Tech Data Looks For a Leg Up As Daisytek International Goes Down

The Allen, Texas-based distributor, which recorded more than $1 billion in revenue in 2002, saw its stock price fall approximately 90 percent since January before being delisted by Nasdaq. Daisytek, which is best known for a strong supplies and accessories business, particularly around Hewlett-Packard printing products, has struggled with mounting losses and declining sales this year, in addition to competition from fellow distributors.

Tech Data has also seen its sales drop considerably. The company missed analysts' expectations for the first quarter as profits fell, but the world's second-largest distributor is eyeing a boost in business, thanks to the ailing Daisytek. During its first-quarter earnings call, Tech Data chairman and CEO Steve Raymund said his company was in good shape compared with the overall distribution market. "We believe our share is, at the very least, stable and possibly, in some cases, going up," he said. "Our supplies business has gone up as a result of the exit of Daisytek."

Tech Data competed heavily with Daisytek in the supplies, accessories and components market. In fact, Tech Data has been actively promoting its supplies and accessories unit, which has emerged to its VAR customers this year as a strong performer with marketing programs and special offers for products such as ink and toner cartridges, keyboards, Web cameras and storage media. Those goods may not be sexy, but they provide a steady revenue stream for the channel. "Daisytek's computer-supplies business is basically gone, so we've picked up some share," Raymund says.

HP's printing business could be particularly important as Tech Data gets a substantial amount of business from the technology giant. Solution providers say that a growing supplies and accessories business could be a big plus for Tech Data. Michael Reuben, owner of Culver City, Calif.-based L.A. Computer Works, used to buy products through Daisytek years ago, but now uses Tech Data and Ingram Micro. He says Daisytek's supplies and accessories business would be a huge business for Tech Data or any other distributor that could replace the bankrupt company.

"Everyone has to buy printer cartridges. We have customers that go through toner all day long, and we can't get it to them fast enough," Reuben says. "If Tech Data can get that business and offer a good deal, I'd certainly buy more from them."

European Expansion
With Daisytek and a number of distributors ailing or exiting the business in North America and abroad, Tech Data is looking to expand. The distributor has aggressively grown its business in Europe with three recent acquisitions, including the Azlan Group, a U.K.-based networking and communications products distributor. The company's first-quarter European sales increased nearly 18 percent from one year ago on a regional basis, thanks in large part to those purchases.

Raymund says he sees "wobbly competitors under tremendous pressure," especially in Europe, and taking advantage of them will help Tech Data expand its footprint. Raymund says he hasn't ruled out making similar moves in North America. "We're looking at business-development opportunities everywhere, and we'll continue to study the market," Raymund says.

As for concerns about the distribution channel losing business to direct-selling vendors, Raymund says the issue hasn't been a factor for any business other than the PC market. "I haven't seen much direct-sales activity with vendors other than HP," he says.

Some VARs disagree and feel that increased direct selling is putting the pinch on distributors and, as a result, the channel.

"More and more vendors are going direct and cutting back on the channel," says Anthony Harbour, owner and founder of Harbour and Associates, a solution provider based in Richmond, Va. "It's killing the distributors, and it's hurting us, too, because the distributors are tightening their belts."

Whether direct sales or weak end-user demand is the real cause of distribution's woe's, Raymund isn't predicting a recovery just yet. Tech Data's CEO cites the same lack of end-user IT demand that vendors and competitors such as Ingram Micro have stated. "Corporate bosses are using every excuse they have to put off IT investments," he says. "That's not going to change until their own businesses pick up."