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Synnex CEO: Dell-EMC Deal Will Help Us Round Out Enterprise Offerings

Dell's acquisition of EMC and Intel's new Skylake processors should boost Synnex's enterprise and mobility businesses and help the distributor thwart tumbling sales and profits, Kevin Murai said in the company's earnings call.

Dell's acquisition of EMC and Intel's new Skylake processors should boost Synnex's enterprise and mobility businesses and help the distributor reverse tumbling sales and profits, the company's CEO said Thursday.

The Fremont, Calif.-based distributor saw year-over-year revenue fall for the third consecutive quarter, recording quarterly declines of 4.3 percent, to $3.55 billion, after factoring out changes in foreign currency exchange rates. That fell below Seeking Alpha’s estimate of $3.6 billion.

Quarterly non-GAAP earnings also sunk for the second consecutive quarter, with Synnex reporting a 1.4 percent drop in profitability -- to $71.6 million, or $1.80 per share -- for the quarter ended Nov. 30. That edged out Seeking Alpha's projection of $1.76 per share.

[Related: Ingram Micro SVP: We'd be 'Thrilled' If Dell Allows Us to Carry EMC Again]

Synnex's future looks brighter, though, because of a line card expansion from Dell’s proposed acquisition of EMC, increased demand for PC mobile devices with Santa Clara, Calif.-based Intel’s sixth-generation Skylake processors and more certainty around the U.S. government budget, CEO Kevin Murai said during the company’s earnings call.

’Because we were not an EMC partner prior to the Dell relationship, that is also an incremental upside that we see,’ Murai said. ’That really does help us round out some of our overall enterprise offerings.’

Synnex began carrying Dell products in November 2014 and has enjoyed tremendous sales growth, with agreements inked in recent months to extend the partnership into Canada and the U.S. federal space.

Irvine, Calif.-based Ingram Micro -- which also today works with Dell but not EMC -- hopes to add the Hopkinton, Mass.-based storage giant to its line card once the acquisition is complete. EMC currently has distribution relationships with Tech Data, Arrow and Avnet.

Murai also expects to see higher levels of interest in mobile devices -- particularly PC mobile devices -- as products with Intel's sixth-generation Skylake microarchitecture arrive on the market. Skylake was launched in August, and Murai said he was seeing a lot of hype around the new processor toward the end of 2015.

Federal budget approvals in recent months also contribute to Murai's optimism, with the Synnex CEO predicting the relatively certainty in Washington, D.C., will drive higher levels of demand and spending in the distributor's public sector practice.

In the most recent quarter, Synnex’s technology solution sales fell 6.2 percent, to $3.2 billion, on a constant currency basis. The division’s non-GAAP income plummeted 15.2 percent, to $81.1 million.


Japan continued to be the source of most of the division's problems, with year-over-year sales down more than 10 percent, because of continued softness in the consumer space. Murai said he expects to see some improvement in Japan next year, though the softness will persist.

Technology solutions sales have been stronger in North America, with Synnex enjoying low single-digit sales growth in the United States after factoring out $210 million of lost business last quarter from Beats Electronics. Synnex’s agreement to be the sole distributor for Beats concluded after Apple (which doesn’t do any business with Synnex) acquired the audio product producer in August 2014.

Canadian sales, meanwhile, grew almost double digits in local currency, according to Murai.

Palo Alto, Calif.-based Hewlett Packard maintained its dominant position through the November split, with HP Inc. accounting for 18 percent of Synnex’s overall sales last quarter and Hewlett Packard Enterprise accounting for 8 percent of total sales.

For Synnex's Concentrix division, the company reported revenue of $373.6 million, up 15.3 percent on a constant currency basis from $342 million last year. Non-GAAP income for the division jumped 33.3 percent on a year-over-year basis, to $38.8 million.

Synnex plans to focus on growing its Concentrix business in the health care, insurance, banking and finance and technology verticals in the coming year, Murai said.

For the next quarter, Synnex said it expects earnings of $53.6 million to $55.6 million, or $1.34 to $1.39 per share, on revenue of $3.23 billion to $3.33 billion. Analysts from Thomson Reuters have projected earnings of $1.54 per share on revenue of $3.26 billion.

PUBLISHED JAN. 7, 2016

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