Tech Data Sees Strong Quarter as IT Spending Climbs

By Jessica Davis  |  Print this article Print

IT distributor Tech Data CEO Bob Dutkowsky tells Channel Insider that we are in an economic recovery but we haven't recovered yet. IT budgets have been unfrozen as spending has resumed on data center technology including servers, networking, storage and virtualization. Other areas of strength have included client hardware—desktop and laptop computers—in what looks to be the start of the long-awaited PC refresh cycle.

IT distributor Tech Data (NASDAQ:TECD) saw 13 percent growth in sales for its most recent quarter and a 44 percent jump in net income, a performance that adds another data point to the growing evidence that there's an economic recovery under way.

"I think we are in recovery," Tech Data CEO Bob Dutkowsky tells Channel Insider. "I don't think we are out of the woods yet. Earlier this week when the jobs report came out and it didn't look that good, you saw the Wall Street reaction. We are still in an uncertain environment and any good news will swing it up and bad news will swing it down."

But for Tech Data at the moment there's a measured sense of cautious optimism in the air. Dutkowsky reports that demand in both Europe and the Americas appears to be on the upswing, even though there are pockets that are still struggling, such as Eastern Europe. Revenues are tracking seasonally and Dutkowsky expects them to continue to do so for the rest of the year.

Tech Data reported net sales of $5.62 billion, up from $4.99 billion from the same period a year ago. Net income climbed to $45.6 million, up from $31.8 million for the same period last year.

Dutkowsky credits Tech Data's strong earnings per share for this quarter and last quarter, which set a company record, to good planning.

"It would be really easy for us to spend—to get intoxicated with the upside," he says. "What Tech Data does very well is we have the discipline not to go down that track. That is an art form. It's a process you have to work out every single day to make sure you are matching the size of your company to the size of the opportunity."

As for technology areas at the tops of CIO and business priority lists for spending now that budgets have been unfrozen, the data center ranks high. That includes servers, storage, virtualization and networking. Tech Data's Advanced Infrastructure unit grew by 31 percent in the Americas and 19 percent in Europe.

Other areas of strength included displays and television products, an area that Dutkowsky says has shown strength for several quarters in a row.

On the client side, desktops and laptops got re-energized during the quarter, according to Dutkowsky.

"We think that is the beginning of the refresh cycle that everybody has been talking about," he says.

But thin clients and desktop virtualization have not yet taken off, in spite of analyst predictions and solution provider enthusiasm.

"It's really easy to replace like for like," Dutkowsky says. "I've got 500 desktops and I replace them with 500 desktops." But it's more complicated to develop a plan to move to a new architecture. Dutkowsky says he thinks it will happen, just not now.

Something else VARs have been slow to embrace is Tech Data's managed services offering.

"Many of our VARs have not made the jump to the managed services business model," Dutkowsky says. "Their business is built around the traditional model of selling products and supporting those products. The other piece is that the distributor has to be careful about how they manage in managed service value-add. They can't step on the toes of the VAR, and we've been thoughtful and cautious about that."

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com