Tech Data sales down, but profits up for Q1

Rick Reid

Tech Data Canada president Rick Reid

Here’s a rarity in the margin-challenged distribution business – for its first fiscal quarter, ended April 30, Tech Data saw sales decline ($5.90 billion compared to the year-ago quarter’s $6.33 billion), yet earnings rose slightly, from $48.7 million a year ago to $51.7 million this year.

The distributor has focused a lot on blurring the lines between traditional broadline and value-added distribution, and that new focus has started to manifest itself with these results, said Rick Reid, president of Tech Data Canada.

“As you focus on more enterprise-type products sets that come up with a lot more bottom-line profitability that’s what happens,” Reid said. “You’ll see that trend continue over time as we continue to focus on [Advanced Infrastructure Solution] (AIS) enterprise products.”

Canada, he said, fared a little better than other geographies in the Americas – which were down six per cent year over year, due in part to continuing economic challenges in the United States, and in part to the distributor’s decision to get out of distribution in Brazil and Columbia.

“We missed our targets, but we’re pleased to have come in flat year-over-year, which is better than Europe or the U.S., so we’re pleased with that,” Reid said. “Flat is the new up, and we were up, according to the new up.”

However, as was the case with throughout the business, Tech Data Canada “overachieved on the bottom line” due to its focus on more profitable product lines.

As a result, it was for Reid “a very satisfying Q1, given the economic times.”

HP, long Tech Data Canada’s biggest vendor partner, was “relatively flat” year-over-year, Reid reported, but strong (and profitable) growth from Cisco and from storage vendors helped keep growth up. Other big winners included the security software segment as a whole, Avaya with “major year-over-year growth” with the distributor, and APC, which saw “close to triple-digit growth” year-over-year.

Reid said the company’s server business – across IBM, HP and Cisco businesses – continues to do well, with Cisco’s UCS products seeing the quickest growth, due at least in part to the smaller base.

Meanwhile, as many pundits call this the dawn of the “post-PC era,” Reid said Tech Data’s business doesn’t necessarily reflect that, as PCs continue to represent a strong, if predictable, business.

“The desktop and notebook businesses aren’t going away, but it’s not where the growth is coming from today,” Reid said.

As Tech Data Canada continues its Business Builder road tour with recent stops in Ottawa, Toronto, Montreal and Quebec City, Reid said the news is not all good in the channel. Across those regions, he said, there are a group of larger resellers focused on enterprise products who are doing quite well, while “a large number of others are feeling the pain.”

“Those who are leading services and dragging hardware as a result are doing well, and those focused on enterprise hardware as well,” Reid reported.

The distributor is expecting a flat summer period, which as usual will be the slowest of the year, with the largest Canadian solution providers – Compugen, Compucom, Softchoice, OnX, CDW, Insight – all performing well.

He says that some “significant contracts with fairly large resellers across Canada” signed over the last 12 months are starting to bear fruit. Although he declined to name the fairly large resellers in question, he said many of the deals were in the form of exclusive partnerships.