Synnex CEO: It's About Higher-Margin, Not Higher-Volume, Products

Synnex revenue fell 1.6 percent in its first fiscal quarter ended Feb. 29 compared to the year-ago quarter, and the distributor's shares are down more than 11 percent in morning trading Wednesday.

Synnex CEO Kevin Murai partially attributed the decline to the distributor's focus on higher-margin and not higher-volume products. CRN spoke with Murai about that strategy, whether Synnex was losing market share with solution providers, and how the company is evolving. The following are excerpts from the conversation.

You talked about a focus on higher-margin products. Your competitors would spin it as Synnex losing market share. Is that also the case, and what are some of the higher-margin product areas you're talking about?

Murai: It's part of our overall business strategy. Our technical solutions division really contains different business units characterized by a number of different things. It could be specialty markets like data capture, professional A/V, wide-format print. It could be a market that requires a different sales organization like enterprise servers and storage, where you do need a sales organization that is more technical and participates more in the sales cycle with the VAR in selling to the end user.

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Those are some of the key markets we're talking about. Because they tend to be more service-rich business models, they do come with higher gross margins. In addition, it's services, professional services and some services tied directly to the distribution business like value-add and configuration or our CloudSolv or RenewSolv services.

If you're focusing more on enterprise products and specialty products that require more touch with customers, is Synnex moving away from being a broadline distributor?

Murai: We view ourselves as a hybrid distributor. We do cross over the line between enterprise and broadline, but we also do a good job in the specialty space. We do it not by being a monolithic organization that has and sells everything. Being a mile wide and an inch deep is not very effective. We have product that sells in key markets, either by vertical or by product technology. In essence we have the capabilities of a specialty distributor yet are able to leverage the strength of a very large distributor.

Does that mean you really need separate sales groups to deal with VARs depending on the product they buy?

Murai: We do. Our wide-format team is an exciting team, for example, and retail is a dedicated team through the New Age Electronics [division].

On Synnex's press releases now, the company is described as a 'business process services' company, not as a distributor. What is the reason for that?

Murai: Really, when we look at what we do well, when you look at the legacy business model, we have BPO capability on our services side. We have the traditional pick, pack and ship and inventory management on the distribution side. But what we understand is technology and how to get it into the marketplace, whether it be on the services front end or going to customers through our GBS [Global Business Services] division or assembling solutions together and attaching other services to make that solution work. That's what the tagline means.

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GBS is still a very small percentage of the overall business [$45 million in the first quarter], yet it's the only revenue you break out other than the overall distribution business. Can you envision it being a $1 billion business some day?

Murai: Certainly part of our vision is to operate a very large services company. Without giving anything away and pegging a specific number to it, I can say today it's $200 million [annually] and we have set our sights much higher than that.

On the analyst call, you talked about the consumer printer market being soft in both hardware and consumables. Does that also apply to the commercial sector?

Murai: Printers overall have been relatively soft. It's a little more pronounced on the consumer side.

What is causing the overall printing market to be soft?

Murai: Where we see a shift in printing, there's a lot of trends happening. Companies are looking to be more efficient and print less to save paper. We see some of those things, but where we see the printer market heading is really around managed print. That's likely where the market is going as a whole.

Speaking of managed print, is your PrintSolv business growing?

Murai: PrintSolv has been very a successful market for us. That's the way we are headed into managed print. PrintSolv is our captive solution. We believe it's the most successful non-OEM based managed print solution in the market.

Again speaking of print, what are your expectations for Hewlett-Packard combining its Personal Systems Group and Imaging and Printing Group into a single unit?

Murai: In terms of execution, that's hard to call. We have faith in HP's ability to execute. Overall, we see it as a positive move for them and it will drive more efficiencies into combining the businesses. HP has strong management to make it happen. Both parts of the business have been very strong supporters of the channel and use the channel and we expect that to continue.

How do you see the overall demand for IT in North America?

Murai: It's relatively stable as far as out as we can see, which isn't very far. My answer is not that different than four or five months ago. After coming out of the recession a few years ago where we saw relatively high growth in 2010, there is now more normalization through last year. Certainly we expect that to continue.

What are some of the drivers out there driving the growth?

Murai: There are drivers out there in terms of a refresh of PCs and notebooks and tablets and servers. It seems to be consistent with part of the overall demand. In addition, Windows 8 is coming out later this year. We expect incremental tailwinds around that. There's higher growth around cloud services and mobility. A lot of what we think about is what is the best way for Synnex to participate in that. We've made significant investments in CloudSolv, for example.