of software were offset by lower sales of PCs, mobile devices and data center equipment. Product margins fell from last year due to a shift in the revenue mix toward lower-margin software. Services revenue increased by 12.3% based on higher demand for consultants in new business areas such as data analytics and on higher revenue from managed service contracts. Operating expenses were up by 5.0% based on growth in the number of consultants. During the last year, Atea has increased its consulting workforce to meet growing demand for infrastructure services. This is reflected in the high growth rate within services. EBIT, with NOK 77 million, down from NOK 83 million last year as rapid growth in the services business was offset by lower product margins. We'll now move on to Sweden, where our business had strong growth in revenue and operating profit during the third quarter. Total revenue in Sweden grew by 7.5% to SEK 3.3 billion. Product revenue grew by 7.5% from last year, driven by large software projects to the public sector. Services revenue grew by 7.3% based on higher sales of managed service contracts. Gross profit was up by 1.2% as higher revenue was offset by lower margins. This was due to a shift in the revenue mix toward lower-margin software. Operating expenses fell by 1.7% as variable compensation and other operating costs declined from last year. With solid growth in revenue and tight control of operating costs, EBIT in Sweden grew by 16.4% to SEK 131 million.In Denmark, Atea had very strong growth in sales of products and lower operating expenses compared with last year. This was partly offset by lower sales of services. Total revenue in Denmark grew by 23.6% to DKK 1.3 billion. Product revenue grew by 36.7% from last year with a very rapid growth across both hardware and software into both the public and private sectors. Services revenue fell by 7.6% with lower revenue from managed service contracts. Gross profit increased by 2.4% as higher revenue was offset by lower product margin on new contracts and a lower proportion of services in the revenue mix. Total operating expenses fell by 6.0% as Atea reduced its staff in Denmark compared to last year. For the services business [indiscernible] Atea improved its EBIT, but still ran a loss for the quarter. Total EBIT was a loss of DKK 15 million compared with a loss of DKK 39 million last year. So where does this leave our business recovery in Denmark? A good way to analyze the status of our business recovery is to compare Atea Denmark's performance in Q3 2019 with its results 2 years ago in Q3 2017. 2017 was the year before Atea Denmark received a court conviction relating to the Region Zealand case, and it was the last year in which Atea was profitable in Denmark. Therefore, Q3 2017 is a good benchmark for how Atea can operate profitably in Denmark and whether the business recovery in Denmark is on track.As you can see from this chart, Atea Denmark had an EBIT of DKK 19 million in Q3 2017. If we compare Atea Denmark's performance in Q3 2019 with Q3 2017, product revenue and product gross profit were higher in Q3 2019 than they were 2 years ago. Atea's product revenue was DKK 44 million higher in Q3 2019 than in Q3 2017, and its gross profit was DKK 6 million higher. Atea has won many new customer agreements with both the public and private sector during the last 12 months. As a result, Atea's product revenue has shown continuous improvement throughout 2019 with strong growth in Q3. So with new customer agreements in place, the recovery in product sales is on a good track. Atea's operating costs are also well below its level from 2 years ago. As we've reported, Atea has reduced its headcount since last year and now has 5% fewer employees than it did in Q3 2017. Total OpEx is now DKK 21 million lower than it was in Q3 2017. So with product revenue higher and operating costs lower than they were in Q3 2017, the missing piece of the business recovery is the sale of services, which is still below 2017 levels in both revenue and gross profit. Why has services been slower to recover? The slow recovery in the services business is partly due to longer sales cycles to win consulting and managed services contracts. Selling services is more relationship-driven than selling products, which is a more transactional business. This is particularly true from managed service contracts, including long-term outsourcing and support agreements. Selling managed services involves complex multiyear customer contracts with long tendering processes. This is, therefore, the slowest business to turn around. While services has been the slowest part of the business to turn around, we do expect the services business to follow trends in product sales and to return to growth. Atea Denmark is steadily winning new service contracts and its consulting business has already returned to growth in Q3 2019. We therefore expect to see services revenue continue to improve in the coming quarters. Based on stronger performance in both products and services, we expect growth in Atea's EBIT in Denmark to improve steadily in Q4 2019 and in 2020. In Finland, Atea had another solid quarter with rapid growth in revenue and EBIT. Total revenue in