Tech Data: IT Spending FlatBy Jessica Davis | Posted 2008-08-21 Email Print
IT distributor Tech Data reports higher year-over-year sales for the second quarter, in spite of flat IT spending. Hot technologies include blade servers, virtualization, storage and security software.
IT distributor Tech Data missed Wall Street's profit expectations, but said its second quarter was a good one, relatively speaking, as IT spending remained flat.
Tech Data reported earnings of $23.7 million or 45 cents a share on net sales of $6.17 billion. Earnings for the same period a year ago reached $7.2 million or 13 cents per share, including charges.
Sales in the Americas were particularly hurt, falling 3.3 percent to $2.8 billion. Sales in Europe rose 34 percent to $3.4 billion.
"I would contend that the IT spending market today is at best flat," CEO Bob Dutkowsky told Channel Insider. "The whole pie is much smaller right now than it normally is and in there Tech Data grew 9.8 percent. For the environment Tech Data had a very solid quarter."
That current economic environment has put a lot of pressure on companies in the marketplace, Dutkowsky said.
"When the market gets smaller, IT distributors scratch and claw for every piece of business out there," he said. "If there was a place for the market to get tough it's around pricing."
The competition on pricing got so tight in the second quarter for Tech Data that the distributor "walked away from $100 million in business" because the deals were no longer profitable for the company as competition brought the pricing way down.
Feeling the pinch of high fuel prices and increased freight rates, Tech Data also announced that it would pass some of that along to customers. Tech Data instituted a $2 handling fee on all orders. The fee still doesn't cover costs, Dutkowsky said, but it helps to defray them.
Dutkowsky said areas of strength for Tech Data included sales in Europe, small and midsize businesses, and, on the technology side, blade servers, virtualization, storage and security software.
"Those are all market segments that are growing faster than the industry," he said. "Even in this down market there are segments that are growing. Laptops are flying off the shelves."
Another hot area, Dutkowsky said, is "anything that helps a business avoid travel and transportation, like videoconferencing where people can avoid buying plane tickets and adding to their carbon footprint."
In short, "The reality is that it's not going to get much better than it is right now," Dutkowsky said. Tech Data's outlook for the third quarter calls for revenue of $6.3 billion to $6.5 billion. Analysts had been expecting $6.5 billion.
"The outlook over next few quarters for macroeconomic conditions is more of the same," Dutkowsky said. "Things won't suddenly perk up and get much better or much worse, barring some catastrophic event."