TD Synnex CEO Rich Hume: AI A ‘Massive Opportunity’ For The Channel
‘There’s going to be a whole set of services that emerge around AI. It’s going to be a great opportunity for the entire business partner ecosystem. But like every other every new technology, the entire ecosystem needs to be very thoughtful about where they think they want to participate. Investments will be required in order to allow them to achieve their objectives,’ says TD Synnex CEO Rich Hume.
AI Will Drive Massive Channel Opportunities
TD Synnex, the world’s largest IT distributor thanks to the 2021 merger of Tech Data and Synnex, is gearing up to help its solution providers take advantage of several high-growth opportunities. Those opportunities, according to TD Synnex CEO Rich Hume, include hybrid cloud, analytics, IoT, cybersecurity, and hyperscale infrastructure
However, Hume told CRN during a meeting at last week’s TD Synnex Inspire 2023 conference in Greenville, South Carolina that AI is generating the most excitement for channel partners.
Hume, citing a report TD Synnex did together with analyst firm Canalys, said his company saw a 625-percent growth in its partner base saying they will engage in or are engaged in AI opportunities.
“I think approximately 35 percent of the channel now is either active or has the aspiration to be engaged in AI,” he said. “So a very profound shift has taken place with the emergence of ChatGPT. But make no mistake, AI is going to be a major inflection point in technology. It’s going to create a lot of great business opportunity moving forward. I liken it to mobile phones and the cloud. It is going to be a titanic opportunity for everybody in it.”
AI today is often discussed from the perspective of ChatGPT, but it is so much more, Hume said.
“It will be integrated in the broader offering set that goes to market today. It’ll demonstrate itself in the hyperscalers and all of the AI-enabled servers they’ll build out. It will find its way certainly into what is resonating with everybody right now, ChatGPT. But make no mistake. … It’s going to be the totality of this AI portfolio that is going to create a massive opportunity.”
Hume, who last week returned from TD Synnex’s European Vendor Partner Summit, also discussed international aspects of IT distribution, and how distribution is more relevant than ever despite the appearance of self-service and direct sales for the latest technologies.
“Our customers are leaning on us more consistently and more frequently based on having to digest and understand these new technologies,” he said. “And we get that done through the specialized resources that we’ve been building over time.”
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Many of the new technologies coming out, such as AI and cloud, are aimed at end user businesses or customers looking to do more self service, or otherwise make them easy to use. Does that encourage certain vendors to bypass the channel and sell such technologies direct?
We’ve been having this discussion as an industry for four decades. And the one thing that I have learned for sure is that, generally speaking, a vendor’s go-to-market model is to take their limited resources and apply them to the accounts where they think they can have a robust business outcome. Then they look at all the accounts that cannot be covered by their direct sales coverage and have for decades used the business partner ecosystem to serve those clients. And the reason that has been the case and will hold up in the future is that economically, the channel is a low-cost route to market for our vendors. And it’s also a variable cost road to market, meaning that if the business partner ecosystem doesn’t sell, they don’t incur any cost or expense associated with that sale. Vendor resources are finite. They have to manage their business, and they have always used the business partner ecosystem to serve the accounts outside of their large enterprise accounts to be able to meet their go-to-market needs at a reasonable cost.
[Analyst firm Canalys estimates that,] of the overall addressable IT market, three quarters of that market is going through partners. Almost 92 percent of cybersecurity is delivered via the channel. So a lot of these high growth technologies or newer technologies are going through partners.
[Regarding] AI, last year AI barely registered in terms of the priorities of the business partner ecosystem. And this year, there’s been a 625-percent growth in our partner base saying that they’re going to engage in or are engaged in AI opportunities. I think approximately 35 percent of the channel now is either active or has the aspiration to be engaged in AI. So a very profound shift has taken place with the emergence of ChatGPT. But make no mistake, AI is going to be a major inflection point in technology. It’s going to create a lot of great business opportunity moving forward. I liken it to mobile phones and the cloud. It is going to be a titanic opportunity for everybody in it.
And when you say AI, are you talking specifically about AI tools sold to the customer or applications where AI is a component?
A large majority of the offerings that are being sold today will be AI-infused moving forward, starting with the PC. There are already chips being produced that will enable AI as applications like Microsoft Copilot emerge. So when we think about the opportunity in AI, it goes way, way, way beyond the core of interacting with a chat function to get an answer. It will be integrated in the broader offering set that goes to market today. It’ll demonstrate itself in the hyperscalers and all of the AI-enabled servers they’ll build out. It will find its way certainly into what is resonating with everybody right now, ChatGPT. But make no mistake. Chat GPT is just the latest rendition. Machine learning and predictive analytics tools have been out there for years now. And so it’s going to be the totality of this AI portfolio that is going to create a massive opportunity.
The question is, however, are you talking about AI being infused into the technologies people are buying, or AI as a standalone offering? In other words, if the partner sells a server with an AI chip built in, and then the user uses Microsoft Copilot, the AI is built in there. Is there a value the partner can add to AI rather than just selling something that has AI in it?