Finland grew by 7.2% to EUR 72 million. Product sales grew by 5.2% with higher sales of client hardware and software to the public sector. Services revenue increased by 29.0% as Atea pursued an aggressive growth strategy within services. During the last year, Atea has expanded its consulting and managed services workforce to develop its services business in Finland. Gross profit was up by 18.3% based on higher revenue and gross margin in both products and in services. Operating expenses were up by 16.5% from last year as new employees were hired to pursue Atea's growth strategy in Finland. With strong growth in revenue and profitability across both products and services, EBIT grew by 34.1% to EUR 1.3 million. In the Baltics, Atea had lower EBIT than last year as revenue growth was offset by higher personnel costs. Total revenue in the Baltics grew by 3.1% to EUR 27 million. Product sales grew by 3.6% from last year due to increased sales of software to the public sector. Services revenue was up by 1.9% with high growth in sales of software consultants and managed cloud services offset by lower sales of subcontracted services from third parties. Gross profit grew by 3.8% based on higher revenue and increased services margins. Total operating expenses grew by 8.6% from last year due to salary inflation in the Baltic labor markets and a change in the employee mix toward higher-skilled consultants. As a result of higher personnel costs, EBIT in the Baltics fell from EUR 0.8 million to EUR 0.6 million. Finally, a word on our balance sheet and cash flow. Atea had a net debt of NOK 889 million at the end of Q3, as defined by Atea's loan covenants. This corresponds to a net debt/EBITDA ratio of 0.7. This is well below Atea's loan covenants of 2.50. In order to offset seasonal working capital movements, Atea has entered a securitization agreement on selected accounts receivable with its primary bank. This allows Atea to stabilize its net debt balance throughout the year. During 2019, Atea expects to maintain a net debt/EBITDA ratio below 1.0 throughout the year with a low point at year-end. Cash flow from operations in Q3 was an outflow of NOK 434 million compared with an outflow of NOK 195 million last year. The difference was due to a reduction in the volume of sold receivables into the securitization facility during Q3 2019. This had a negative impact on cash flow from operations of NOK 384 million during the quarter. This concludes our summary of the third quarter financial results. I'll now hand the podium back over to Steinar to discuss market trends and their impact on our business.
Thank you, Robert. So I'll take you back about 6, 7, 8 months to when we launched our 2021 plan or the strategy for the next 3 years as it was at that time, so now 2.5. As some of you might remember, we divided our business into 3 areas: The information management, which is everything that deals with data, secure it, store it, analyze it and take care of it for as long as needed; and then the digital workplace, which is everything that surrounds you as a digital worker in your company; and then last, but not least, the data platform, the hybrid platform, which we have said it would be. We have also, and I'll repeat this, said that for this period, we have guided to say that our revenue will grow faster than the market, and we expect that to be between 5% and 10% a quarter based on IDC's expectations of growth in the market for this period. And that revenue -- EBIT, sorry, will grow 2 to 3x this. So that is our guiding and it's pretty precise, and I've heard someone say, "it's not." And then we have 3 areas that we play in, 3 different go-to-market model, so to speak: The reseller area, the integrator area and the service provider area. The last one is extremely important to be able to build the hybrid platform for our customers going forward, and I'll be coming back to that. We are extremely proud of the fact that we're one of the biggest, I think at this point the second biggest, reseller in Europe. It's the area where we make the most money and where we have the most customer interactions and installed base, approximately 27,000 customers who paid a bill to us last year, and we have a high customer satisfaction in this area. This is also the reason that we have, in June, opened our new warehouse -- central warehouse for config and recycling and more efficient supply chain for the future. And then on the other side of the spectrum, the cloud. The cloud gives and at least promises incredible innovation and opportunities to share the investments and scale those as much as sharing data to have a better chance of finding the answer, whatever you're looking for. We believe that analytics and AI are the best possibilities for the cloud. But after more than 10 years, why are only 20%, and this is Gartner's numbers, in the cloud. And I'm not talking about the public cloud. I'm talking about the cloud. The easiest part is done. Why is it only 20%? There are many clouds. So let me try to clarify it. And this is, of course, not a deep dive. We have the private cloud, and that means when you as a customer build a public cloud-like setup in your premises. Then we have the Software-as-a-Service, where