Tech Data CEO Bob Dutkowsky Tries To Temper Channel Concerns Over VAR Acquisition

Tech Data CEO Bob Dutkowsky did his best to quell channel concerns a day after the distributor agreed to acquire Phoenix-based solution provider Signature Technology Group.

"No, it's a partner-led model, and it's why it was attractive to us," said Dutkowsky when asked if his company will offer STG services direct to end-user customers during the Q&A portion of the company's fiscal 2016 first-quarter earnings call.

Dutkowsky said earlier in the call that the fastest way to success in the data center is through hardware sales through channel partners. He explained that, over the years, Tech Data's customers would often lose on deals with end users because they internally lacked the required portfolio of services. This led Tech Data to add some of those needed services itself, he said.

[Related: Partners Wary Of Direct Sales Conflict After Tech Data Buys Solution Provider]

"We started a few years ago to add some services capabilities, again, partner-delivered," Dutkowsy said on the call.

"We have the capabilities, but the partner bids and manages the project. And we saw our customers beginning to win more. So we've been on the hunt for more of these value-added services that we could add to our portfolio of products we list on our line card that our partners take to the market. STG has a broad array of those services spanning everywhere from data-center implementation to cloud assessments -- very unique practices that they're able to deploy through a partner-led model. That is what led us to bring them into the Tech Data business."

He added that he views the IT distributor practice of the future to have "a broad array" of hardware, software and services, and said this point was brought home when Tech Data began to see STG in deals.

"The percentage of business that's done with our competitors is relatively small, but we did see it in some cases," Dutkowsky said. "In fact, there was even a case where we lost a bid to one of our competitors because they used STG services through their partner to win. I think that was the one that really caught our attention as to the value that STG could bring to what a data-center distributor needs to look like in today's world."

The Clearwater, Fla.-based distributor saw its first-quarter net sales drop more than 12 percent from just over $6.7 billion in the year-ago quarter to under $5.9 billion in the three-month period ended April 30.

Despite the revenue decline, Tech Data reported a net income of $51.3 million for the quarter, or $1.38 per share , up from $13.5 million, or 35 cents per share, in the year-ago quarter.

Tech Data saw its stock climb as much as 7.74 percent following the earnings call to $65.96, up from $61.22 when the market opened.

Tech Data said weakening foreign currencies against the U.S. dollar were to blame for the sales decline. Excluding the negative impact of the currency conversions, consolidated net sales increased 2 percent, according to the company.

Dutkowsky said demand in Europe, which accounted for roughly 60 percent of Tech Data's first-quarter sales, was better than expected. But sales were down 17 percent to $3.5 billion because of the currency issue. The $2.3 billion in revenue from the Americas, which accounted for 40 percent of the distributor's total first-quarter revenue, was down 6 percent year over year, due, in part, to negative currency conversions.

Tech Data said the lower sales numbers in the Americas were also due to lower demand for broadline products such as desktop PCs and tablets, in addition to lower software sales.

Conversely, Tech Data saw a stronger-than-anticipated demand for broadline and mobility products in the European market. Both geographic regions saw a growing demand in data center and storage products, the company said.

As for the U.S. market, Dutkowsy said Tech Data is "transitioning to the new portfolio of offerings," and believes a turnaround is on the horizon.

"We prioritized Europe. We launched those activities over two years ago, and we believe we're beginning to see the impact now of those changes," he said during the call. "The Americas actions only began in the last year. The Americas is a bit behind, but it's basically running the same plan that we ran in Europe. It's reallocating resources to higher growth, more profitable areas ... It's reducing our focus on customers and vendors that can't deliver acceptable profit ... it's continued to leverage the strength of our IT infrastructure that we have now, covering over 95 percent of our worldwide revenues. When we put all of those actions in motion, it's a lot of moving pieces. As I said, Europe is ahead, and we have confidence that running that similar play in the Americas will deliver the kind of results that we want to see."

PUBLISHED MAY 28, 2015