TD Synnex CEO: ‘All The Positives We Are Seeing Will Accelerate’
- by nlqip
TD Synnex CEO Patrick Zammit, who started in September in his new job, talks wabout the past quarter, PC growth and the retirement of TD Synnex North America President Peter Larocque.
Ready To Fire On All Cylinders
TD Synnex’s new CEO Patrick Zammit, presiding over the first quarterly financial report since he took over the top spot in September, told CRN that his company enjoyed revenue and earnings that exceeded expectations, and that the business grew faster than the market.
Zammit also said to pay little attention to concerns about the Fremont, Calif.-based distributor’s outlook, which turned a bit negative due to a couple of specific changes that don’t really impact the overall growth TD Synnex expects.
[Related: TD Synnex’s Incoming CEO Patrick Zammit: ‘AI Is Going To Be Very Pervasive’]
“When you compare Q3 and Q4, we continue to see nice momentum in distribution,” he said. “But [our hyperscale rack integration business] Hyve had a super quarter in Q3, I mean really high double-digit growth. And for Q4, Hyve will continue to grow at double-digits, but not at the same pace, and that’s the big difference. That explains why there is a small gap in expectations from the street.”
That gap also comes from a short-term slowdown in growth of PC and networking sales, Zammit said.
“We have reduced our PC outlook by a little bit,” he said. “We were hoping for a little bit more acceleration. We think now it’s going to be postponed in the next quarter. By the way, it probably also it explains a little bit our cautiousness in our guidance.”
TD Synnex is building for the future, Zammit said. The company just appointed 30-year company veteran Reyna Thompson as the new president of its North American business, and is expecting growth across nearly all if not all of its businesses, he said.
“If you look at the full next year, I think all the positives we are seeing will accelerate,” he said. “I will add that one opportunity which is difficult to [quantify] is how fast enterprises adopt AI and enhance their data centers to take advantage of AI and Gen AI and develop their own large language models. Resellers are starting to build their practices to support end users, and we also know that it’s going to take some time before they agree with the end users about the use cases.”
For more on what to expect from TD Synnex, read CRN’s complete discussion with Zammit, which has been slightly edited for clarity.
For its third fiscal quarter 2024, TD Synnex reported revenue of $14.7 billion, which was at the higher end of its outlook and 5.2 percent higher than its third fiscal quarter 2023 revenue. Net income for the quarter was $178.6 million, up 28.2 percent.
Congratulations on your first full quarter as TD Synnex CEO. What are the biggest takeaways for TD Synnex in this quarter?
I would say there are four callouts. The first one is, our sales growth of 9 percent [shows] the market is recovering. We predicted the market would recover, and that’s what we see across the regions and across the technologies. Point number two is, we know because we have the data that we grew faster than the market. That’s a big credit to the team for doing an outstanding job with our customers and vendors. The third is, we exceeded guidance in terms of EPS (earnings per share). And the fourth is, we generated $350 million of free cash flow. So a lot of highlights for this quarter.
You exceed guidance, but it looks like TD Synnex’s outlook is not resonating with investors. What’s happening there?
When you compare Q3 and Q4, we continue to see nice momentum in distribution. But [our hyperscale rack integration business] Hyve had a super quarter in Q3, I mean really high double-digit growth. And for Q4, Hyve will continue to grow at double-digits, but not at the same pace, and that’s the big difference. That explains why there is a small gap in expectations from the street.
If you take Hyve out of the picture, what would the outlook for the rest of TD Synnex be?
Mid-single-digit growth for the business. When I look at the business by technology, with one exception, which is networking, and we’ll come back to it, we see in general growth across all the technologies. PC is also back to growth. We have reduced our PC outlook by a little bit. We were hoping for a little bit more acceleration. We think now it’s going to be postponed to the next quarter. By the way, it probably also explains a little bit our cautiousness in our guidance.
For networking, as you know, last year huge backlogs were released to the market, so very tough compares. We think Q4 is going to be the last quarter where we will see that phenomenon. We are quite optimistic about the growth prospects for networking next year, but Q4 we will again see a little bit of the headwinds of last year’s compare. But all in all, slowly but surely, markets are recovering.
[Remember] we are global. That’s an advantage. We see that Europe and APJ (Asia, Pacific, and Japan) are growing a little bit faster than North America. When you look at North America in particular, we have the IDC figures, the market was flat to minus 1 percent in growth. So the other regions have been growing a little bit faster.