you buy software but it's run by someone else. For instance, the one that have built it. And then, of course, the pure public cloud. And then the dedicated cloud, meaning a private cloud but not run by yourself. So we, for instance, run dedicated cloud for a lot of our customers. And you can do that also in the public cloud, but it's dedicated for you, server and resource pool. So then a lot of people can say, "Have we changed position on the cloud?" Not at all. We have said for many years that we do not believe that the public cloud is the end destination for everybody for everything. It's the hybrid multi-cloud platform that will give you the promises that the cloud has given us. So I would rather say that the rest of the world has come to our conclusion. So why is only 20% there? Why is not the last 80% moved? Well, there are several reasons, of course. One is that unique, old software is not suited to move. It's built for a different load. And why should you if you paid for it and it's running in your basement very well and had done so for more than 10 years? The legal reasons, and we are more influenced by that in the Nordics than anywhere else in the world. And then it's a complexity that the cloud introduces. It's not easy to run multiple clouds, your traditional IT and SaaS and keep track of the whole thing. But maybe the most important part of this is the lack of skills. There is a tremendous lack of cloud architects, people who can migrate, deploy and transform. This is more complex than most people are telling you when they talk about the cloud. So over the last year, we have worked very hard on how do we think these setups are best for our customers in our environment, in our part of the world with all that goes on, legal, financial and also what type of customer segments we have, meaning with a high degree of public business. That's why we have announced partnership with IBM and Red Hat. That's why we have announced partnership with VMware. That's why we have 2 weeks ago announced a closer relationship with Microsoft on building skills as we have with IBM, Red Hat and VMware before. And that's why we earlier this week announced the partnership with AWS, who opens data centers in Sweden, who are the most tough on the legal side of where data should be. We believe that when we, over the next 2 to 3 years, have built these skills for about 1,000 people, which most of them are in Atea today, we will be dominating also this part of the IT arena. And then to try to put our P&L in somewhat relation to what I've just said. So as you see on this slide, year-by-year since 2016, software heavily outgrows the rest of our business. And why is that? Well, there are 2 -- at least 2 reasons, 2 major reasons for this: First of all, let me say that a hardware growth of 5.4% on average for these 4 years, we're very satisfied with when you think about the size of that business. Secondly, you can see that the services business very closely follows the growth path of the hardware. And this is one of the big transformations that we work on internally, and it has to do with also the skills building on the cloud because our services traditionally is too heavily tilted or connected to the hardware sales.So we need to build services, and this is what we've done when we bought Sherpa in Norway and DatabaseForum a couple of months ago, I think it was, in Stavanger, which are services not connected to the hardware but more related to the software, which will give different growth on the services. And then the software. Gartner Group have predicted and have counted that each of the last 3 years, software in the Nordics have grown by 6% on average. We can believe it or not, but this is the numbers. They're also predicting the same growth for the next 3 years. So in the 2021 plan period. So why can we grow by 16%? Why is the software market expected to grow faster than the hardware? First, software is the solution to some of the intelligence that can take the complexity out of the new hybrid multi-cloud world. This gives higher growth on software than hardware. It's not the fact that a lot of hardware are going away. 5% is an incredible growth number for most industries. Secondly, there has been a consolidation in the Nordics and in Europe overall on software. Consolidation goes very often to the big players, and there are a couple of them in the Nordics and there are a handful of them in Europe. And they have had the same type of software growth over the last 4 years. Consolidation comes to an end. So we believe that not next quarter and the quarter after, but over the next year or so or maybe 2, our software growth will fall back a little bit. We will still have a higher software growth than hardware. The consolidation, as I'm saying, are not forever. So it's important for everybody who analyze this to understand this. We are still expecting to grow products and services faster than the market. And as I said, in total, in the area of 5% to 10%. So what are customers telling us and what is it that we need to take care of to move customers into a hybrid world, where they build more modern data platforms on their premise, in our premise, in our 7 data centers around