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Synnex CEO: Shortages Exist, But ‘We Are Seeing Product Flow’

Synnex announces that for the time being, it will postpone the spin-off of its Concentrix business, which it had planned to announce was going to happen on June 1.

Synnex told investors it is monitoring the flow of product as manufacturing comes back online in places, but the distribution powerhouse has done away with its full-year forecast as compounded uncertainties about coronavirus-related government restrictions, the health of its labor force, and the economy make predictions impossible.

The Fremont, Calif. company also said it was delaying its spin-off of its Concentrix division, which was announced in January.

“Clearly, we do not know how things are going to play out over the coming weeks, months and quarters,” Synnex CEO Dennis Polk said. “We are just making an assumption that there is going to be two quarters of a shock to the business and we get back to a more normalized environment in Q4. How that plays to our numbers remains to be seen, but that’s our best estimate today.”

Not surprisingly the firm’s success depends on how severe the disruptions to the supply chain become as the illness and accompanying political machinations play out in the days and weeks ahead, he said.

“As long as the product continues to flow in, I said, it’s getting tighter and there are some shortages here and there, but we are seeing product flow, but as I said earlier as well, all these comments are based on what we know today,” Polk told investors during an earnings call Tuesday evening. “So if the product flows in a consistent matter as today then technology solutions should play through reasonably well this quarter. If product flow changes then, obviously, our comments are different.”

Meanwhile, Synnex CFO Marshall Witt said the spin-off of its Concentrix business is well ahead of schedule, with financing and internal administration nearly complete, however, the company is pausing that motion – which was expected to be done on June 1 -- until the full impact of the coronavirus plays out.

“We are still currently committed to doing the spin,” Witt said. “But it will be delayed as our primary focus will continue to be on managing our business on a day-to-day basis.”

Chris Caldwell, president of the Concentrix business, said various state restrictions imposed to limit the spread of the coronavirus is hindering that unit’s workforce. About 150,000 of Concentrix’s 230,000 employees are living under some form of limited movement or work order that is likely to last days or weeks. Of those about 70,000 are unable to work at all, and the company expects to see more disruptions to labor in the coming days as more local governments combat the virus with stay-at-home orders.

Caldwell said the company is currently paying all of its workers, even those employees who cannot work.

“Our primary operational issue to-date has been where the responses of virus by certain cities, states and countries have made it impossible for our staff to get to our offices,” Caldwell told investors. “To a varying degree, we have seen this type of disruption for every region in which we operate.”

Witt said to put the company in a better position, it terminated its share buyback program in early March and has suspended paying quarterly cash dividends as well.

“Given the significant and sudden shock to the worldwide economy, we believe our capital is best used over the near-term to support our business associates, customers, partners and related strategic priorities,” Witt said.

For its first quarter ending Feb. 29, Synnex revenue grew slightly up 0.3 percent to $5.26 billion from the $5.24 billion a year ago. Net income for the period was $122.6 million for a diluted earnings per share of $2.36.

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