Tech Data CEO: We Have The Ingredients For The Cloud

Tech Data announced record sales and earnings for the fourth fiscal quarter ended Jan. 30 and afterward CEO Bob Dutkowsky spoke with CRN's Scott Campbell about the results and the company's strategy regarding everything from consumer electronics to the cloud. The following are excerpts from the conversation:

You're VAR business accounted for 53 percent of sales in the recently-completed fiscal year, up from 50 percent in the prior year. Meanwhile, your direct marketer sales fell to 26 percent from 30 percent. Is that a case of your increased focus on SMB VARs, or are direct marketers really struggling right now or buying from other sources?

More of the former. As we've said the last couple years, our focus is more on SMB. That's the spot vendor partners want us to cover and penetrate. They target many more backend dollars for SMB than anywhere else. They can cover the direct marketers pretty efficiently on their own. Many of them have removed back end incentives on sales to DMRs. Our numbers reflect our focus on SMB first and foremost. But some of that change is the way the vendors manage the back end.

We've also made it a conscious effort to move into the consumer electronics space. We have some of their retailer business that last year we weren't even selling to. There's growth in retail and we have new customers that would be retailers.

How did you get more involved in retailers? Are more vendors asking you to serve those customers or are more VARs expanding into selling consumer products?

It's a little bit of both. One vendor in particular asked us to handle 1,500 [retail] customers of theirs that we didn't even sell to. We built the coverage model, offered credit and grew our business with those customers. That gave us a jump start into second-tier retail. We are not talking about the big box guys. They deal direct. It's the next tier down. Those customers are very appreciative of our delivery capabilities and credit capacity. It's been a good combination.

Did I hear right on the analysts call that you expect your Advanced Infrastructure Solutions and Azlan business to be $6 billion for fiscal 2012, up from $5 billion this year?

No, we came in [Fiscal 2011] at $6 billion when we thought it would be $5 billion.

Where did that extra billion come from? What attributed to that extra growth?

We added some new products and were able to grow those aggressively in the second half of the year. Quite frankly, we're taking share in that space.

Next: Public And Private Cloud Strategies

You've talked a lot about five areas of focus for the company right now: data center, mobility, consumer, software and an integrated supply chain. On the analysts call you described them as great opportunities but also as the basic ingredients to cloud computing, to fuel further growth. Can you explain that?

Cloud lands in two places. There's the whole public cloud piece. That's the one that gets the most visibility, the most cache in the press. Where the real opporunity is lies in the private cloud space. Two of our biggest vendor partners, and you'd know them because they have big cloud strategies, have said between 60 [percent] and 70 percent of cloud opportunity is in private clouds. That's where businesses big and small want to take technologies that make cloud a reality: servers, storage, networking. They're technologies that are easily deployed, easily optimized for performance. That same technology that makes the cloud work wants to find its way into businesses. That's why I believe AIS and Azlan are having good success right now. They're selling the tools that make up private clouds: networking infrastructure, middleware and productivity applications, virtualization, security software. You bundle all that and you have cloud.

Second, you have to attach cloud to something. That could be a laptop, a smartphone, a tablet. Therein lies our focus on mobility platforms. You have to have clouded architecture, you have to attach to cloud. We have that.

Then you have to figure out a way if it's in public cloud to do monthly billing. That's the beginning of our StreamOne that will become the software licensing engine for Tech Data and to do a recuringg billing infrastructure that is so important for the cloud world. Lastly, the merger between consumer and professional devices is happening as we speak. I have a TV that is attached to WiFi and my wife and I streamed into Netflix last night to watch a movie. Netflix is a cloud. I don't know where the movie came from but it worked and it was secure and connected to my consumer device. And in the corner I have a ticker showing Tech Data's share's price. That's why I say we can take data center, mobility, consumer and put it under an umbrella and you've got the cloud. We're active in each one of those arenas. If you're not doing all of them, you're not in cloud. All of us [distributors] have our toe in the water in some way, shape or form. No one has been as aggressive as we are.

Getting back to public and private clouds, do you think that the recent Gmail mail account deletions could impact the way some businesses look at deploying public cloud?

I've said all along that there are applications for the public cloud but it's not for everything. I don't believe it ever will be the answer to everything. There's a broad contiumum going to continue in computing. It's always been this way. You don't use a mainframe when you need a calculator. You don't use a cell phone when you need a server. They're all optimized. What the cloud does is bring another computer environment to the table. It's not the answer to everything, but it's the answer for some things.

I would never put the world's largest movie catalog on a server in my house. Netflix does that. Tech Data uses for payroll an outside service on a cloud. Tech Data would never run its own payroll. It's more efficient to run an external source. But I don't see Tech Data putting its general ledger and accounting out on a cloud somewhere. I don't see the Department of Defense putting its nuclear stockpile on a cloud. I don't see a bank putting people's accounts on the cloud. l just don't see that. For customer to do Salesforce.com stuff, that fits perfectly. At Tech Data, the challenge we have at the end of a quarter or a year is we need more computing capacity to close the books out. That's what cloud technology allows you to do, to quickly deploy against an application.

Next: Is There Innovation In Peripherals?

A category that did not do well was peripherals, down to 32 percent of sales from 35 percent last year. Is that a category lacking in innovation or just lacking in profits that is an acceptable level to you?

When you think about what's in peripherals: keyboards, mouse pads, it's some pretty utilitarian computing stuff. Unless those technologies are such that we can make good money, we're less inclined to use our capacity to sell that kind of stuff vs. other technology like servers, storage, smartphones, unified communications systems, places where we have the ability to add value to bring more to our shareholders. We'll always sell a lot of peripherals. There's lots of demand and efficiencies for our broadline distribution engine to be one of the best ways to put those in the market. But for a long term strategic focus, it's more on those other areas. But with a focus on those areas, we use the engine of our broadline business. The peripherals are in effect the broadline business. That volume is important to keep our engine efficient.

Thanks, any other final thoughts on the quarter and fiscal year?

It was record quarter and a record year. That doesn't happen very often. A lot of times a company might report record sales but earnings were not great. Seldom do you hear sales and earnings records all in the same periods. That speaks to the health of IT distribution in general. Obviously IT distribution is very strong and vibrant right now. We're the last of our competitors to announce. All of us had very good quarter and years. It speaks to the strengths and strategic nature of distribution and to the quality of partnerships with vendors. I've been with Tech Data five years now and I can honestly say that's the first time I can make that observation. We're all doing well in an industry segment that is going well.