After posting strong results for Q2, Tech Data CEO Bob Dutkowsky sat down with CMP Channel to talk about where his company is going, Dell's emerging channel, the tightening economy, the quality of products from China and what he thinks in the iPhone versus Blackberry debate.
How do you feel about the company's Q2 results and prospects for growth in the coming quarters?
Clearly the company had a very, very solid quarter and we're really pleased with the performance of the company. The people of Tech Data delivered an exceptionally strong quarter, one that beat our expectations in virtually every metric that we run the company around. I'm very pleased and proud of the people of the company this quarter.
We had strong revenue growth. we had strong improvement in the profitability of the company, and those are byproducts of a set of processes that we run here every single day. Those processes executed well in the quarter, but to answer the question of where we go from here, we're not resting on our laurels. There is much more work to be done here at Tech Data. There are more improvements we're striving for at virtually every unit in every organization in the company. Some of those improvements will be to continue to execute our strategies around diversification and innovation. Some of those are just a basic focus on execution and how we improve what we do every day. The quarter is rewarding for the company but we're going to keep going and we're going to remain focused on improving Tech Data as a company our customers want to do business with and that the best and brightest in the IT distribution business want to work for.
Where do you see growth coming from in North America?
The growth in quarter two that we just completed was very balanced. All of the sectors that we cover, whether it's our large customers or our medium-sized customers and SMB VARs, across the board we had very balanced growth.
At the same time all of the major product sectors that we focus on also had very solid growth. When your customers grow in a balanced way and the products that you sell grow in a balanced way, you know you're in one of the sweet spots in the industry. You're calling on the right people. You're selling them the right products and your engine is running correctly. You're able to realize the solid revenue growth and solid profitability like we did in this quarter.
Which technology areas are performing best?
As I said it's very balanced. The company has historically realized its revenue in a mix, and this quarter fell very much in line with that mix. We did 40 percent of our revenue from peripherals, 30 percent of our revenue from systems, 15 percent of our revenue from networking and 15 percent from software. That was the quarter just completed and that was very much within the historical bounds of the way the company has performed.
We feel good about the product strategies we have. I would also add that our AIS division, the advanced infrastructure solutions division, had a very strong quarter. They focus on servers, storage and virtualization technologies and higher-end product sets. They had a very strong quarter. AIS also contributed to that growth we're talking about.
What do you think of Dell's decision to become more channel-oriented and how do you think this will impact Tech Data?
Dell is a very good customer of Tech Data and they're a very good company. I'm sure that they have strategies in place that will help their company to continue to grow.
Do you think it makes sense for Dell to go through distributors to reach solution providers and do you expect that to happen?
We're not aware of any plans that Dell has to engage in the distribution space. We respect Dell as a very strong company and a good customer of ours.
Does Tech Data have any concerns about the quality of products coming out of China, like fake or substandard products, in the wake of some of the things we've been hearing in the news about product recalls?
That's a very good question. We have the privilege to do business with some absolutely outstanding companies in the IT space. Companies like HP, IBM and Cisco and they have very stringent quality control processes in place to make sure that their products are what they say they are and that they're delivered with the right kind of quality. That quality issue is really in the hands of our business partners and we work carefully and closely with them to make sure that when we deliver a product to the customer, it's what the customers thinks they're going to get.
What do you think of the current fluctuations on Wall Street and the sub-prime mortgage crisis? Do you think it will have any impact on IT spending in next couple of quarters?
The markets are in a pretty unstable state right now. You don't need to look any farther than the response that Wall Street has had in the last few weeks. Up 200 points. Down 300 points. Up 200 points. Luckily, Tech Data's balance sheet has never been in better condition than it is today. That's in the history of the company. It's never been stronger than it is today. We're in a very good position to weather this kind of unstable waters that exist in the markets.
Tech Data's business is very spread-out across all sectors. We don't have a single customer that's more than 10 percent of our business. Our primary focus being more around the SMB space takes us out of the unstableness that the financial institutions and the large home building sectors that are really being hit hard. We're outside of those sectors.
We'll weather the storm. Our diversification helps us greatly and the strength of our own balance sheet gives us the ability to get through any challenges that might be presented to us. We ended the quarter with over $600,000,000 on our balance sheet. That's a lot of money to weather the storm with.
How do you see Tech Data in relation to the competition like Ingram Micro and Synnex? What are you doing to distinguish Tech Data from them?
This is an industry that's very competitive in the marketplace today. We all have relationships with virtually the same vendors and we try to sell into the same sectors so what differentiates you is the level of service and support you're able to give to your customers, the reliable supply you're able to offer to your customers and the credit capacity that they need to be able to do business. We're focused on making Tech Data deliver those values to the marketplace in as efficient a way as we possibly can.
We're developing new software products like MyOpportunityTracker that allows our VARs to figure out where they can make more money serving their customers. We've announced a managed service initiative to allow customers to have a tighter relationship with their customers vis-a-vis a relationship with Tech Data. Those kinds of differentiating value-adds for our customers are the things that allow us to compete. At the end of the day it's who has the best coverage model, who has the best inventory and supply position, who has the best and most amount of credit they can offer to the customer and who executes all those processes more efficiently. Tech Data in this past quarter indicated that we're performing very well on all those fronts, and that's why we believe we gained market share in our key markets this quarter.
Do you have an iPhone?
Do I have an iPhone? No.
I've gone to the Apple store and I've looked at it a couple of times, but I'm pretty loyal to my Blackberry at this point. When you travel as much as we do between domestic travel and the amount of time I'm in Europe, I live and die by the performance of my Blackberry. It's reliable and it performs very well in all the countries and geographies that I need to go to so I've stuck with it through thick and thin.
But I promise you I will have an iPhone some day. It's too cool.