the Nordics and in the public and SaaS cloud? Well, they are concerned about movement of load between the clouds, and rightfully so. They are concerned about connectivity between the cloud. If you have one application in one cloud and another in a different cloud, the connectivity between them and the consistency in that connectivity. And they are concerned about the management, so how to manage this kind of complex situation. Because as Gartner Group says, in 2020, 94% of all customers in the world will have more than one cloud, meaning one cloud type. So they will have some private cloud and some public cloud or SaaS and public cloud or whatever. They will have more than one type of cloud, and 67% will have more than one public cloud involved in one way or another. So what we are building the skills for, because this is not a reseller game, this is an integrated game, is to build architect and deployment consultants that can build that hybrid multi-cloud environment. And it's in this sense you should understand the investment in AppXite. AppXite is a tool that can help the customers to procure and take care of their cloud usage wherever and whatever cloud that is. This is complex and will become even more complex as we move on. When we build our own solution as we have on our e-commerce solution, it's because we do not want to lock ourselves into one distributor or one vendor or producer as Atea's strategy has always been to be Atea, the place to be and not just someone that resells something from somewhere. We have started very early to invest in AppXite. And it's still early, even though we're getting there quickly. So to sum it up, a very solid quarter. We're very happy with all the investments, all the strategic things that fall into place, the opening of the central warehouse and the return to normal situation in Denmark. I've given you our guidance for the next year or 2, and the fact that we improved profit by almost 50% should speak for itself. Thank you. We'll take questions live, both Robert and me.
If you can state your name and the bank you're from so everything ends up on the transcript, that would be great.
Yes, of course. Aksel from ABG. So I have a couple of questions regarding Denmark first, then a couple of more. So on Denmark, it's the first quarter that we see a significant EBIT improvement year-over-year, which shows it's going in the right direction. But if we compare to what you guys said after the Q2 report, it's a little bit slower because you aimed for a breakeven EBIT this quarter. Now you say that it's due to the service cycles being longer within services, the cycles. But shouldn't you have known that after Q2, that the cycles was very longer within services? It seems...
Absolutely. We know that the cycle is longer. But let me just say, first of all, I did apologize for that. We did have a plan to get to black numbers, across the 0 mark in this quarter. There's no doubt about it. And it wasn't a wish. It was a plan. We didn't succeed in September to reach exactly where we were. We were on plan after 2 months. Of course, those 2 months are lower months since there are vacations and everything. But we did have that plan. So of course, we knew that. But let me just put it into a little bit of a context. It's not true that it was the first quarter. We also had -- the turning point was really between first and second quarter, and second quarter was the first quarter in a long while where revenue didn't fall. It grew by a little bit, but it didn't fall. And EBIT was much better than the year before. So this is the second quarter in a trend. Just to state that. When it comes to the services -- or when it comes to the EBIT, let me, get to that first, the plan was to have a little bit of a higher product revenue, and a little bit of higher. It's very little that accounts for $14 million when you are at $1.3 billion in revenue. So we missed both products a little bit and services a little bit. When it comes to, which I said, the trend or the -- how our business follows hardware and software are -- have the shortest sales cycle. But it's also where we have the most installed base. Installed base is one of the biggest values in Atea actually, which I don't think you always account for. We have been selling and being in the market for so many years. We know exactly what the customers have. But we underestimated for the last 2 quarters that it'll take that long to get back on managed services. Consultancy is in growth and grew by 10% actually in Q3 this year compared to last year. So we underestimated the managed services and there were a couple of orders on the product side that we didn't -- or weren't able to bring into Q3.
Good. And a follow-up question on Denmark. And it's a little more -- it's of a little more structural in nature. So historically, your data center business in Denmark has been profitable and important for the margins seen in Denmark. And you're right that you see some increased competition within managed services, et cetera, in Denmark. Does that suggest that the historical margins we have seen in Denmark are not representative as a predicter for future margins because there are changes in the market? Or is that...
