Q&A: Synnex CEO Talks Customer Care Business, HP Split, IoT And More

IoT, Customer Care Business Drive Synnex's Success

Synnex capped off 2014 with an extremely lucrative quarter, as sales for the Fremont, Calif.-based distributor soared 25 percent to $3.82 billion and non-GAAP profits jumped 55.7 percent to $72.7 million. CRN spoke with Synnex CEO Kevin Murai after the earnings call Monday about how the Internet of Things (IoT) is fueling device and infrastructure sales, channel benefits from Synnex's acquisition of IBM's Customer Care business, the resurgence of the federal government sector, and the fallout from the HP split and Lenovo's x86 acquisition.

What is the most significant piece of news for Concentrix?

It was a very big job for us to do in integrating the IBM CRM (Customer Care) business, understanding that this was a transformational change for the business, but certainly a lot of hard work in onboarding 35,000 employees. That business was bigger than our Concentrix [division of Synnex] business to start off with. But a year later, looking back, the majority of the integration is done, and the business is doing very, very well. Our focus has really been more emphasized now on our pipeline revenue and improving the quality of the overall business, so that's all in good shape, and there's a lot of confidence in the future of that business.

What about coming out of technology solutions?

There was some thinking a year ago that, 'Boy, with a job as big as integrating the IBM business, are we going to lose sight of what's going on on the distribution side?' The answer is, not only did we continue to focus on the distribution business, but we grew that business very, very fast. Growing at approximately 20 percent overall for all of 2014, and our fourth quarter was very strong year-over-year as well. A lot of that was led by the U.S. business. Overall, I think we're just hitting on all eight cylinders, and I think we're very well-positioned for all of the growth opportunities that we see in 2015.

What opportunities do you see for the channel with CRM?

We already do partner in Concentrix with a number of vendors that we have on the distribution side of the business ... providing sales and tech support and renewal-type services for many of them. There are a number of capabilities that we have been able to leverage from Concentrix into the technology solutions side. For example, our RenewSolv platform in technology solutions is the same engine that we've invested in on the Concentrix side of the business … That RenewSolv engine is an analytics and management tool that can run a software renewal or hardware warranty renewals-type business, so [it's] very valuable.

What else can solution providers expect from CRM?

In addition to that, we also are a customer of ourselves, so we do take advantage of great capability that we have both for servicing our resellers as well as doing a lot of back-office type work. But looking forward, there will likely continue to be more opportunities to leverage, whether it be intellectual property that Concentrix has just in driving a much more efficient process in business, as well as even looking at potential services that Concentrix can bring to our reseller partners.

How much overlap is there between your Concentrix and technology solutions verticals?

The verticals that we focus on for technology solutions are not necessarily the same verticals as Concentrix. Obviously, health care is. Really what we do is we get our vertical focus around where we see the big opportunities, where technology solutions can really make a difference in those sectors. So our focus in the distribution side has been around public sector, specifically K-12, other parts of SLED [state and local government, and education] and federal; it's been around retail, and it's also been around the health-care sector too.

What's the outlook for the federal sector heading into 2015?

If I look into my crystal ball, I'm pretty optimistic about it. Demand is fundamentally strong in federal, so it does appear that there's been a little bit of pent-up demand over the past year-and-a-half, when federal spending really got curbed, but it does appear that they're starting to loosen that a bit and starting to do a refresh on a lot of the technology that they have, so I do expect that to be a growth market for us in 2015.

What specifically was driving growth in PCs?

Sometimes it's not just a matter of specific things in those categories, because overall demand, in particular in the U.S., was strong, and it was across the board. From a PC perspective, I think one of the changes that we've seen is that PC strength a year ago was driven by Windows XP end of support. Right now, I think it's being driven by other things; in particular, federal strengthening is certainly driving strength in PCs. We also, because of the holiday season, saw an uptick from the retail perspective, as well, on the PC side. PCs were a strong category.

What about in networking and security?

For networking and communications, I think the overall growth profile is going to continue to be a growth category. With the Internet of Things driving millions and billions more devices coming online, there's a continual upgrade of network bandwidth and infrastructure that needs to happen, and so we see that refresh continuing to happen. And, obviously, all these networks have to be secured as well, so that's really what's driving a big part of security. So I do see that as more of a longer-term trend of growth in networking and security.

