Synnex Posts Q2 Revenue Gains

The Fremont, Calif.-based broadline distributor, which raised more than $48 million with its IPO late last year, reported revenue of $1.27 billion for its second quarter of fiscal 2004, a 35 percent increase in sales from the same period one year ago. Synnex also posted a 45 percent jump in net income with $10.2 million, or 34 cents per share.

"We are pleased with our latest quarter's solid financial results," said Synnex president and CEO Robert Huang during the earnings call. "The overall environment looks good."

Synnex's U.S. distribution business performed well for the quarter ended May 31, and Huang cited improved IT spending conditions as a key contributor to the company's 24 percent year-over-year increase in core distribution sales. In addition, Synnex posted a whopping 252 percent revenue increase for its assembly and integration business, which pulled in more than $150 million.

But unlike its top two competitors, Synnex's non-U.S. business hasn't fared as well; whereas Ingram Micro and Tech Data have made impressive strides with their growing European operations, Synnex has struggled to gain similar momentum. In particular, Synnex's Mexico operations, which negatively impacted gross margins, have been an area of concern.

"While our results were strong in the second quarter," Huang said, "they were mostly driven by our U.S. business, whereas our non-U.S. distribution businesses lagged during the quarter due to seasonality and operational issues."

Financial analysts on the earnings call questioned whether Synnex could take market share abroad the same way the company has done domestically. Huang, however, vowed that Synnex would make immediate improvements in its foreign businesses.

Another area of concern for Synnex is gross margins, which fell 31 basis points from the same period one year ago. Industry watchers have contended that Synnex's low-cost, low-price model would face enormous pressure as a public company and that achieving continued growth would come at the expense of gross margins.

Perhaps as a result, Synnex has begun tweaking its model to compete more effectively with other distributors by increasing value-added services for VAR customers. Huang said Synnex's recent acquisition of BSA, which specializes in sales and marketing services, has already improved the company's efforts in that respect. Synnex's chief executive also said the distributor would continue to aggressively add to its channel-services offering to lure more solution providers into its corner.

Another important element in the company's transformation was the recent hiring of distribution veteran and former GE Access president John Paget as Synnex's COO. As head of GE Access, Paget specialized in offering value-added services, such as technical training, financial assistance and marketing support to VARs, rather than just low prices, which gives Synnex valuable experience in that regard.

For the third quarter, Synnex forecasts revenue in the range of $1.25 billion to $1.3 billion, with net income between $10.1 million and $10.7 million, or between 33 cents and 35 cents per share. Synnex's stock price dipped slightly before the earnings announcement Thursday evening, but in early trading Friday morning, Synnex shares more than 2 percent.