On managed services?
Yes.
Yes. And what we mean by the text in the report is not necessarily competition from a different player but from a different delivery model, because the traditional outsourcing is about to die. People do not want to have the same thing for the next 10 years, which were really -- at 10% lower cost, which is really what outsourcing has been for 50 years. What they want is agility. They want to buy certain services and put this together and move it around, which we call in the industry managed services. And so that transformation is what we've been doing in the whole of Atea and also in Denmark. And it's the sales of those managed services which haven't grown as quickly over the last 6 months, as we had predicted. So it's more of a competition of business model than it is competition of competitors. Does that change the profitability? A little bit on managed services. If you go 3, 4, 5 years back and look at it 3 or 2 years into the future, yes. But hopefully, the volume because this is standardized. So it scales in a different way. So one contract is less profitable. But when you scale them, it becomes more profitable, which is the whole idea about managed services/cloud standardizing.
And one question on Norway. So you say that you see strong prospects for growth in Norway heading into 2020 despite the challenging, say, year-to-date. And then you also say that hardware sales in Norway has been slowing in the market. So could you elaborate a little bit on why you see so strong prospects when the current operating environment seems a little bit tough?
So if you go back and remember, I'll take you back 6 months on the presentation of Q1 and then Q2. We talked about the fact that we have refocused a little bit in Norway through Q2, and we took out about, I think it was, 47 people. The cost of that is still in the P&L. The people are not there. And so that refocus has not given the full effect yet and -- but it will give us benefits going forward, so from Q4 and on. So that is one part of the answer. Secondly, we see a market where we -- in this period where we've done those changes to be stronger than what we have been capturing. So when we have 2%, 3% growth on revenue, we mean in Norway for this quarter -- or for Q3, the market has grown faster. So we believe the potential are there, and we will start seeing the effect of the changes in the October numbers.
And then one last question on depreciation just quickly because it seems like depreciation is jumping a little bit on a quarter-over-quarter basis. Is there any reason for that?
Yes. Well, what we end up having on depreciation Q2 to Q3 is the new leases that we have on. It's deals with IFRS 16 and the fact that lease accounting is moving, where we've previously had short-term leases that were -- if it was short term, it was treated on other operating expenses. Long-term leases are under depreciation. With the signing of long-term leases, it gets depreciation.
Christoffer from DNB Markets. So just continuing a bit on Denmark. Could you just give some indication on Q4, what we should expect there? Gross profit was down in Q2. It was slightly up 2% this quarter. Next quarter, what should we expect then? Flat or -- compared to the next -- last year?
Maybe since I promised more than I can -- we're able to keep last quarter, I should be a little careful. But if we are flat from last year's Q4, then we would have a negative trend on the improvement that we are -- that we have seen over the last couple of quarters. So that is certainly not the plan. But again, as I said for the whole company, our guiding is what we have said, revenue faster than the market, 2 to 3x the EBIT of -- EBIT growth of the revenue growth. But Denmark is on its -- definitely on its recovery. And you see that in Q3. A more general comment, which is not Denmark. But when you look at Atea's numbers, remember that gross profit, when it goes up and down, on total, on products, on one type of products, it's very seldom a trend. It's that quarter, those type of customers, that mix of products, software is a little lower margin than hardware. Software grows much faster, like you saw in this quarter. So you have to -- it's better to look at last year same quarter than the last quarter, I mean, just to help you a little bit to understand.
Definitely. And on -- jumping over to AppXite, which is obviously exciting. You've said that you're going to run an operating loss this year, but when should we expect it to kind of turn around to become profitable? Is that already next year? Or how should that ramp?
