Tech Data's Joe Quaglia On SMB Services, Trade War Impact And A Possible HNA-Ingram Micro Deal

Tech Data's Americas president talks with CRN about advanced and SMB services, changing channel and customer requirements, and the potential impacts of trade wars, a recession, and China-based HNA's possible sale of rival Ingram Micro.

Distribution Trends As Seen By Tech Data

While distribution with its 40-plus-year-old companies, may seem to be a stodgy business, it is actually a thriving, dynamic industry characterized by fast-paced change as it increasingly centers on new services and emerging technologies and away from simple shipping of products.

Tech Data is one of several distributors leading the charge to bring new value-add to the solution provider community. Joe Quaglia, president of the Americas for the distributor, said at last week's TechSelect 2019 conference that the change starts at home first. He introduced the company-wide internal transformation called EOS--Tech Data speak for Enhance, Optimize, and Strengthen--aimed at making the company more nimble to better respond to changing channel requirements.

During the conference, Quaglia sat down with CRN to discuss a wide range of issues around the changing distribution business ranging from Tech Data's place in the industry to potential impacts of trade wars, a recession, and China-based HNA's possible sale of rival Ingram Micro.

Turn the page to learn more about changing IT impacting distribution.

What would you say is the key value-add that sets Tech Data apart from its peers?

I think it starts with the diversity of the portfolio. [CEO Rich Hume] (pictured) talks about three dimensions. [First], the global diversity we have. In fact, I think global diversity's becoming even more of a value proposition because a lot of our partners are trying to solve for global deployments of infrastructure refreshes in multi-region, multi-country environments. We're helping them with that business model, which is starting to accelerate even more today than ever before.

And then the portfolio diversity takes on two dimensions: the solution portfolio and the customer portfolio. And we think that that uniqueness gives us an ability to bring this value proposition across more markets and more customers and more vendors than historically or perhaps by comparison to others. And then you add the skills that we have, those that we had via Tech Data legacy and those that were acquired through Avnet, in addition to those we've added and accelerated across the next-generation technologies. When you put all of that together, it really calls for this new classification of Tech Data as solutions aggregator.

But when you talk about global diversity and portfolio diversity, I would suspect that your peers, the Ingram Micros or the Synnexes of the world, might say the same thing.

If you dig deep, and I'm not going to speak for them, you really have to look at the end-to-end nature of our portfolio, which goes all the way from a mobile device to the most complex hyper-converged infrastructure and everything in between. I would submit that we have the strongest portfolio in terms of breath, but also depth, compared to some of the others. Others might be more weighted towards the endpoint part of the business, and less on the advanced [technology] part of the business.

Now everybody has an advanced business. But Tech Data's advanced business is the largest on the globe. And it gives us and affords us a skill set that's required to deploy that into the market, much bigger, with more scale, than anybody else.

Your contention that Tech Data has the largest advanced technology business in the world stems from its 2017 acquisition of Avnet Technology Solutions. How has that acquisition changed Tech Data?

It goes back to looking at our strategy across strengthening our portfolio, which it certainly helped us do. It allows us to accelerate in and invest in the next generation technologies our partner community is for help to do. It's given rise to a new level of digital transformation that we're implementing internally, as well as for external purposes. And [it] certainly rounds out our global footprint by giving us more strength and scale in the regions we serve, as well as in Asia Pacific now, which came as part of the acquisition. You add all that, as well as the culture and the execution model from the Tech Data side, and now, you put a whole new dimension into bringing solutions aggregation into the market versus just being a distributor. …

This value proposition is appealing to the vendor community because of the broad nature in which we can take it into the market. But the entry into Tech Data doesn't always have to come through the traditional distribution model. It can come through a service engagement. It can come through an integration engagement. It can come through focusing just on the enterprise, or just on the SMB community, of partners and end users. I think the broadness and the diversity of this portfolio gives our partner community choices on how to leverage this value proposition in the spirit of moving to higher value.

Can you give a specific example of how Tech Data is providing some unique value-add for a vendor to its channel partners?

[Mountain View, Calif.-based flash storage vendor] Pure Storage is not in a two-tier model today. Yet, they've chosen Tech Data to come in and help them with the integration of the [FlashStack converged infrastructure] with Cisco. ... So they found a way to leverage a unique higher-value proposition of Tech Data to help them bring offerings into the market that we can do with a more scalable approach to integration, perhaps less cost, and more timely and accurate delivery for their route to market. So that's a perfect example.

How about an example on SMB side? Traditional SMB products haven't had a lot of room for that value-add, but is there an example or two that you can give where Tech Data is adding value?

The more complex offerings become, and you don't have to look very much further than the amount of innovation that's spinning out of our OEMs and their movement to higher value, the more innovation creates more complexity. And SMB partners, the partners that serve the midmarket and small business community, they're now more dependent on how Tech Data can aggregate the complexity and reduce it down to more simpler terms. We have found that over the last four years, we've been able to grow our SMB set of partners by double digits consistently. And the largest percentage of that is in the advanced side of the business, which we're very excited about, because those are the partners that don't have the size and scale. They need to leverage the scale of Tech Data, the resources, the skills, the IT systems, the operational aspect of what we offer, even more than any other large partner. So we think that our value proposition is made for, and serves specifically, that community of partners.

