XP Support Expiration Drives Profit, Sales Growth For Synnex In Q3

Synnex reported massive profits and sales growth in the third quarter of its fiscal year due to continued Windows XP support expiration activity and its data center build-out business.

The Fremont, Calif.-based distributor saw year-over-year revenue for the quarter ended Aug. 31 soar 29.3 percent from $2.73 billion to $3.54 billion, beating analysts' estimates of $3.4 billion.

Quarterly non-GAAP earnings also increased by 25.1 percent from $50 million last year to $62.5 million this year, or $1.59 per share. This topped Thomson Reuters predictions of $1.48 per share.

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"The recovery from 2009 has been relatively slow, but we're starting to see businesses spend more money," Synnex CEO Kevin Murai said in an interview with CRN after the earnings call. "We haven't seen this in a long time."

The company also said that, for the first time, it will pay a dividend to shareholders. The dividend of 12.5 cents per share will be paid out Oct. 31 and, according to Murai, will have no impact on Synnex's operations.

"We intend on paying a dividend in every quarter going forward," Murai told CRN.

Wall Street has responded favorably to the news, with Synnex's stock price rising 1.7 percent from $62.19 at end of day Monday prior to the earnings announcement to $63.23 Tuesday morning.

Sales in Synnex's technology solutions division grew by 19.1 percent to $3.2 billion, while non-GAAP income was up 22.6 percent to $77.9 million.

"We feel really good about the overall IT demand market," Murai told CRN.

The expiration of Windows XP support has driven not only PC purchases, Murai said, but also stronger-than-anticipated demand for ancillary services such as Wi-Fi upgrades and networking and security equipment.

And since server upgrades take longer and are more complex than OS upgrades, Synnex expects to see activity related to the expiration of Microsoft Server 2003 support to ramp up around the first of the new year.

For Synnex's Concentrix division, the distributor reported revenue of $333.8 million, up significantly from $46.3 million the year prior due to the acquisition of IBM's Customer Care business in October 2013. Non-GAAP income also rose from $4.42 million last year to $28.33 million this year.

Concentrix President Chris Caldwell said during the earnings call that Synnex had added more than 5,000 staff members since the acquisition and opened up 10 new locations around the world.

"We've really been able to take the IBM client base that came across and … go back to them and take more share within those accounts," Caldwell said. "We can be more efficient, [and] more cost-effective, driving a higher value and lower cost of operations than what they can do internally."

He said, however, that Synnex will be burdened in the fourth quarter with high duplicate costs of running parallel back-office functions, with the company expecting to migrate off all remaining IBM systems by 2015.

Another area driving inventory and accounts receivable growth for Synnex has been Hyve Solutions, which Murai said focuses primarily on large-scale data center build-outs for Web 2.0 companies. Synnex doesn't break out specific numbers for Hyve, Murai said, but said it plays a little bit into Synnex's sequential growth of 1 percent to 2 percent.

However, Murai said Synnex is not anticipating as much quarter-over-quarter growth between the third and fourth quarters due in part to the success of Hyve, which is driven by projects rather than a particular time of year, as well as shifts in the market served by the company.

He cited during an interview with CRN minor changes in retail buying patterns as holiday shopping shifts from Black Friday to earlier and earlier in the year.

For the next quarter, Synnex said it expects earnings of $65.9 million to $67.9 million, or $1.66 to $1.71 per share, on revenue of between $3.65 billion and $3.75 billion. Analysts have projected earnings of $1.68 per share on revenue of $3.67 billion.

PUBLISHED SEPT. 30, 2014