Appxite is an interesting investment, and we're certainly in the -- probably shouldn't say bleeding edge, but at least on the edge or early or whatever way you want to say this in English. So this is -- the answer to your question is everything about how much do we want to invest, how fast. And that is all about how fast is customers around the world moving to a subscription and consumption-based billing, okay? So it's difficult for us to say. We're not planning to use more money next year than we did this year. Our -- if there is much more customers that comes with more functionality demand, we might have to invest not more than this year, but more. If not, we might be profitable in the end of next year. So it all depends on how much or how fast we want to develop the functionality, which we always do together with customers. But we see a very -- there's -- everybody who is in the line of business that we are in need a tool like this. And all the big players want to be independent from the people who want to use this as a chance to make them dependent. So if you'll go around and look at Dimension Data, Insight, CDW, Bechtle, Computacenter, Atea, I mean, they're all investing in this area. Some of them are using AppXite. And some of them are investing in their own tools, but they're all investing in independent tools, and some smaller resellers have gone to a distributor's tool or something and they're there.
Yes. On the agreements or strategic relationships that you mentioned with the likes of Amazon and Microsoft, especially the markets of one seems more significant. Can you talk a bit about how that is expected to affect your P&L in the near term? And then also kind of more long term as you move towards that model, how that will kind of affect the mix between OpEx and CapEx, kind of shift from CapEx to OpEx maybe?
So first of all, let me -- if I can use a couple of minutes to talk about the different vendors that -- one of your comments or answers -- sorry, questions. So yes, Microsoft is more -- is a more involving partnership than the others. Microsoft is our biggest partner, period, on revenue so it kind of gives itself, so to speak. The Microsoft relationship and the relationship with the others, which I'll comment on in a second, are not that different, but the Microsoft relationship is bigger, okay? It's more committed and it has a bigger frame to it. And it has better frames to it for us, okay? We have the same type of argument -- agreement with IBM and that came actually before Microsoft. And that is because IBM has opened their own cloud data center in the Nordics. They were the first ones. And IBM is interesting because IBM has more software IP than the others, which moves us into new areas, which maybe the others do not at the same -- in the same rate. So IBM is very strategic, important. Microsoft is bigger and more committed -- or there's more commitment, sorry. And then AWS is a new friend for us. So of course, where we are right now, it's -- the volume of it is smaller. On the other hand, the market always decides what we run with, and that's why we want choices. So I think we have -- and with Red Hat and VMware being the software layer that can manage this and take a little bit at least of the complexity out. So Red Hat and VMware either together or as competitors in running that complexity. So I feel we have -- we can build on-prem traditional solutions with our traditional partners. We can build private cloud with all the ones I just mentioned and the traditional partners, and we can build SaaS and public cloud solutions with the new friends.
Just to clarify, is it more related to kind of -- I understand that typically when Microsoft do these deals, they would kind of contribute to funding some of the kind of the education of these 1,000 people who are going to be specialists on this and then will expect them to kind of get something in return. What do they expect do you need to kind of commit to moving this much workload to Azure? Or how does that kind of -- how does that kind of work?
Do you mean there's no free lunch?
Basically.
No. Of course, I cannot go into the details of any of these agreements. But what I can say is that the agreements give us very well or very good financial incentments to build knowledge on each of these 3, IBM, Microsoft and AWS. It gives us 3-year predictable margins if we move load to their public cloud. The size of the agreement, of course, depends on how much we use their public cloud.
And then one last one from me, sorry. It's more kind of related to M&A, basically, is that there has been some talk in the market around, for example, CDW saying that they're wishing to go to Europe and do some bigger M&A. If they do that, do you see yourself more of as a target or someone that could be challenged if they do someone else and step on your doorsteps and become a significant competitor?
I don't know. I see -- you have said that. I haven't seen anyone else say this.
The CEO of CDW said that.
I don't know what you -- where you have this from. But let me just clarify what I know because it's very easy for me. We know CDW very well. They're a fantastic company. Incredible success in the U.S. By far the biggest in the world at what we and they do. I think it now is 5 years ago, it might be 4 years ago, that they bought a company in the U.K. called Kelway. It's now called CDW U.K. So they're already in Europe. If I remember correctly, and don't kill me about this. But I think -- or CDW U.K. now is about NOK 2 billion to NOK 3 billion in revenue. It's not a small shop. But for them, it's small because CDW is more than NOK 100 billion. Would they go into the Nordics without talking to us? No. I mean be fair. We have no talks with CDW. If they went into Germany and France or more heavily into U.K., would it change our market position in the Nordics? I don't think so. I mean Bechtle are there, Computacenter are there, CDW U.K. are there. So we have no talks today with any of these big companies of going together or being bought or buying them. I don't know what they are talking about. But I haven't heard anything. So next time you go out with a rumor, call me first.
