TD Synnex CEO Zammit On AI PCs: ‘I’m Quite Confident We Should See Some Acceleration In The Coming Quarters’
‘When you look at the ramp-up of AI PCs, it’s no different than what you see in the market. It's relatively slow. The good news is you have many AI PCs which have been launched. All the chips are available,’ TD Synnex CEO Patrick Zammit tells CRN.
Patrick Zammit, CEO of TD Synnex, told CRN in an exclusive meeting that the underlying dynamics for distribution in 2025 are quite positive, with an expected PC and x86 server refresh, eventual AI server demand, a strong networking business, and double-digit cloud, security and software growth.
“That’s all positive, which could justify being a little bit more aggressive on the guidance,” Zammit told CRN after the Fremont-Calif.-based distributor reported earnings for its fiscal fourth-quarter 2024.
[Related: TD Synnex CEO On AI, Ingram Micro’s IPO And Why He’s Optimistic About IT Distribution]
However, Zammit said, there are concerns regarding political unsettlement and geopolitical challenges, including the war in Ukraine. In North America, TD Synnex is watching how a potential increase in interest rates and the possibility of tariffs might impact business.
“We are waiting for the decisions and the impact,” he said. “There’s uncertainty, and because of that we stay relatively prudent. We have cautious optimism because of that.”
Here is more of CRN’s conversation with Zammit.
Where did the big bump in revenue from?
I'm going always to distinguish between distribution and Hyve. We had a good performance in distribution, with mid-single-digit growth. But then on top, Hyve had high double-digit growth. Hyve goes after the business of the hyperscalers, and so they have significant growth. The combination of the two drove [fourth fiscal quarter’s] 10 percent revenue growth. Overall, we grew a little bit faster than the market. We also had a very impressive growth in APJ [Asia-Pacific Japan], where we continue to invest organically. All the regions contributed to the growth, and most of the technologies. ... There’s only one which was declining a little bit, but not by much.
Which technology declined in sales?
Storage. We had a small decline in storage this quarter. But all the other technologies, including even networking, suffered from tough compares. We managed to grow low single digits, and that makes us confident for 2025.
You mentioned Hyve is leading growth at TD Synnex. What's behind the growth at Hyve, and how involved in AI is Hyve?
Hyve is serving the tier-one hyperscalers. Today, we serve two customers primarily. They primarily are involved in projects around compute, primarily x86. We are starting to have some AI projects and networking. Networking is a very strong product line for them, and the customers placed a lot of orders. The hyperscalers continue to invest heavily in building capacity, so we benefited from it.
Can you say who the two customers are?
Not now. We don't disclose that.
The hyperscaler market is extremely competitive, given that they also build a lot of their own equipment. How does Hyve compete and continue to grow in that market?
The hyperscalers design the products, but the production is outsourced, and we are one of the partners they outsource to. We are involved with them as a subcontractor, and more and more as an ODM. That means we also participate in the design of the system. We call it ‘co-design.’ We are not developing our own products. We are co-designing and manufacturing the products on behalf of the hyperscalers.
You said all the technologies TD Synnex sells are growing, except for maybe storage, which is down a bit. A big question for 2025 is, how's the PC business going? What are you seeing from your reseller partners in terms of either the Windows refresh or any push toward AI PCs?
We get market information for North America and Europe. The PC market was up, and specifically the commercial segment was up, and that’s where we play. The reason for our high-single-digit growth in PCs is because, one, we are focused on the commercial segment, which is the one growing. Second, we also grew a little faster than the market, which helped.
When you look at the ramp-up of AI PCs, it’s no different than what you see in the market. It's relatively slow. The good news is you have many AI PCs which have been launched. All the chips are available. I'm quite confident that we should see some acceleration in the coming quarters. When you look at the tailwinds or the drivers for the demand, the market is always referring to three. I believe two of those will prevail. The first is, let’s call it the ‘COVID phase.’ During COVID, companies bought what they could. In many cases, the specs they got were not completely meeting their expectations, so four years later there’s a need for a refresh. The second is the dated PCs, which are running on Windows 10, which cannot be upgraded to Windows 11. The third will be a need to refresh to adopt PCs with AI capabilities, which will probably take a little bit longer. But the first two tailwinds should help quite a bit, especially in the commercial PC business.
What are you looking at for fiscal 2025?
