Tech Data 3Q15 Earnings Call Notes

Tech Data’s (TECD) CEO Bob Dutkowsky on Q3 2016 Results

Europe strong

“in Europe, our team continued to execute exceptionally well, delivering record Q3 sales and earnings.”

Americas softer

“In the Americas, a softer than expected market in Q3 resulted in sales that were slightly below our expectations, leading to lower operating leverage in the quarter compared to Q2.”

Cloud adoption increasing

” cloud adoption through the channel has been slow and measured, but growth is beginning to accelerate, albeit from a small base.”

North America is clearly moderating

“we think that North American environment — growth is moderating. It’s not as robust as it was earlier in the year or at the tail end of last year. And I think you have to break that apart a little bit. The U.S. has a certain dynamic; Canada certainly with its dependency on oil has a different dynamic.”

There are pockets of strength in SMB

“So, clearly, the Americas — the North American demand is moderating. And yes, there are still good pockets of opportunity. In the quarter, we just reported, as Chuck described, SMB continued to be a strong area. We delivered double-digit growth in the Americas in SMB. So, there are pockets of strength.”

Enterprise is weaker but we are more SMB focused

“if you look at the results that some of the larger resellers have already posted, you can see that at the higher end of the curve, growth is not that strong. But remember, that’s a smaller part of Tech Data’s business. We are predominantly an SMB driven go-to-market model. So, strength in SMB is good for us. Weakness at the enterprise level doesn’t hurt us as much as maybe other players.”

The HP split was a massive undertaking

“The HP split was a massive undertaking, not only for HP but for its partners all throughout the ecosystem. And so, Tech Data dedicated a lot of resource and effort to help the HP split go smoothly in the channel. And I think it’s been a success so far.”

Change creates opportunity though

“change typical represents opportunity for us in the marketplace. If there is confusion in the market, the resellers and borrowers turn to Tech Data for clarity. So, the split created confusion. We were able to manage it very effectively. And I think the two smaller more nimble parts of HP are going to create more opportunity for us going forward.”

Kind of an answer/non-answer to question of slowing iPhone sales

“your comments on Apple are interesting. But keep in mind that the iPhone represents only about a third of our Apple sales. Apple is performing very well in the desktop, in the laptop, and mobile space. We sell the Apple TV; we sell the Apple Watch. So, this is not just an iPhone phenomenon that’s being manufactured inside of our growth story around Apple.”

The reality is that IT spending is moderating in the Americas

“we’ve responded the realities of the market. We don’t make the market; we don’t create the demand; we respond to the realities of it. And the realities are that IT spending is moderating in the Americas. It’s reflected not only in our results but in all of the results in the ecosystem. Our competitors, the vendor partners, we sell their products, and the publically traded reseller customers that are ours are all kind of point to the same place of some moderating demand in the Americas. So, I don’t think it’s our role to explain why, it’s our role to get — to grow as much as we can profitably inside the market opportunities that exist, and to be as efficient and as effective as we possibly can be to put products and services into the market”

We do sell cloud solutions

“we’ve responded the realities of the market. We don’t make the market; we don’t create the demand; we respond to the realities of it. And the realities are that IT spending is moderating in the Americas. It’s reflected not only in our results but in all of the results in the ecosystem. Our competitors, the vendor partners, we sell their products, and the publically traded reseller customers that are ours are all kind of point to the same place of some moderating demand in the Americas. So, I don’t think it’s our role to explain why, it’s our role to get — to grow as much as we can profitably inside the market opportunities that exist, and to be as efficient and as effective as we possibly can be to put products and services into the market”

Cloud is a slow and measured deployment. It’s still in awareness and education mode

“Our $200 million performance in the cloud, I think speaks to the reality of what’s really happening in the cloud. It’s a slow and measured deployment. There are opportunities there. And our infrastructure and our set of offerings position us very well, as momentum builds in the cloud, we will be — we are prepared to be able to take advantage of that. Where the channel is today is very much in awareness and education mode, trying to get the resellers to understand the cloud environment, get the resellers to understand the transitions their business models need to take and to get them to begin the transact there.”