Synnex To Split In Two By Separating Concentrix Business

Concentrix, acquired by Synnex in 2006 when it was a global marketing company, has since evolved into a global services organization serving large enterprises in eight major verticals.

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Synnex, one of the IT industry's top distributors, Thursday said it plans to separate into two independent companies as a way to drive a sharper focus on both distribution and business services.

One of the two, Synnex Technology Solutions, will continue Synnex's focus on IT distribution. Synnex said this new organization will have annual revenue of about $19 billion, and will still be in the top-three list of distributors in the Americas and Japan. Synnex Technology Solutions will continue to provide a full range of IT-focused distribution, logistics, and integration services.

The second is Concentrix, which will become one of the world's top-two global providers of services in the eight industry verticals including technology and consumer electronics; banking, financial services, and insurance; health care; media and communications; retail and ecommerce; travel and transportation; automotive; and energy and public sector. Synnex said Concentrix currently supports over 125 of the Global Fortune 200 clients, and has annual revenue of about $4.7 billion.

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[Related: CRN Exclusive: Synnex CEO Kevin Murai And His Successor, Dennis Polk, Discuss The Future Of Distribution]

Synnex stock surged more than 8 percent in after-hours trading on Thursday to $139.75 in reaction to the news of the split

Fremont, Calif.-based Synnex in late-2006 acquired Concentrix, a Rochester, N.Y. marketing company that provided call center, database analysis, and print-on-demand services. The distributor has since built it into a global services powerhouse.

Synnex has for some time separately reported details about Concentrix's financials. After the Synnex split, both companies will be publicly listed.

Synnex over the last decade has asked itself whether it makes sense to separate its Synnex and Concentrix business into two given the distinct nature of the two, Synnex President and CEO Dennis Polk said late Thursday during the company's fiscal year 2019 conference call.

While the two businesses could have separated at any time, Synnex did not make the move because it believed it could best nurture both businesses under one entity, Polk told analysts on the call, in large part due to the company's mid-2018 acquisition of call center business Convergys for $2.43 billion.

"With the Convergys transaction one year ago, we expected it would be some time before we could consider a separation again due to the years and efforts expected to successfully integrate Convergys into Concentrix," he said. "Especially so, given the size of the transaction. Also, we expected it would take significant time to stabilize the business as Convergys was on a steady revenue decline path at the time of the acquisition."

However, Polk said, Synnex and Concentrix were able to complete the integration and stabilize Convergys revenue growth in just one year.

"This aspect, along with the dynamics of operating a nearly $5-billion-dollar-a-year, 225,000-plus-associate CRM services entity under the umbrella of a technology distribution company moved us to the belief that the two segments operating independently would be more beneficial for all stakeholders," he said.

Just as important to the decision to split the two is the fact that their separate markets are both undergoing rapid change, Polk said.

"Considering this aspect, we believe that having each business be independent to address the individual market dynamics is the nimblest way to enable the best opportunities for each entity to grow and drive returns," he said. "Especially so in the significant markets that each segment has to address."

The Synnex split was unveiled at the same time Synnex reported its fiscal fourth quarter and full fiscal year 2019 financials.

For its fiscal fourth quarter 2019, which ended Nov. 30, Synnex reported revenue of $6.58 billion, up 18.7 percent over its fiscal fourth quarter 2018 revenue of $5.54 billion.

The company reported net income on a GAAP basis of $176.0 million, or $3.41 per share, up significantly over the $115.2 million, or $2.45 per share, it reported for the same period last year. On a non-GAAP basis, Synnex reported net income of $419.6 million, or $4.26 per share, up from last year's $173.6 million, or $3.69 per share.

For its Technology Solutions business, Synnex reported revenue of $5.4 billion, up 17.4 percent over the same period. Operating income for the business was $167 million compared to last year's $126 million on a GAAP basis, and $178 million compared to last year's $139 million on a non-GAAP basis.

For its Concentrix business, Synnex reported revenue of $1.2 billion, which was 24.7-percent higher over that of last year. On a GAAP basis, operating income reached $101 million, up from last year's $75 million. On a non-GAAP basis, operating income was $161 million, up from last year's $129 million.

For all of fiscal 2019, Synnex reported revenue of $23.76 million, up 20.2 percent over last year's revenue of $19.77 million.

Net income for the year on a GAAP basis was $500.7 million, or $9.74 per share, up significantly from last year's net income of $300.0 million, or $7.17 per share. On a non-GAAP basis, net income for fiscal 2019 was $681.5 million, or $13.26 per share, up from last year's $454.8 million, or $10.87 per share.

Synnex's Technology Solutions revenue for the full year reached $19.1 billion, up 10.1 percent. Operating income on a GAAP basis was $519 million, up from last year's $405 million. On a non-GAAP basis, operating income was $564 million, up year-over-year from $463 million.

Concentrix revenue for all of 2019 reached $4.7 billion, up 91.1 percent over last year primarily due to the revenue from Convergys. On a GAAP basis, Concentrix operating income was $294 million, up from last year's $145 million, while non-GAAP operating income was $531 million compared to last year's $257 million.