Price War: Tech Data Passed On Two Deals Totaling $100M In 2Q

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Tech Data walked away from two deals with large U.S.-based customers that totaled $100 million in revenue in its second fiscal quarter, said Bob Dutkowsky, CEO Tech Data.

Tech Data didn't win the business because it wouldn't get price-aggressive, Dutkowsky said.

It appears a slowdown in IT spending is having an impact on how low people will go to win business, Dutkowsky said.

"The pie is smaller," Dutkowsky said. "In the Americas, IT spending was soft. The IT industry grows at 4 to 6 percent historically. I don't think it's growing at 4 to 6 percent right now. Every slice of the pie becomes more competitive."

He declined to say who the customers were and which competitor or competitors won the deals.

"The competition wanted the business more than we did. They took it at a rock-bottom price that made no sense for Tech Data," Dutkowsky said.

As a result, Tech Data lost a significant revenue opportunity but retained higher profit margins, he said.

The Clearwater, Fla.-based distributor earned $23.7 million, or 45 cents per share, in the quarter ended July 31. In the year-ago quarter, the company earned $7.2 million or 13 cents per share.

"You've got to be responsible in terms of which business we take. We're really focused on responsible growth for our shareholders," Dutkowsky said. "Our revenue in the Americas declined some, but our profitability and#91;grew moreand#93; than some of our competitors."

In its most recent quarter, meanwhile, Ingram Micro earned $58.9 million, up from $52.4 million in the year-ago period. Synnex reported income of $18.5 million in its most recent quarter, compared with $14.7 million in the year-ago period.

Executives from Ingram Micro and Synnex could not immediately be reached for comment.

The distributors' largest customers typically put big deals out to bid and take the best deal, often based on the lowest price. That was the case in the deals totaling $100 million, Dutkowsky said.

Dutkowsky said he does not believe losing those two deals will have a long-term impact on the relationship with those customers. Nor does he believe the price warand#8212;at least for big dealsand#8212;is a permanent one.

"This runs in cycles. If we stay focused on responsible growth, there's an opportunity to act rationally in the marketplace. We will stay focused on market segments where there's opportunity for a good return. The SMB market continues to be relatively robust. The profit opportunities continue to be good for that space."

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