I think when it comes to the threat of new entrants in the Nordic market, which is what you're referring to when you talk about consolidation and how that might impact us, the Nordics are the most consolidated IT infrastructure market in all of Europe. Atea was very early on and aggressively driving a market consolidation starting around 2005, 2006 bringing together the biggest IT infrastructure players in Norway, Sweden, Denmark into one group and then doing a lot of acquisitions on top of that. If you're going to move into a market and try to consolidate a market, you would go into something where it would be much more already a fragmented competitive space, where there's more different companies you could teach and you could reach a leadership position faster. I would assume that the Nordics would probably be the least attractive market from that perspective because it's already so consolidated unless they spoke with us. Gosh, okay, maybe I...
To be frank, it was not related to -- I'm not worried that they would be a more significant competitor in the Nordic region. It's more kind of just from an investor's point of view, interesting that you could be a target for a player like CDW due to your solid positioning. And then for your ambitions, which you've been kind of speaking or talking loudly about in the media of going out into Europe, that is where that could be more kind of interesting to talk about it.
Okay. So sorry if I didn't catch your real angle on your questions. So yes, of course, I mean, Atea is on the stock exchange. We're up for grabs every day. I mean it's just to pay whatever the shareholders and especially one wants for his shares. And that's just the life when you're on the stock exchange -- or I guess wherever you are. So -- but we have had no approach. Of course, if we had, I couldn't say so. But since we haven't, I can say we have had no approach on that. But I agree. If you want to go in, that's why my comment are, wouldn't you talk to Atea if you wanted to go in? And some of these companies are great companies. We're looking at and working with and then admiring several of these companies. And I've been very clear on that when I talked about Bechtle and CDW before. When it comes to our ambition to go outside, those ambitions are still there. We just need to find the right opportunity. And we're not -- I mean I had some questions. I mean don't run in front of yourself when you do that, and we're not. I mean we're not that type of a company. We're going to be very calm about it. But we got a question. Yes, it's fair. We're looking. We're talking to people. Will that opportunity change if CDW bought someone in Europe? I don't know, depending on the market, who they buy. It could create new opportunities for us actually, but I don't know. It's difficult to say.
I have 3 questions from Henriette Trondsen, Arctic.
From the net.
From the net. Can you give color -- more color on margin development in Denmark? And what do you aim for in Denmark in Q4? Is your aim to increase market share again on behalf of margins for later to upsell on these contracts?
Okay. So let me start with the approach and the aggressiveness because I think that's where in her name -- or her question, if we're going to be taking market share. Definitely, we're going to take back market share in Denmark. So I think competition should be ready for that. We are in a different -- totally different situation now than where we were a year ago. And we're going to use all the power that we have, all the strength that we have in the group to take back market share. I mean this is pretty obvious with the type of company that Atea is. We will do everything we can to balance what that means for price and margin so I can't comment on that. We're going to be aggressive, but we're going to get into profitability, and we're going to get Denmark back to a natural state. It's taken a little bit longer than what we hope and a little longer than what our internal budget is for 2019. But Atea has been here for more than 50 years, and 1 quarter or 2 is not changing our plans.
Second question from Henriette. In Denmark, how is the split between sales to public and private customers?
It's getting back to a pretty normal state because in last quarter and this quarter, they've grown in total about the same. So we are very close to having the balance, which is about 50-50, which we've had in Denmark before.
Third question from Henriette. Some of your peers positioned in Norway and Sweden have stated weaker hardware sales in Nordics. Do you expect this to have a negative impact on Atea as well?
I don't think that we've seen specifically weaker. We've seen some quarters back, especially if we go back I think to 2016, was it, Robert, or '17 where...