There’s going to be a whole set of services that emerges with AI. Consulting services like, ‘Hey, here’s my enterprise. What is the most productive way for me to use AI to drive productivity and optimize costs?’ ‘Hey, I’m really interested in this sort of business outcome. What is the best system and set of applications for me to be able to solve this problem?’ So there’s going to be a whole set of services that emerge around AI. It’s going to be a great opportunity for the entire business partner ecosystem. But like every other every new technology, the entire ecosystem needs to be very thoughtful about where they think they want to participate. Investments will be required in order to allow them to achieve their objectives.
You just returned from this week’s TD Synnex European Vendor Partner Summit. What are some of the similarities and contrasts TD Synnex’s North American and European businesses?
Well, first of all, we have the privileges of having the largest IP distribution footprint in both the Americas as well as Europe. Both businesses have things in common, namely, a wide and broad offerings portfolio, that that serves all the way from the PC ecosystem to some of the most advanced and sophisticated data center, networking, and cloud capabilities. And when we look at the go to market, it’s quite similar.
The economic circumstances in the U.S. had led to a softer market in the Americas in the first half of the year. And as we said during our earnings outcomes, Europe has shown softness in our third fiscal quarter of this year. So for fiscal 2023, the overlying environment has been a little bit softer than previous years for the industry. And, of course, for us as well.
What’s underlying that softness?
Predominantly, the common thread has been the PC ecosystem and the post-COVID adjustment that has taken place. And we’ll wrap that adjustment up in the new calendar, so I think that will be a little bit beneficial. Europe actually has another dimension based on their economic challenges in that the slowness has also bled to some extent into the advanced solutions or data center and infrastructure space, while the Americas is rebounding in the PC ecosystem and is reasonably stable in the advanced solution space.
Although in the last quarter, TD Synnex’s advanced solutions business did drop a bit, right?
So as we had anticipated, and as we had told the market, as the backlogs have come into line, there certainly was growth in the Americas in advanced solutions, but lesser growth than the prior quarter. So it was consistent with expectations.
Do you expect real growth to resume anytime in the next few quarters?
Given the volatility of the market, we really haven’t provided a view of our fiscal 2024. We’ll be prepared to do that in our earnings call in January. So for now, we’re just going to let some of the economic cycle play out and provide a more up to date view in January.
Given the wide range of technology TD Synnex offers, are there any areas where you could eventually exit because of changes in either the market or what your channel partners need?
No. In fact, we like the market. We find ourselves in a bit of a post-COVID cycle, but this market is one of the greatest markets in the world. And we would anticipate continuing to have a broad and wide portfolio. And in all the major spaces that we are engaged with today, we will absolutely be committed to them for the foreseeable future.
One big emphasis of the Inspire conference is that TD Synnex is complete following the merger of Tech Data and Synnex two years ago. As you look at distribution in general, do you see any other opportunities for consolidation?
There’s always opportunities for acquisition. From a TD Synnex perspective, we would consider acquisitions with regard to opportunities that would allow us to accelerate or advance our strategy which has a big bent towards high-growth technologies: hybrid cloud, analytics, IoT, cybersecurity, and hyperscale infrastructure. I do believe there might be consolidations in the future, probably more in the European and the Asia Pacific-Japan market, which tend to be less consolidated than the Americas.
And back to your opening questions in terms of what is in common between the different markets, there’s no doubt that the high growth technologies, the ones that I had just mentioned, differentiate themselves from a growth perspective in the market. So while the market’s a little bit slow, these technologies are still growing at double digits.
You mentioned there’s a lot more consolidation opportunity in Europe and Asia Pacific than in the U.S. Is that because the US has is such a large market, and not as fragmented as other markets?
I should have added that I would speculate there’s more acquisition opportunities in the industry in Europe and Asia-Pacific-Japan, because it’s more fragmented.
How is the value of distribution changing today? And going forward, what are some of the things that determine the value of distribution?
So as we have the quick emergence of new technologies, we find that we really have to serve the market with more specialized groups of resources, as opposed to having a broader generalized group of resources. For example, we have a security practice, we have a cloud practice, we have an analytics and IoT practice, we have hyperconverged and hyperscale infrastructure practices. So as we move through time, because of the, I’ll call it the quick deployment of new technologies, and because of the sophistication of these technologies, there’s more specialization required. And our customers are leaning on us more consistently and more frequently based on having to digest and understand these new technologies. And we get that done through the specialized resources that we’ve been building over time.
We are building our services businesses, and this is having services in context of serving our partners where they need additional capacity or capability. That model is working well, and is in high demand.
As these new services and new product areas come to the forefront, is it the job of distribution to introduce them to solution providers? Or is it up to solution providers to understand what’s coming and ask what they can get from their distribution partner?
It’s a collaboration between both. But we certainly are providing insights and capabilities to help them first of all consider where they might have interests based on the chemistry or composition of their business. And then we have what we call a practice builder program which in essence is a storybook about how you would go about building out a practice in some of these new technology areas. So our resources coupled with the practice builder white paper or framework and coupled with vendor resources are some of the assets we bring to helping solution providers build out those capabilities. We have recently released the Partner Health and Fitness tool which allows a reseller, predominantly in the advanced solution segments of the business, to have a diagnostic done on their capabilities relative to the broader advanced solution capabilities for businesses that look like theirs. It helps point out areas where they might consider building a practice. The demand has been quite good for that tool.