What about with software?

If you look at the data center and where it's heading, it's really that software management layer that's gaining strength. So you've heard of things like software-defined network, software-defined data center, that's really that whole transition that I'm speaking to … As we continue to go very narrow and deep into specific industry verticals … a big part of where that value comes from is the actual application software. That's not to mention the inherent growth that we've seen with Windows 7 and Windows 8 through the XP end of life -- what we're starting to see and will continue to see with Windows Server 2003 -- but also in a shift to cloud-based applications like Office 365.

What prompted weaker sales projections for Canada?

Canada's overall economy, even though it was strengthening and it certainly was stable coming out of the recession going back to 2009, it always seemed to lag a little bit behind the U.S. in terms of recovery and growth. And so, very recently, we saw the softening a little bit, and part of it may be more macro-driven than anything. Because of what's happening with foreign exchange, what's been happening with the price of oil. I'm not an expert in macroeconomics -- those are probably some of the drivers of what's happening. I'm hoping that it's a little more short-lived than not, but again, I don't know the answer to that.

What about for Japan?

They have slipped back into recession, which happened a few months ago. There's been a pretty significant change in policy set by the Japanese government over the past couple of years. We had seen significant growth in Japan over the past year, but as the economy started to slow down, we have seen a slowdown in overall demand too ... Hopefully, they do come out of recession soon, and we start to see growth in the economy again ... Both in Canada and in Japan, we're pretty confident that we gained market share in both countries and will continue to do so. Even in light of a softer demand environment, we still set our goals high.

How will the HP split impact Synnex?

Overall, I think it will be positive. First of all, I think it will be positive for HP, being able to have a specific focus on two very different types of business. We are a major partner across the board with HP, and certainly on the enterprise side and on the PPS [printing and personal systems] side. What's good for HP is going to be good for the channel and is going to be good for us as well. Today, we have a very strong relationship with HP; once the split occurs, we're going to have two very strong relationships with two different parts of HP.

What has the x86 sale to Lenovo meant?

Our partners are very bullish on it. Lenovo has been an excellent supporter of the channel as a vendor, and our customers, in general, feel that Lenovo is going to continue to invest in and grow the x86 line. As you probably know, we were not an IBM partner over the past few years, so we did not sell [the] x series. Of course, we have a number of customers that did or wanted to, so they're also looking forward to sourcing that product as a partner of ours … I feel that we have a very strategic relationship with them, and I think we have an ability to grow that business.

What opportunities should VARs watch for?

A lot of it is going to be driven by the Internet of Things and just the massive buildout of everything that you have to do to support billions of devices coming online. No. 1 is an opportunity in the devices themselves ... New Age Electronics is a major player in retail IT, so things like wearable technology, things like home automation and control, and even accessories like audio ... We continue to look for emerging players that have cool products that people are going to want to buy ... We announced our new relationship with Bang & Olufsen. They have some very nice audio products that we are going to be able to carry.

What about on the commercial side?

A lot of it has to do with surveillance, and a lot of it has to do with automation and control as well. So the devices themselves present a good growth opportunity, but then the underlying infrastructure does as well. We could really talk about what's driving growth in network, communications and security, and I told you that it's my view that it will be an ongoing growth story. It's because of the Internet of Things. So I do expect that infrastructure piece to follow. It has to grow and be a key enabler to that.

Where does big data fit in?

With more and more devices online, it's a lot of data. But data is actually meaningless unless you know how to turn it into information. And that you do through filtering and analytics ... Some of it I think can be templated. Some of it is going to be very specific to enterprise but, ultimately, it's a matter of how do you take a look at all the data coming in and make sense of it. Of course, that all ties into cloud. It all ties into mobility as well. As a result of that, there are going to be a lot of emerging players with very different capabilities that we would like to partner with.

What do solution providers need to do to prepare for these changes?

Don't try to be everything to everybody, but really go narrow and deep, and figure out what you do well and specialize. Specialize by technology platforms, specialize by vertical market, become an expert in those spaces so that you can be as strategic of a technology partner as you can to your customers. Also, partner with Synnex. Our strategy is different, our business model is different. We made a significant number of investments in capability, and the capabilities that we have are all put in place to help drive sales for our reseller customers. And we want to partner with you to do that.