Distributions Earnings Remain Strong Despite Economic Challenges

By Lawrence Walsh  |  Print this article Print


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Synnex posted a huge third-quarter revenue spike. Tech Data and Ingram Micro are also seeing healthy cash flows. But all distributors are bracing for rough times ahead in the slowing global economy.

Synnex, the third-largest technology distributor, beat its third-quarter revenue and profit forecast by posting a 16.2 percent increase for revenue over the same period last year. It’s the 85th consecutive quarter of profitability, according to the company.

The Fremont, Calif.-based company had forecasted slightly lower revenue for the period of June to August of $1.92 billion to $1.99 billion, but posted revenue of $2.05 billion.  Net income for the quarter was $22.1 million, higher than the $18.7 million to $19.4 million predicted by analysts.

"Our results for the third quarter are a testament to our strong focus and ability to out-execute our competition and profitably gain market share," said Co-CEO Kevin Murai. "Though our fourth quarter guidance remains cautious in light of the current economic environment, looking forward, we expect to continue to outperform the market in profitable growth. Our third quarter results combined with our current expectations for the fourth quarter position Synnex to exceed our stated goal of growing [earnings per share] in excess of 20 percent for the fiscal year."

Despite the current troubles in the financial market and the anticipated tightening of credit, Synnex remains cautious but undeterred in its optimistic forecast for the fourth quarter. The company is predicting gross revenue as high as $2.2 billion and income as high at $24.8 million.

Performance of technology distributors remains one of the key market indicators of the channel’s health. Despite the slowing economy and the credit crisis, distributors across the board remain cautiously optimistic and report strong sales to solution providers and resellers.

In August, Tech Data posted a whopping 9.8 percent second quarter earnings increase. The second-largest distributor posted gross revenues of $6.1 billion, a significant increase over the $5.6 billion for the same period in 2007.

Click here to read Channel Insider's interview with Tech Data CEO Bob Dutkowsky about higher Q2 sales in spite of flat IT spending.

"Tech Data performed well in the second quarter considering the challenges of the global macro-economic environment," said CEO Robert M. Dutkowsky in an Aug. 21 statement. "We are taking measured steps to address our margin performance worldwide while also maintaining certain strategic investments. In addition to adjusting our planned SG&A spending where appropriate, in the third quarter we are implementing new freight and handling fee policies across the entire organization to help mitigate higher transportation costs. We remain committed to growing our business responsibly and improving our overall operating performance."

Meanwhile, Ingram Micro last week updated the forecast for its third quarter, which ends Sept. 27, and predicted revenue to range between $8.3 billion to $8.6 billion. While still positive, the world’s largest technology distributor said economic conditions are having an impact.

"Earlier this month, we disclosed that softer economies created more competitive environments in July and August," said Ingram CEO Gregory M. Spierkel in a Sept. 16 statement. "It's now clear that this economic softness is continuing into September, which is exerting greater pressure on operating margins. In Europe, we are not seeing the typical September bounce-back from the summer holidays. North America seemed to be relatively stable in the summer months, but we're experiencing broad-based softness in September."

Lawrence Walsh Lawrence Walsh is editor of Baseline magazine, overseeing print and online editorial content and the strategic direction of the publication. He is also a regular columnist for Ziff Davis Enterprise's Channel Insider. Mr. Walsh is well versed in IT technology and issues, and he is an expert in IT security technologies and policies, managed services, business intelligence software and IT reseller channels. An award-winning journalist, Mr. Walsh has served as editor of CMP Technology's VARBusiness and GovernmentVAR magazines, and TechTarget's Information Security magazine. He has written hundreds of articles, analyses and commentaries on the development of reseller businesses, the IT marketplace and managed services, as well as information security policy, strategy and technology. Prior to his magazine career, Mr. Walsh was a newspaper editor and reporter, having held editorial positions at the Boston Globe, MetroWest Daily News, Brockton Enterprise and Community Newspaper Company.

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