When you said Tech Data has grown its set of SMB partners, do you mean the number of partners?

We've grown the number by double digits, but we've also grown the revenue double digits consistently for the past four years. ... SMB is in the sweet spot of Tech Data and the execution engine that we have to cover the masses. If you think about SMB, there are way, way more partners than our ability to consume. So we have to build processes and IT systems and coverage models, and support systems that allow us to cover the thousands of SMB resellers in the market today. And we think we do a really good job there. We're going to continue to invest in them.

Can you give any specific examples of a particular solution that Tech Data has added unique value add to?

I would point to, for example, our solutions factory. We're building solutions and putting together solutions that are ready-made for a partner like an SMB who may not have all the integration and technical capabilities. We can put NetApp on Azure, or we can put Veeam on Azure, do the integration, make it ready and available for one-click consumption. And it's helping those partners bring those solutions to market much faster and easier than they can do themselves.

How about services? How is Tech Data approaching bringing new services to channel partners?

There's a wide breadth of service offerings that we make available to our partners all the way from doing penetration tests for their end users, doing security assessments, working with them on developing cloud migrations, all the way through our lifecycle services or global lifecycle services. And that's more on the product side and the vendor side. But there's a whole host of services that the partner community is now leveraging from Tech Data. If it's from a traditional buy-sell, or if it's from just leveraging our services capability, we now have this breadth of services that go from servicing the partner reseller all the way through the OEM.

Can you think of any good examples of new services that Tech Data is bringing out this year that really hadn't been part of the distribution line card in the past?

Earlier this year, I took on the responsibility of leading our global security practice and business. ... As part of that offering and part of that go to market is an offering called Recon. And Recon is a full-service, end-to-end offering of security products and services that the partner community can leverage as part of enabling their businesses to grow in the security next-generation space. And we have a number of service offerings in there from being a managed security service offering all the way through doing penetration tests and what not. We will be highlighting and unveiling a very unique capability that we're offering to our partner community called CyberRange ... coming up in November. I'm not going to steal anybody's thunder in advance of that, but that's yet another capability and service that our partner community can use on their way to enabling their business to serve the security market.

Let's step outside product and services. There's talk about a possible recession coming. There's talk about some economic 'red flags' that indicate the possibility of recession coming. Does Tech Data see a recession, and does it expect an impact from it?

Every recession, if we look back in time, has had pressure on IT spend amongst other spends in other industries. And as we've look back in time, Tech Data has served well and performed well in recessionary times due to our variable cost model, our flexible model, our ability to pivot, and now with the diversity of the portfolio on both the vendor side as well as the customer side. I'm not saying it completely insulates us from recessionary times, but just gives us a lot more flexibility to pivot where we need to pivot in times when growth slows.

The other big elephant in the room is the trade wars. How has the recent trade conflicts, particularly with China, impacted distribution in general and Tech Data specifically?

The only way that it would impact us, and it would impact everybody else, is if it had an impact on the growth of technology and technology spend. Clearly, we came out of last year and the year before with some of the best growth that the industry has seen in a long time, even though we're not growing as fast as we did last year. And that's a industry statement. We're still seeing really solid growth leading up to our first two quarters in our FY'20. However, depending on what happens with tariffs and trade wars and what not, at the end of the day, tariffs are generally passed on from the OEM through distribution and on its way to the customer. We don't generally get involved from that perspective, nor are we impacted from that perspective as well. But what the concern could be is, does it create an overall slow down in technology spend as a result of that.

Those reports that China-based HNA might divest itself of Ingram Micro, do you think there's some validity there?

We read the same things that you do. We certainly can't comment and speculate what's going to happen with our competitors from an M&A or divestiture standpoint. But at the end of the day, I think there's still opportunities in the marketplace for our sector to consolidate, as it's consolidating on the OEM side, and we're seeing consolidation on the partner community side as well. And I think we'll continue to see those kinds of things happen as we go forward. But I can't really speculate on what's going to happen at Ingram.

What is Tech Data's acquisition strategy? Avnet was your big acquisition. But are there any things that you as a distributor look for as potentially good idea to acquire rather than develop?

I'll step back for a second and say, how do we deploy our capital allocation? We look at organic investments. I spoke [recently about] our EOS transformation where we've made significant organic investments to transform the way that we work and the way that we serve. We also look at share buybacks. We've had a significant share buyback program over the last couple of years. And then we look at select M&A. And M&A will manifest itself against the backdrop of our strategy. We'll look for opportunities that give us better global presence. We'll look for ways to improve our ability to transform digitally. We'll look for ways to expand our portfolio customers and vendors. And then we'll look for capabilities to accelerate our next-generation strategy. And so we look at all of those dimensions when we look at M&A.