TD Synnex CEO To Solution Providers: ‘Think About Those Technologies Growing In Multiples Faster Than The Market’
‘Right now, [those technologies seem] to be cybersecurity, cloud, analytics, IoT, AI and hyperscale infrastructure. We always look to make sure that we’re investing where the high growth is. It still provides a good profit return. And that has served us quite well. And it’ll serve anyone within the segment quite well,’ TD Synnex CEO Rich Hume tells CRN.
Tough Second Quarter, But Recovery On The Way
The second fiscal quarter 2023 was not a particularly good one for TD Synnex, the world’s largest IT distributor. TD Synnex, formed in late 2021 by merger of Tech Data and Synnex, saw year-over-year revenue drop nearly 8 percent to $14.1 billion, while earnings fell 9.0 percent on a GAAP basis to $1.41 per share.
The third fiscal quarter is not looking much better, as TD Synnex guided revenue in the range of $13.5 billion to $14.5 billion, down significantly from the $15.4 billion the company reported for fiscal third quarter 2022.
The financials, which the Fremont, Calif. and Clearwater, Fla.-based distributor reported early Tuesday, shook investors, who drove the company’s share prices down by about 5 percent by the close of the trading day and Wednesday down by another nearly 2 percent.
TD Synnex CEO Rich Hume, in an exclusive meeting with CRN, said his company’s financials were hurt squarely by issues impacting the PC business, but that its Advanced Solutions business continues to grow.
“It’s really the PC ecosystem where the challenge is,” Hume said. “That category was very, very vibrant during the height of the COVID pandemic. And now there’s a correction that’s taken place that is very evident in the industry. Anybody engaged in that ecosystem is going through a couple of quarters’ worth of decline and realignment. But as we move into the future, it will certainly begin to grow again, probably next year.”
That impact was felt primarily in TD Synnex’s Americas business, which saw an 11.0 percent drop in year-over-year revenue, which Hume again blamed on the PC business, which peaked during the COVID-19 pandemic.
Hume’s thoughts echo those of research firms including Gartner and IDC, which early this year said that PC demand in 2022 dropped to its lowest level in years.
While investors and solution providers can expect to continue to see negative impacts from a struggling PC market for the foreseeable future, Hume said it is important to focus on areas where the IT business is strong and offers new opportunities.
“Think about those technologies that are growing in multiples faster than the market,” he said. “Right now, it seems to be cybersecurity, cloud, analytics, IoT, AI and hyperscale infrastructure. We always look to make sure that we’re investing where the high growth is. It still provides a good profit return. And that has served us quite well. And it’ll serve anyone within the segment quite well, from my point of view.”
Hume had a lot to say about the second fiscal quarter 2023 and what comes next. Here is what he told CRN in his interview.
So what happened this quarter? It looked pretty tough.
The quarter was anticipated. When you think about the revenue range that we provided, we were at the low end. It’s really the PC ecosystem where the challenge is. That category was very, very vibrant during the height of the COVID pandemic. And now there’s a correction that’s taken place that is very evident in the industry. Anybody engaged in that ecosystem is going through a couple of quarters’ worth of decline and realignment. But as we move into the future, it will certainly begin to grow again, probably next year.
So you’re looking at a pretty tight time for the rest of the fiscal year then?
Yes, I think our projection for the PC ecosystem would be that it’ll be sort of a declining category, but declining less and less as we move through time.
Investors were not excited about the results. TD Synnex share prices were down almost 5 percent Tuesday. Is there something investors don’t understand about what’s going on?
Well, if you take a look at what it’s called the consensus for the market, investors had a bit of a higher expectation. So tactically, the results are a little bit lower than what that consensus was for the current quarter and for the next quarter. And so there’s a little bit of a tactical adjustment that is represented in the share price reduction. But our view is that this is a great industry. Once we get through the economic macro, IT will return to probably somewhere around a 5 percent CAGR and the world will carry on. Certainly the segment is being impacted by the macro along with the PC ecosystem dynamics that happened through COVID that I explained earlier.
Looking at the results, the biggest hit revenue-wise from a geographical perspective was in the Americas. Why was the Americas so much different than the rest of the world?
The Americas has been disproportionately impacted by the PC business. Europe and Asia-Pacific-Japan saw declines in the PC ecosystem, but to a lesser extent. This is very consistent with what we had seen in the first quarter as well. You might recall from a billings perspective, we were flat in Q1, with good growth in Advanced Solutions and high-growth technologies. And Q2 is sort of a repeat of that story, only the declines are a little deeper versus Q1.
In Q2, our Advanced Solutions and high-growth technology revenue has grown. And those segments continue to be pretty strong. So the benefit of TD Synnex is we’ve got a wide and broad portfolio. And we’ve seen it many times in the past, either from a product segment perspective, or from a regional perspective, that some areas might be hot while some areas are cooling off a bit. And so the benefit of our model is that big and broad portfolio, either from the product dimension or from a geographic dimension. And that’s always been something that gives us an opportunity to transition or pivot our business to where there might be better growth prospects.
And where might some of those better growth prospects be?
Cloud, cybersecurity, analytics, IoT and hyperscale infrastructure are our high-growth technologies. As a basket, those categories that I just rattled off grew by the low teens overall on a year-to-year basis. So they’re quite strong. And then the rest of our Advanced Solutions business—servers, storage, networking—also contributed to growth.
What are you seeing in terms of your solution provider customers and how they’re impacted by the trends impacting TD Synnex’s growth this last quarter?
What we see from a customer perspective or an end customer perspective is that the market is more challenged with larger enterprise customers, and the market is more forgiving from an SMB and MSP perspective. There are many solution providers out there that serve customer segments top to bottom. There are others that might be SMB-focused. And there are others that might be really tilted towards large enterprises, as a generalization. Those that are really tilted towards large enterprises will, I think, have a bit more of a challenge versus those that are serving the SMB segment. I think that the large enterprise is the area which reacts and responds very quickly to changes in the economic macro dynamic. And the SMBs and MSPs seem to be a bit more robust.
Any advice to those in the solution provider community looking at this and saying, ‘What should we do about this?’
Absolutely. Two pieces of advice. The first piece is, we have the opportunity to live in a great market within IT. And we’re obviously going through a macro economic cycle right now. Don’t be distracted by that. Growth will be strong over the future. That’s No. 1. No. 2 is use this opportunity while things might be slower to determine where you’d like to invest as the economy fires back up in the future so that you’ll have another area or business segment to participate in. And then the third is, think about those technologies that are growing in multiples faster than the market. Right now, it seems to be cybersecurity, cloud, analytics, IoT, AI, and hyperscale infrastructure. We always look to make sure that we’re investing where the high growth is. It still provides a good profit return. And that has served us quite well. And it’ll serve anyone within the segment quite well, from my point of view.