Industech
Here is Industech’s income statement for its two business lines, Hardware and Software, in 2019 and 2024. Revenue has grown significantly, but profitability has not followed the same trend.
What do you notice in this exhibit? Where is profitability eroding most, and what might explain the change?
Case Exhibit
The main issue lies in the hardware business. Revenue rose from €600M to €900M, but margins fell from 25 percent to 12 percent as both COGS and operating expenses increased faster than sales. This points to cost inflation, competitive pricing pressure, and operational inefficiency as hardware scaled.
Software tells a different story. Revenue doubled and margins remained strong, only declining slightly from 45 percent to 42 percent. This indicates that software is the more scalable and profitable business.
Overall, profitability is eroding because Industech’s growth is concentrated in low-margin hardware, while its high-margin software business has not grown fast enough to offset the mix shift.
