Synnex Gains Q3 Market Share

The Fremont, Calif.-based distributor reported $2.01 billion in sales for the fiscal third quarter ended Aug. 31, a 1.9 percent decrease compared to $2.05 billion in the year-ago quarter.

Net income for the quarter was $23.1 million, or 67 cents per diluted share. Wall Street had estimated earnings of 61 cents per share. Last year, Synnex earned $22.1 million, or 66 cents per share.

By comparison, competitors Tech Data and Ingram Micro reported sales decreases of 16 percent and 25 percent, respectively, in their most recent results.

CEO Kevin Murai wouldn't detail Synnex's operational secrets, but the company's success stems from Synnex's business model, which allows it to win deals without sacrificing some of the profitability that competitors have to forego to offer the same price.

Synnex's back-office operations in Asia allow it to operate at a lower cost, and in turn offer a lower price to customers while remaining profitable.

In a low-margin industry, relatively speaking, savings of even a few points can be enough to gain significant share.

Meanwhile, Synnex won some "net new" customers in the third quarter, but Murai declined to elaborate on where they came from other than they were spread across different parts of the company.

"There were pockets of opportunities across a few different segments, whether it was retail or government or traditional IT segment," he said, adding that he believes the new business can be sustained through the current and future quarters too.

"There were short-term startup costs, but that business long term will be beneficial for the company," he said.

Synnex won at least one big government opportunity and some high-volume but low-margin deals that helped drive sales. Murai warned that those deals did not make up a significant portion of Synnex's perceived market share gains.

"If anything, our portfolio is less dependent on high-volume, low-margin business than some competitors. Our core is the SMB segment," Murai said. "We've said for a long time our focus is to continue to grow in profitable business spaces. Services is a primary example of that, whether it's technical solutions or enterprise or managed services or POS/data capture. We've been doing well in areas where we're making bets in."

Synnex's distribution revenue was $1.98 billion, a 2.1 percent decrease compared to the year-ago quarter. Its global business services revenue was $34.5 million, up 17.7 percent from last year.

For its fourth fiscal quarter, Synnex expects revenue between $2.03 billion and $2.13 billion with net income between $25.1 million and $26.1 million (72 cents to 75 cents per diluted share). Analysts were expected earnings of 72 cents per share with $2.03 billion in sales for the fourth quarter.

Murai expects Microsoft's Windows 7 operating system, scheduled to be released Oct. 22, to be a catalyst for growth, though it could dampen Synnex's own Q4 results because Windows 7 won't be released until the company's fiscal quarter, ending Nov. 30, is more than half over.

Synnex shares closed at $32.14 Monday, up 80 cents or 2.6 percent per share.