What do you attribute the slower growth in the North American market to?
Networking is very important in North America, and that business suffered. Also, when you look at it from a customer segment standpoint, the federal business continues to be a little bit weak. Hopefully it’s going to resume this quarter. We’ll see. It’s dangerous to bet on it. But for sure, Q3’s fed business was a little bit soft.
Is it related to uncertainties in the upcoming elections?
Probably. Probably. And then, if you look at the customer base, the midrange and SMB is a little bit flattish to down in North America. If you now move to Europe, just to compare, it’s interesting that B2B is also not doing so well there. The market is slightly down. But contrary to North America, distribution plays a big role in the retail business in Europe. And the retail business picked up. So that also explains the difference, because in North America, we do very little in retail because that’s mostly a direct business.
So to summarize the mix of businesses and customers, you have a market which is more fragmented in Europe. I think that plays a little bit in the difference in performance between the two regions. The APJ market benefits from having a lot of privately backed tier-two CSPs (cloud service providers) driving demand in the region.
We’ve seen two big changes at TD Synnex over the past few months. Not only have you taken over as CEO from Rich Hume, but Peter Larocque is retiring [as president of TD Synnex North America]. How’s that impacting TD Synnex?
Peter is an icon of the industry, and so for sure, that’s a big transition, especially in North America, which is our largest region. We have, I think, a very solid succession plan in place at TD Synnex. When I took over nine months ago, Peter said that he had already prolonged his stay with the company twice. He’s not retiring. I think it’s very important to say he is not retiring. He’s going to continue to work for me on some projects, and he has personal projects. But he wanted to move on, and so we have worked together on the succession plan. He had already identified Reyna [Thompson to take over]. In March of last year, she took over all TD Synnex’s advanced solutions infrastructure business, more or less half of TD Synnex’s business, and that was clearly to prepare for the big job. We announced her new role first of September. It will be effective December first. Reyna and Peter are working together. Reyna has 30 years with the company. She has a fantastic track record and is very well known in the industry by vendors and by partners. Very strategic, but also excellent in driving execution. Peter and I agreed that we had a very talented woman, and she would be right for the job. Reactions are very positive.
What are some of the big trends TD Synnex is looking at right now in terms of what might be impacting the business in the next quarter?
The first thing is, we continue to assume that the market is going to recover. We hope that the recovery in North America is going to accelerate. When you look at the profitability of the various regions, North America is our most profitable region. If North America accelerates, it will be good for TD Synnex as a whole. We think that from the PC standpoint, maybe not in Q4 but in Q1, we should see this acceleration. We talked about networking which, again, is going to be a tailwind next year. And then hopefully the fed business is going to come back. In the very short term, this is how we see things. Hyve will continue to do well. Really, we had an extraordinary quarter in Q3. …
If you look at the full next year, I think all the positives we are seeing are going to accelerate. I will add that one opportunity which is difficult to [quantify] is how fast enterprises will adopt AI and enhance their data centers to take advantage of AI and Gen AI and develop their own large language models. Resellers are starting to build their practices to support end users, and we also know that it’s going to take some time before they agree with the end users about the use cases. But that should, at a given point in time, help us as an industry, and distribution in particular, because enterprise is clearly a strategic market segment for us. TD Synnex has developed Destination AI, so we have a full program to support our resellers from enablement to presales and process support. So we are very comfortable, and we have a fantastic line card across the board from the edge to the data center to support our resellers.
AI seems to be the buzzword on everyone’s lips.
Yeah, it will be a fantastic opportunity. But between us, the core business is just as critical. As a distributor, we need to embrace the new technologies. Not only the technologies, but the way they are consumed. But we cannot forget about our core, because that’s what pays the bills. What we’re trying to do at TD Synnex quite nicely is keep that balance between the core and the new.
What can we expect to learn in a couple weeks at the upcoming TD Synnex Inspire conference?
I should ask Reyna, because I’m just a speaker. You will immediately see that Reyna has her footprint on the whole thing, and she’s going to talk about what is critical to her. It’s innovation, it’s collaboration-slash-partnership, and it’s operational excellence. This is where she wants to focus so that we can create more value for partners and our vendors.
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TD Synnex CEO Patrick Zammit, who started in September in his new job, talks wabout the past quarter, PC growth and the retirement of TD Synnex North America President Peter Larocque. Ready To Fire On All Cylinders TD Synnex’s new CEO Patrick Zammit, presiding over the first quarterly financial report since he took over the…
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