2017.
'17, hardware was fantastic, out of proportion to what we have expected. But the odd thing is that software outgrows all expectations. So it's more the relationship between the 2. But I think that what Henriette might relate to is that some other players have said that the SMB market has been a little slower. We're not that exposed to that market. So not necessarily that it's weaker but...
Three questions from Ramil Koria, SEB. First of all, one of your peers are saying that the -- they are seeing more caution -- more cautioned customers on the private side. Do you see the same?
We've seen a little bit of that on the medium-sized customers, especially in Sweden. But that's the only part that I personally, as I stand here, can say that we've gotten that reflection.
Second question, the negative margin mix on gross margins from lower-margin software, is that structured? Or do you expect the gross margin to -- gross margin effect to be lumpy?
The -- when you look at the software for companies like us, it's very heavily tilted toward Microsoft. So it's almost like you could say what -- how had Microsoft sales done -- been doing. And so Microsoft over the last 3 years have changed their incentive models and all of us, including us, have struggled to change the buying pattern with what the partner programs are profiled. Very typical American companies, they think KPIs is everything in life. And that if you just change them, you change behavior and buying behavior and everything in the market. So it has taken time for everybody to adapt to how to report, how to put these things into case systems and what kind of information that Microsoft wants for you to get the top margins on things. And I think it has influenced all of us. I think all players -- and this is not only in the Nordics. This is all over the world. And I think everybody are starting to figure this out, and we don't see that margins will fall any lower. But it's still a little difficult, still a little difficult. But the normal margins are over here if you just do what they want you to do. It's just that with so much public business, and they are slower to change, it has taken longer for us in the public business than in the private business.
Okay. Last question. Is it possible to say anything about the growth dynamics between public and private in each of your markets?
Well, I can start with this. In general, what I have seen for many, many, many years in the industry is that it's very similar in the Nordics when it comes to the fact that if private spending was down, public spending goes up. So they -- the public tend to use public spending as a moderator of bad and good times. And the dynamics of how the private business buys and how the public business buys are completely different. These are completely different sales teams in the company because -- and that is in all countries because winning a frame agreement and then taking advantage of that frame agreement is completely different than talking to a private customer or enterprise customer about their vision for IT or their future for IT. So selling to them are the same in the countries, but different between enterprise or private and public. So at least that's an attempt to try to figure out what the person from SEB was looking for.
Yes, sure.
Christoffer from DNB again. Just this is a bit more high level, but kind of on the market growth going forward. There was this report or survey out, I think it was like 2 weeks ago, from one of these independent researchers like Gartner, something where they had interviewed around 1,000 CIOs in kind of the biggest companies in the U.S. And they got the sense that we're now kind of moving from a digitalization world, where it's more test and try a lot of stuff and we're now concluding on what we want to use. And then we're also -- because of that ready to move kind of from legacy systems to the kind of the stuff that we decided to use, that might mean that we're kind of at the peak now and moving into kind of a slower growth environment. You kind of -- do you see anything like that? And if not, how long do you expect this high-growth market to kind of continue? If you have any views on that at all.
I haven't read the article, so I can't answer question into context of that. That said, it is not my understanding. This is my personal understanding. It's not my understanding from meeting customers and talking to people and manage here internally in Atea that most people have figured it out. My impression is that most people have stomach and headache and wondering what to do and that they have too few people to discuss this with and to come to conclusions. And when you get to conclusions, to get it built because there's 2 little skills out there. So I think I'm not 100% sure if I get the sense of these CIOs and their discussion. I don't think the U.S. is ahead of us so I don't think that is a part of it. But I've said before that we've just started. We've just barely started. If you look at how difficult it is still to do what we want to do digital, we haven't even got 5G. We thought it would be here 5 years ago. And it probably is more than 2 years away even in the Nordics. And 5G is important because then you can start being independent of any place and time to do exactly what you want in the speed you want. So I -- we're way, way into the future before we even see the big results of what we're working on today. So after my retirement. Okay. That concludes the Q3 presentation. Thank you.