Tech Data CEO: Smartphone Support Is Next Big Thing

As the CEO of Tech Data, Bob Dutkowsky sits at the center of all things technology, from consumer electronics to enterprise data centers and everything in between. Following the distributor's third-quarter earnings report Monday, Dutkowsky spoke to CRN's Scott Campbell and answered questions around HP's PSG group, and channel opportunities for Ultrabooks, smartphones and more. The following are excerpts from the conversation.

Everybody is concerned about global debt and the European economy, but your European sales were up 10 percent year-over-year, compared to a 3-percent increase in the Americas. Why did Europe perform better?

Well, that 10 percent is net of currency. On a constant-currency basis, it's up 6 percent. But we did have some acquisitions. We bought Triad in October of last year, so there's a bit of that [in the year-over-year comparisons]. The other piece of it is we're very selective in the revenue we go after. We may have chosen to go after a little more of the market more aggressively in Europe than the Americas. For us, revenue is one leg of the three-legged stool. We're very interested in market share, but we're also very interested in profitability of the business and we're very interested in return on invested capital, things like payment terms, inventory that we buy to get benefits from vendors to get the return we want. We sell $100 million worth of goods a day and our average order is under $1,000. We're looking at all three things on every deal we do.

So every opportunity is different. For example, we may have a big direct marketer that wants us to bid on $100 million worth of printers. That might be very attractive to a revenue point of view but the payment terms they want might not be interesting to us. The top line looks like better to a competitor so they win the deal.

On the conference call with analysts, you mention that you don't think there will be any disruption going forward surrounding HP's Personal Systems Group, a sale of which is now off the table. But looking back, was there any disruption during the period where its future was up in the air?

It was an unsettled month and a half when Leo [Apotheker, ex-HP CEO] said they would sell it and then Meg [Whitman, HP CEO] said they weren't going to sell. I'm going to say it was weeks or something like that. During that time, HP worked very closely with us to stayed focus on the selling opportunity in the market.

NEXT: Hard Drive Constraints

During that time, I'm sure other vendors were after you to help them grab share from HP. How do you balance what those vendors want with what you're doing with HP, which is your biggest vendor?

In reality, it's what the reseller wants. If a reseller is committed to HP, it doesn't matter what other vendors bring to the table. People are trained on HP, they're positioning HP in the market. This answer just doesn't fit HP but all the vendors we serve. If the reseller is committed to Apple, it doesn't matter what other PC vendors bring to table. If they're committed to HP, it doesn't matter what other PC vendors bring to the table. The relationship between reseller, Tech Data and vendor is more complex than just one product. They sell multiple products, with multiple incentives based on total revenue. When one product division does something, it won't necessarily impact what others do.

During that time there were lots of resellers that came us and said, 'What do you think this means?' Obviously HP was in constant communication with us to make sure we had the facts, and what they really thinking of. They wanted us articulating the facts, not innuendo. I met with Todd Bradley right in the middle of that six-week period. He asked us to communicate to every reseller could find. That's the basis of a partnership. We're together through thick and thin.

You said on the analyst call that you expect product constraints around hard drives due to the flooding in Thailand, but it's too early to say how much. Do you think the constraints could give a boost to other storage technologies such as solid state drives?

It's really hard to tell what the impact is going to be. Most vendors think there is an early-next year resolution to whatever challenges they're faced with. I don't think the challenge will make customers make a dramatic shift away from hard drives. But I do think customers who buy notebooks might instead look to buy a tablet instead. The other thing from vendors is that I think they'll put a limited number of drives into more fully-configured boxes. So rather than stick a valuable drive into a low-level laptop, they'll put it into a machine with more memory or a bigger screen. Because of that, I think [average selling prices] have the potential of moving up just a little bit. Anytime a product gets into allocation, we may see an opportunity to make a little more money from those products.

Also, companies that are able to make the biggest buys and cover the most terrirory are the ones to get the most allocation. We'll get our fair share. If there's product to be had, I'm confident we'll have it.

We're starting to hear a lot from vendors around the Ultrabooks that are due next year. Do you think they will be the game changers that the manufacturers say they will be?

One of the beauties of new technology is we don't have to make that market, the vendor has to make that market. They have to convince [customers] that the Ultrabook is the next great thing. They will come to us with incentive dollars, but to be frank they haven't come to us yet. We're selling stuff on the shelves. We're still selling notebooks, we still have some Netbooks and the tablet form factor is obviously hot right now, along with smartphones.

Next: Smart Phones, Smart Play

Speaking of mobile solutions, can you update us on TDMobility, your new initiative to get VARs more involved with phones and carriers?

TDMobility is launched. That was a combination of Tech Data, Bright Star and the organization we bought together, OTBT, which has a VAR activation offering. TDMobility is in limited launch. We haven't opened it up to all VARs yet because we want to make sure the processes work because potentially there's a lot of volume to be thrown at it. VARs are out there selling laptops and systems but their customer doesn't draw the line between laptop and smartphone. They do e-mail on both of them. The reality is the VAR didn't sell them the smartphone and doesn't get paid to support it. But to the [end user's] mind, it's e-mail and the VAR's responsibility is e-mail.

The problem is the VARs don't get into it because the phones are subsidized by the carriers. A phone costs $600 but you can get it for $99. With VARs, the more cell phones they sold, the more cash flow problems they had. That's what TDMobility does. That's what ActivateIT does…Thirty days later Tech Data pays the VAR the rebate and the VAR gets the cash flow. It's a unique offering in the channel.

All the carriers have wanted to get to VARs, but they can't figure out how to. They already know how to get to consumers and to big business. TDMobility solves that problem.

These numbers may be off a bit, but Intel said for every [600] cell phones sold, the world needs another server. For every [122] tablets, the world needs another server. Someone needs to manage that data. Eighty percent of the world's data is created on mobile devices.

The world's data now is pictures and video and sound and text messages. The complexity of managing that unstructured data is where the future sits. That's why we're focused on consumer electronics. Consumers are creating the world's data, and software, which needs to be managed, and security, and the data center because that's the repository of it all. Five years ago, Tech Data was not involved in any of those areas.