Synnex CEO On 2021: ‘We Expect That Business Investment Will Increase, Especially In IT’

‘Overall, we are optimistic about fiscal 2021 given the start of vaccine rollouts, and we are hopeful our world returns to a closer sense of normalcy over the next year,’ says Synnex President and CEO Dennis Polk.

A strong year for sales by Synnex’s Technology Solutions business led to the distributor reporting a positive fourth fiscal quarter 2020 and full fiscal year 2020 despite the impact of the COVID-19 coronavirus pandemic.

The fourth fiscal quarter 2020, which for Synnex ended Nov. 30, also represented the last time Synnex reported financial information for its Concentrix business, which as of December was spun out as a separate company.

Concentrix provides services in eight industry verticals including technology and consumer electronics; banking, financial services and insurance; health care; media and communications; retail and e-commerce; travel and transportation; automotive; and energy and public sector.

[Related: Synnex: Coronavirus Pandemic Driving Digital Transformation]

While Synnex late Monday unveiled fiscal year 2020 financials for the combined Synnex and Concentrix organization, starting Tuesday Concentrix financial results will be presented separately from those of Synnex, said Synnex President and CEO Dennis Polk.

Polk, speaking late Monday at his company’s quarterly financial analyst conference call, said Synnex’s Technology Solutions business, which will be the bulk of the company’s business going forward, had a record performance in the fourth fiscal quarter driven by broad-based demand across all of the organization’s platforms as the remote work, learn, and consume trends continued.

“Consistent with Q2 and Q3, demand remains strong in products such as notebooks, Chromebooks, cloud, collaboration and security,” Polk said during his prepared remarks. “This was evident in both our commercial and retail distribution businesses.”

The COVID-19 coronavirus pandemic, as expected, continued to impact enterprise demand in the fourth fiscal quarter, with office desktop, print and other products experiencing lower volumes, Polk said.

“We did however see the signs of a continuation of the return of on-premises projects in Q4 that we started to experience in Q3,” he said.

Synnex’s Hyve hyperscale rack integration and deployment business was stronger than anticipated, with revenue for that business exceeding the high end of Synnex’s previous guidance, Polk said. Hyve saw continued demand from its largest customer to support its data center needs. However, Polk did not name that customer.

“Part of our overall margin strength was also from Hyve,” he said. “Leveraged and improved efficiencies due to the spike in business and recoveries from investments made throughout fiscal 2020 were the drivers.”

When asked about Synnex’s plans in shifting its product mix strategy and long-term outlook during the question-and-answer period of the financial conference call, Polk said that Synnex in the past year saw strength across the board.

From a vertical perspective, Synnex enjoyed solid results in the fourth fiscal quarter from its federal, education and retail businesses. On the product side, he said, notebooks and Chromebooks saw strong sales. And, he said, Hyve drove a lot of data center business.

“But I don’t want to take away anything from all of our organizations and departments because there really was an across-the-board beat in every category,” he said.

Looking forward, Synnex will focus on areas that can enhance its business and grow its margins, Polk said.

“But I don’t want that to signal anything that we’d ever discount or go away from any existing business that we have,” he said. “Our goal is to continue to grow the overall portfolio of our company and offerings and be able to deliver and service anything along that spectrum and get the proper returns for the products we deliver in that spectrum. And that’s our focus going forward. We’ve done very well so far. Our recent acquisitions have really helped benefit our company and the breadth of products we have. And that’s part of our strategy going forward, to increase that breadth, either through organic or inorganic means.”

When asked about Synnex’s post-pandemic merger and acquisition plans, Polk said Synnex will continue its strategy of looking for opportunistic transactions.

Synnex for the past couple of years focused much of its capital on the Concentrix part of its business, he said.

“But now that we’re stand-alone, clearly we can dedicate the capital to the TS [Technology Solutions] part of our business, and will do so when it comes to M&A opportunities,” he said. “Our focus on M&A is going to be on geographic expansion, vendor line card additions, and other services that will help enable our customers in their efforts to deliver to their customers. But we’re always going to stay focused on ensuring that, when we do an acquisition, it has the right returns, the integration can be done in the right way within our company, and the right culture and management team comes along with it.”

When asked if the SolarWinds cybersecurity attack was a driver of increased security demand, Polk said there is a heightened sense of concern regarding security that has led to an increase in sales in the past 12 months to 24 months.

“I do think that when you have these major events occur, it causes folks to think even more about their security environments, and that traditionally means more investment in the security aspects of individual businesses,” he said. “[Specific to SolarWinds], I think it’s fair to say we’ve seen a lot of activity. But I really can’t comment on any specific customer situation for you.”

When asked about business constraints caused by the pandemic, Polk said he expects any backlogs to be filled with a return to on-premises infrastructure investment.

“As we also bring more services that go with on-prem and infrastructure, we should benefit from that as well,” he said.

For the fiscal fourth quarter 2020, Synnex reported revenue of $7.41 billion, up 12.7 percent over the $6.58 billion the company reported for its fiscal third quarter 2020.

That included Technology Solutions revenue of $6.1 billion, which was up 13.9 percent over last year, and Concentrix revenue of $1.3 billion, up 7.3 percent.

Net income for the quarter was reported at $215.2 million, or $4.14 per share on a GAAP basis, up solidly over the $176.0 million, or $3.41 per share, reported during the same quarter last year. On a non-GAAP basis, Synnex reported net income of $270.8 million, or $5.21 per share, up from last year’s $219.6 million, or $4.26 per share.

For the full fiscal year 2020, Synnex reported revenue of $24.68 billion, up 3.9 percent over last year. That included $20.0 billion for its Technology Solutions business, up 4.8 percent, and $4.7 billion for its Concentrix business, up 0.2 percent.

Net income on a GAAP basis for the year was $529.2 million, or $10.21 per share, up from last year’s $500.7 billion, or $9.74 per share. On a non-GAAP basis, Synnex reported net income of $708.5 million, or $13.68 per share, up from last year’s $681.5 million, or $13.26 per share.

Looking forward, Synnex expects first fiscal quarter 2021 revenue to be in the range of $4.50 billion to $4.80 billion, with net income expected to be in the range of $70.3 million to $80.0 million on a GAAP basis and $81.0 million to $91.5 million on a non-GAAP basis. GAAP earnings per share are expected to be in the range of $1.34 to $1.55, and non-GAAP earnings per share in the range of $1.55 to $1.75.

This compares to Synnex’s first fiscal quarter 2020 Technology Solutions revenue of $4.08 billion.

“Overall, we are optimistic about fiscal 2021 given the start of vaccine rollouts, and we are hopeful our world returns to a closer sense of normalcy over the next year,” Polk said. “With this occurring, we expect that business investment will increase, especially in IT. At the same time, we are cognizant of the fact that, while economies around the world should begin to normalize, much is still uncertain about the pace in solving all the challenges of the pandemic and the timing of consistent economic recovery. This is evident by additional lockdown actions taken recently in most major countries we operate in.”

Polk also said that providing guidance based on the past fiscal is difficult given the circumstances of 2020, and so Synnex looked back to fiscal 2018 and 2019 for reference.