Our guidance for 2025 is mid-single-digit growth. I guess your next question is, why mid-single-digit growth? On one hand, I would say the underlying dynamics for the distribution market are quite positive. You have the PC refresh. You have an x86 server refresh. Probably towards the end of the year, we are going to see some AI server demand increasing because enterprises will make their decision on where they want to invest and which use cases they will focus on. With networking, the tough compares are behind us, so that’s relatively positive. Cloud continues to grow double digits. Security and application software continues to grow double digits. So that’s all positive, which could justify being a little bit more aggressive on the guidance.
On the other hand, there are some significant uncertainties. I start with Europe. There is lots of political unsettlement in the main countries, along with geopolitical challenges. How will the war in Ukraine evolve? You have some macroeconomic issues, especially in Germany. So that’s creating risk and uncertainty. And in North America, there are two things where we don’t know how the bets will play out. The first one is a potential increase in interest rates. It could have an impact on some investment decisions, even if overall the morale of CEOs is quite high. The second is, what will happen with tariffs? We don’t know. We are waiting for the decisions and the impact. There’s uncertainty, and because of that we stay relatively prudent. We have cautious optimism because of that.
We are working very closely with vendors. We’ve been sitting with them, and we are following their guidance on what we should do, such as, should we buy so we have a little bit more stock and so on? That will help for a few months. After that, the tariffs can have a potential headwind and a potential tailwind. The tailwind is an increase in ASPs [average selling prices] because, as a distributor, we are going to pass on any increase in purchase prices to customers. The headwind is, could it impact demand and sales volumes customers are going to buy? We don’t know. We can’t speculate. But we are conscious of potential implications, and we will see how the market evolves and react accordingly.
Ingram Micro is now a public company. Does this change the competitive dynamics?
The good thing is we can now compare the financials, which is always interesting. But other than that, Ingram has always been a very good competitor, and we are not noticing any change in their behavior. We were competing well in the market. We continue to invest in improving our value prop, so no changes. The fact that they became public does not change anything in the competitive dynamics of the market.
This is your first full-year financial report since you became CEO. Have you seen any surprises since you took the reins at TD Synnex?
No. But it speaks for the quality of the transition from Rich [Hume, former TD Synnex CEO] and how Rich included me in the current affairs. So no surprise. By the way, I was CEO for only four months. If you count my time as COO, it’s one year. I was aware of the strengths. I’m aware of the areas where we need to improve market dynamics. Maybe I was expecting the market to recover a bit faster, which didn’t happen. But I would say no good or bad surprises. We continue to execute.
I have refined the strategy. We will present it in three months at our Investor Day. I’m sure we will discuss this further. I had to make some changes in the executive team. That’s done, that’s completed. So it’s exactly how it was perceived.
TD Synnex By The Numbers
For its fiscal fourth-quarter 2024, which ended Nov. 30, TD Synnex reported revenue of $15.8 billion, up 10.0 percent from the $14.4 billion the company reported for its fiscal fourth-quarter 2023.
This included Americas revenue of $9.2 billion, up from last year’s $8.4 billion; European revenue of $5.5 billion, up from $5.2 billion; and Asia-Pacific and Japan revenue of $1.1 billion, up from $800 million.
TD Synnex also reported GAAP net income of $194.8 million, or $2.29 per share, up from last year’s $187.5 million, or $2.06 per share. On a non-GAAP basis, the distributor reported net income of $264.3 million, or $3.09 per share, down from last year’s $285.6 million, or $3.13 per share.
For its full fiscal year 2024, TD Synnex reported revenue of $58.45 billion, up 1.6 percent from last year’s $57.56 billion.
This included Americas revenue of $34.8 billion, up slightly from last year’s $34.6 billion; European revenue of $19.6 billion, up from $19.4 billion; and Asia-Pacific and Japan revenue of $4.0 billion, up from $3.6 billion.
The company also reported fiscal year 2024 GAAP net income of $689.1 million, or $7.95 per share, up from last year’s $626.9 million. On a non-GAAP basis, it reported net income of $1.01 billion, or $11.68 per share, compared with last year’s $1.05 billion, or $11.26 per share.
Looking ahead, TD Synnex expects fiscal first quarter 2025 revenue of $14.4 billion to $15.2 billion, GAAP net income of $147 million to $189 million, and non-GAAP net income of $244 million to $266 million. That compares with the first fiscal-quarter 2024 revenue of $14.0 billion, GAAP net income of $172.1 million, and non-GAAP net income of $266.2 million.