Q&A: Tech Data CEO Weighs In On CSC Merger, Apple Sales, Windows 10 And The Cybersecurity Explosion

Market Changes Seen Helping Tech Data's Rise

Tech Data has been busy recently, doubling the size of its security division, finishing a restructuring of its U.S. business and capitalizing on the opportunity from Apple's expansion in the enterprise market during a rough quarter for the vendor.

So, little wonder that the Clearwater Fla.–based distributor had a successful quarter to start its 2016 fiscal year, with a 20 percent year-over-year jump in non-GAAP earnings and a 1.18 percent rise in revenue.

CEO Robert Dutkowsky (pictured) sat down with CRN recently to talk about recent changes he has seen in the market. He touched on the recently announced merger of CSC and HPE's Enterprise Services unit, Apple's problematic first quarter, the rise of the Internet of Things, the explosion of the security market and how Windows 10 presents a huge value proposition to enterprise-level CIOs.

Here's some of what he had to say.

[HPE CEO] Meg Whitman told us that the merger will be a good thing for the channel. Do you see benefits for distributors there?

I think, at the end of the day, services are necessary to successfully implement the products that HP Enterprise makes.

There are a set of services that are necessary to make those work and they can either be provided by HPE or they can be provided by the channel.

I think that what HPE has decided is that they are going to let the channel do more of that work and that is good for channel and it is a good thing for distribution.

How is Tech Data going to capitalize on that opportunity?

Back about nine months ago, we bought a company called STG. They perform some of the services needed to implement HPE's products.

Now, our customers – the resellers - that need those specific skills to implement advanced products like those that HPE makes can come to TechData and get those skills through STG.

We make our partners look bigger and look like they have more skills and competencies.

What about the future of VMWare?

VMWare is an important partner of ours … We like VMWare a lot; we like the value that they add in the marketplace. They were one of the early software companies that brought definition to (the) data center with products other than hardware and we like the work that they do.

We are one of the only distributors that sell Dell, EMC and VMWare … So we think we are in a good position to take advantage as new technologies unfold from Dell.

Apple is coming off a bad quarter, especially when it came to iPhone sales. Is that a cause for concern, especially amid what has become a broader relationship?

Apple is an important vendor of ours and the iPhone represents about one-third of our Apple revenue … With every single other Apple [product], we had growth...

Whether it was Macs, laptops, the watch or the Apple TV. We had year over year growth in every [Apple]category except the iPhones … and the other products tend to have more revenue and more margin attached to them because a Mac costs more than an iPhone. There was good opportunity for Tech Data in the other platforms.

Apple, on the other hand, did not report growth in those other areas, so that means we took share from our competitors, or Apple opened up more opportunities for us.

On the first-quarter earnings call, you talked a little about Apple's move into the enterprise market. What type of potential do you see there?

[Apple CEO] Tim Cook (pictured) said that the enterprise will be a $15 billion market for Apple, so that is another great example of a place where there is a potential of all-new incremental revenue from Apple for Tech Data. … Last year we didn't sell Apple [in the] enterprise, so year over year, our Apple business could go up because of that.

Is there a particular trend that is leading Apple to become more popular in the enterprise market?

The days of bring your own device (BYOD) appear, in many cases, to be waning, and the primary reason is security.

CIOs are now saying that they can't secure all of the complexity that exists with all of the devices that are brought into the network independently, … and that is where Apple … is becoming more and more of an opportunity [in the enterprise]. … Rather than bring my Apple device, I can use an Apple device at work and know it is secure.

I heard it described as BYOD has morphed into ’Choose Your Own Device,' where the company is saying ’These are the certified secured products and you can pick from these products, but you can't just pick anything and attach it to our networks anymore.'

Is that something that you see as currently prevalent?

I don't think that is prevalent, but I think it's coming, I think it will be the next generation of the end-user device world. And that opens up an [opportunity] for Apple selling directly to [the] enterprise, like Dell and HP have sold directly to enterprises forever.

But I think what is different this time is that Apple is not going to do it with a direct sales force; I think they are going to do it through distributors and the channel. ... I think these types of changes in the market create opportunity for us.

How do you see Windows 10 doing amid some of the issues channel partners have brought up about it, such as a reluctance among some businesses to upgrade and an increase in advertising on the new OS?

I think Windows 10 is rolling out across the IT continuum. First of all, the promise of Windows 10 is an exceptionally strong value proposition. The idea of one operating system and one set of apps that run on a tablet and a phone and a laptop and a PC is very attractive and it is clearly an attractive proposition to a CIO. …

But, the facts are it's not rolled out everywhere and not all the apps are Windows 10-compatible yet, but it is a process. … Ultimately, Windows 10 will be one of the standard operating systems in the marketplace.

How quickly do you think Windows 10 will reach that level and become a standard?

It's different enough from other Windows products [in] that it is going to take [more] time.

I got a Surface [Microsoft's tablet] that runs the latest version of Windows 10, and I thought I knew Windows pretty well. But … I had to re-learn some of the functions. They are all there, and everything that is Windows is in Windows 10, but it's just not as comfortable.

So, if you use me as a test case, there is a bit of an adjustment moving to the Windows 10 platform. However, it is not insurmountable, and once you get there, it is very comfortable.

When you talked with us two months ago , you were optimistic about the opportunities that lay ahead with the planned merger of Dell and EMC. Has your outlook changed, even just a little?

As it gets closer to being a reality, some of the complexity that Dell needs to muscle its way through is becoming more obvious, whether it is product architectures all the way down to who are the key players that are going to manage the various functions.

Michael Dell (pictured) [has] announced the top team, and all of those people are known executives that we have relationships with. The next layers, I guess, will be announced pretty soon, and then the real heavy lifting will begin of how they are going to rationalize the product platforms and the coverage models.

Any new thoughts on what a combined Dell and EMC will do for the channel?

I think it's going to create a real powerhouse. It will create a company with a lot of reach and breadth and it will be interesting to see how the new Dell technologies utilize their more powerful research and development arm they now have after picking up EMC.

Those are all things [that] are unfolding. Over time, the world needs to be patient as Dell Technologies unfolds.

How do you see the Internet of Things technologies impacting your business?

I think it's going to have a profound influence on what we do, whose products we sell and who we sell them to ...

[By 2020] There will be exponentially more things that are going to need to be connected to a network, secured, monitored, maintained and eventually replaced. There is just an endless stream of things that are going to be out there and if Tech Data is good at anything, it is selling, deploying and keeping track of things.

What is Tech Data doing to capture that opportunity from IoT?

The only question is what value can we add to that space and into an always-connected, always-on data collection, data management, data analytics space.

We are spending a lot of our energy and a lot of our time studying that to try to understand what else we can do in the Internet of Things other than just the things side.

What we are seeing is that there are new vendor partners that we want to get new relationships with, there are new customers that will buy those products and new channels of distribution that are different than the ones we have today.

T ech Data recently doubled the amount of people working in its security group. What drove that recent boost in security?

The real genesis of it is the whole cybersecurity issue, and the combination of the breadth of the threats that exists and the need for software and networking to make the enterprise safer, and then the dedicated appliances that fit into that whole network of securing an infrastructure. All of that has created new vendors that are becoming very powerful in that space. Existing vendors are making huge investments to build out their portfolios … And right before our eyes, it is becoming a new industry that is unfolding. And we wanted to make sure that we were there to support the channel as it explodes.