EOH counts the cost of Microsoft contract termination

Listed IT service provider EOH says it is no longer a reseller of Microsoft software licences through subsidiary, EOH Mthombo, following the termination of a Microsoft Channel Partner Agreement by the technology giant.

Microsoft reportedly decided to cancel its business with EOH because of alleged corrupt practices within the firm, particularly relating to the securing of contracts, which new CEO Stephen Coller has vowed to stamp out.

After learning of the allegations, Microsoft reportedly hired Seattle law firm Perkins Coie to look into the situation, which subsequently advised the company to end its agreement with EOH.

“While we understand the need for Microsoft to interrogate and finalise their own investigations, we are disappointed at the unilateral manner in which Microsoft has terminated the relationship prior to giving consideration to the impact on South African corporates.

“Further meetings and correspondence between EOH senior executives and local Microsoft leadership are ongoing to discuss the impact of these terminations and to seek a responsible solution that would limit the impact on all affected customers. EOH have provided a number of suggestions to Microsoft for consideration. We await their feedback,” EOH said in a statement on SENS.

It said that during these engagements, Microsoft’s local office advised EOH that they had initiated their own investigations into contracts involving Microsoft and Government which may take 6 to 12 months to conclude.

They advised they would not be able to enter into any discussions regarding re-instatement of the partnership until they had concluded their investigations, EOH said.

The group said that while the immediate short-term impact can be managed, “EOH is assessing and discussing various alternatives to ensure the long-term continuity of service to all customers and to maximise value for shareholders. EOH is confident that this can be achieved.”

EOH stressed that the Channel Partner Agreement – as software licence re-seller division – is not material to EOH and reported a total profit before tax of approximately R10 million during the last financial year.

The impact of the latest notices is still being assessed, but early indications are that:

  • The Microsoft related bespoke application development, its largest business, will be predominantly unimpacted.
  • Any long-term impact on the IP businesses, including the core IP that has been developed for re-sale utilising Microsoft technologies, can be mitigated through migration to other cloud providers.
  • EOH’s CRM (Dynamics 365) and Productivity Solutions business will be impacted in terms of access to partner support portals.
  • EOH’s Microsoft-related managed services business and clients will experience no impact as these services are provided on client infrastructure and platforms.
  • EOH’s Cloud business and platform business and the re-sale of Azure cloud offerings will be impacted in the short-term and EOH is in discussions to find a solution to ensure continuity of service and revenue streams.

“While EOH’s assessed impact of the latest notification on profit before tax is estimated at less than R20 million during the current financial year, this will bring the total impact of Microsoft exposure to R30 million profit before tax.

“Moreover, there is an overall medium to long-term go-to-market and credential impact and risk in not retaining Microsoft Gold Partner status,” the group said.

Read: Anonymous complaint prompted Microsoft to cancel EOH contract

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EOH counts the cost of Microsoft contract termination