Synnex Reap Benefits Of Acquisition, Windows XP Expiration To Beat Earnings Expectations

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Synnex saw better than expected earnings for its first quarter of the fiscal year, thanks to increased IT sales across the board as well as added boosts from expiration of XP this month and the completion of its IBM CRM acquisition.

For the Q1 fiscal quarter ending February 28, 2014, revenues for the company were $3.027 billion, up 23 percent from the same quarter the year before. Net income for quarter was $38.4 million, up from $33.4 million in the same quarter last year, a 15.1 percent year over year increase.

A large part of Thursday's earnings call centered around the successful steps Synnex took towards integrating the IBM Customer Care business, which Synnex announced it was buying in October for $505 million. Synnex CEO Kevin Murai said in the earnings call that 20 percentage points of the sales growth was accredited to legacy business units, with the remaining 3 percentage points were due to the IBM Customer Care acquisition. The legacy sales growth was attributed to strong demand by consumers and commercial customers.

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"As we've been running the IBM Customer Care and Industry Vertical business for over two months now, I'm even more confident that this investment was absolutely the right strategic move," Christopher Caldwell, President of Concentrix, the division of the company that holds the IBM Customer Care business, said in the earnings call.

The company has already on-boarded approximately 30,000 employees from the acquisition and began rebranding and integrating senior leadership, Caldwell said. The majority of clients have moved their accounts over in the acquisition, Caldwell said, and Synnex has maintained a close partnership with IBM to continue growing the business.

The acquisition has helped change the competitive landscape for the distributor, Murai said during the call. Now the company has added banking/financial services, insurance and healthcare to its portfolio, which Murai said changed the competitive mix and helped attract more blue chip clients.

Synnex still has yet to close the acquisition in a few countries, but executives said that they expect to finish up the remaining countries within the next few months.

While there was strong demand increase in all areas of the business, Synnex's PC and notebook sales were especially strong for the quarter, Murai said on the call. He attributed a large piece of the "unforeseen" demand to the expiration of XP support. While the expiration of support did help PC sales in particular, Murai said in an interview with CRN after the earnings call that it also opened up the door for conversations about a wide variety of hardware and software solutions.

"We saw a number of opportunities where it wasn't just the PC or notebook business, but also took the opportunity to upgrade their Office environment," Murai said in the CRN interview.

Murai said that he expects the increase in demand from XP support expiration to continue for "a while," but not for as long as a full year.

"Beyond PC demand, demand across the board was pretty good," Murai told CRN. "We do play in the right places we have the right partners. We have been investing a lot in the way to go to market."

Murai said that Synnex aims to go "very deep and narrow" into a handful of verticals, specifically focusing on state, local governments, healthcare and education.

"As we tune our solution around industry verticals also add in some key as-a-service opportunities that are more specific for those different industries, that's really where we can bring forward a much more unique solution. Included in that there's a pretty rich assortment of services that we can bring," Murai told CRN.

It's all part of Synnex's different distribution approach to the market, Murai said.

"From a customer perspective, a reseller perspective, it's our goal to be an enabler and a key part of how they actually go to market. I don’t just want to be a product supplier to my customer, I want to be a strategic piece of their overall business model," Murai said.

For Synnex's second quarter of the fiscal year, the distributor said revenue is expected to be between $3.1 and $3.2 billion. Murai said in the earnings call that he expects to see the growth the company has seen to continue. As for the Concentrix business, which includes the newly-acquired IBM Customer Care business, Murai said he expects to close the final pieces of the acquisition and expects growth to be right in line with predictions.

"When I look at this point in time and all of the opportunities and change that is going on, it's really like no other time in the 20 year history that I've been working," Murai told CRN. "It's exciting."

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