Amid record Q4 2016 financial results, Tech Data is witnessing strong momentum in such areas as networking, security and government IT spending. CEO Robert ("Bob") Dutkowsky described the distributor's business performance to ChannelE2E this morning. He also shared some views on Tianjin Tianhai's plan to acquire Ingram Micro for $6 billion.
For its Q4 2016, Tech Data delivered higher-than-expected sales and record fourth-quarter non-GAAP earnings per share. "It was really about having the right relationships, the right sales strategies, the right people, and the right processes -- and then unleashing that on the market," says Dutkowsky. "It's really about good execution at a big company."
Among the key trends and milestones to track...
Network and security momentum: At a product level, the Americas growth was fueled by strong sales in several categories, including consumer electronics, desktops and data center solutions, namely networking and security, Tech Data stated during its earnings call.
"Network and security momentum go hand in hand," Dutkowsky told ChannelE2E. "The more interconnected the world becomes, the more demand you see for network and security solutions across individuals, small businesses and enterprises. This goes all the way from interconnected devices to the Internet of Things. I think this phenomena -- network and security demand -- is something you'll see for the next decade. Look at companies like Cisco Systems. They're investing as heavily in security as they are in networking."
PC and notebook momentum: Yes, Tech Data said its desktop business was strong in the Americas and the notebook business was stronger in Europe. Those are impressive statements, considering the overall PC market continues to contract. But Tech Data is seeing growing demand of additional PC form factors like Google Chromebooks. Plus, the company has a global ERP system that allows Tech Data to pivot quickly toward areas where demand is stronger than expected, says Dutkowsky.
"We're successful because we're flexible. About 95 percent of our worldwide revenues flow through a single ERP system. That allows us to see our supply chain very clearly, and pivot toward a particular market or restore balance in another market," he asserts.
Views on rival Ingram Micro being acquired by a Chinese firm: During the earnings call and the call this morning with ChannelE2E, Dutkowsky downplayed the near-term impact of Ingram being acquired. He noted that Tech Data has successfully competed with Ingram when that company was previously private and more recently publicly owned. And Tech Data will continue to compete successfully against Ingram amid that company's ownership transition, he added. Plus, he mentioned that Ingram is only one piece of the very large IT channel puzzle.
"Remember, the channel is big," he says. "It's complex. And these types of changes happen all the time. The channel carries on. There's room enough for all of us. Eventually, could have an impact. But remember they're one small piece of the overall channel ecosystem. They're not the only player. They're a piece of the overall channel puzzle."
The government market: The U.S. government remains the single largest buyer of technology in the world. And Tech Data's government sales were particularly strong in Q4, he says, perhaps because an earlier sequester had lifted -- creating a delayed pipeline of government spending that has finally opened up.
On Tech Data potentially making more acquisitions: Tech Data has purchased about 20 companies in the past eight or nine years, worth a combined $1 billion or so. "M&A is an activity our board believes in, and we've had tremendous success with what we've acquired. Whether it's a big deal, a little deal or a small deal -- we're on the lookout and have a disciplined approach to M&A." Potential deals, he says, must first fit within Tech Data's company dynamics and goals. Those priorities, in turn, help to unlock economic (i.e., profit) upside after a business is acquired.
Still, the M&A discussion happens within the broader context of how Tech Data invests its money. The categories for investment include:
- Pumping money back into the business -- on training, hiring, IT technologies and more.
- Returning profits to shareholders through stock buybacks, for instance.
- Mergers and acquisitions.
Tech Data's Cloud Strategy: The company continues to invest in TDCloud and the underlying StreamOne technology. Dutkowsky concedes that TDCloud isn't generating much revenue compared to Tech Data's top line annual revenues of about $26.4 billion. TDCloud at present is mostly about educating partners about cloud opportunities, and vendors about how to work with partners in the cloud. "We're funding the investments for the long-term strategic value proposition they offer," he says. "As a 40-year-old company, we're patient and take a long-term view of things."
The Bottom Line: Dutkowsky is quick to note that Tech Data delivered its strongest profits ever in Q4 2016. "We thank our customers, our employees and our partners for that," he says. "The markets weren't great but we did well while our rivals were flat to down. That means more vendors looked to Tech Data for our support and business."
Still, each quarter is like a 90-day shot clock. And Tech Data won't be resting on its laurels this or any other quarter, he adds.
