Computer Products distribution dark days
Many years ago my professional career was primarily working for several computer product distribution companies. We offered products such as hard disk drives, computer memory, video cards and computer monitors. They were all specialty items at the time but quickly became commotized where the buyers simply needed availability of a particular part number and the current price (of a hard disk drive, for example). Fortunately, my particular business unit at each of these companies was focused on a slower sales cycle, yet highly profitable products such as document scanners, document imaging software and optical storage solutions. Law Cypress, International Computer Graphics and Bell Micro were the companies and the business was typically low-margin, high-volume and lazy (quite frankly). At the time, in the 90’s, there was one company that was a little bit annoying but never amounted to much because they rarely earned the business. This company was SYNNEX who was known as the low-price, no value-add, awful product knowledge, limited line card distributor. They were the epitome of distribution scum among many scummy contenders. In fact the current SYNNEX corporate profile at Yahoo Finance (http://finance.yahoo.com/q/pr?s=SNX+Profile), as of 4/5/14, still reads like their traditional business:
SYNNEX Corporation provides distribution and business process outsourcing (BPO) services to resellers, retailers, and original equipment manufacturers (OEMs) primarily in North America. It operates in two segments, Distribution Services and Global Business Services (GBS). The Distribution Services segment distributes information technology (IT) products, such as IT systems, peripherals, system components, software, networking equipment, consumer electronics, and complementary products to value-added resellers, system integrators, and retailers. This segment also offers data center server and storage solutions; and contract assembly services, including systems design, build-to-order, configure-to-order, and assembly capabilities, as well as value added services comprising kitting, reconfiguration, asset tagging, and hard drive imaging. The GBS segment provides BPO services, including customer management, renewals management, back office processing, and IT outsourcing through voice, chat, Web, email, and digital print. The company also provides logistics services consisting of outsourced fulfillment, virtual distribution, and direct ship to end-users; financing services comprising net terms, third party leasing, floor plan financing, letters of credit backed financing, and arrangements; marketing services, such as direct mail, external media advertising, reseller product training, targeted telemarketing campaigns, trade shows, trade groups, database analysis, print on demand services, and Web-based marketing; and online and technical support services. It also has operations in China, India, Japan, the Philippines, Costa Rica, Hungary, Mexico, Nicaragua, and the United Kingdom. The company was formerly known as SYNNEX Information Technologies, Inc. and changed its name to SYNNEX Corporation in October 2003. SYNNEX Corporation was founded in 1980 and is headquartered in Fremont, California.
That was then, this is now (perception is everything)
Each company I mentioned above has since seceded to exist as a business or has been acquired for next-to-nothing of its once great market valuation. Why and why does SYNNEX’s business continue?
Because selling a tangible hardware product such as hard disk drives, computer memory or video display components becomes such a commodity over time that the only thing that matters is ‘price’ and ‘availability’. Hence, there is no value-add and, therefore, little profit margin.
Since those long-ago days I had not paid any attention to the Company SYNNEX because I just assumed they would eventually become irrelevant and meet the same fate of many of the other computer products distributors. However, I watch CNBC for several hours every morning to catch up on the daily business news and recently SYNNEX (NYSE: SNX) was in the news so that immediately peeked my interest. The stock was up something like 15% in the early morning trading and I wanted to know why so I investigated this Company that I once had little regard for. For the record, SNX’s stock price ended up over 23% for the day of 4/4/14. But why?
Changing the corporate DNA dynamics
First and foremost, the obvious reason is that SNX had great financial results in the previous quarter and had solid guidance for the upcoming quarter. These are the facts, but what drove these great financial results and such optimistic forecasts? With nothing more than browsing the SYNNEX website for the answers, it’s my personal opinion that they have gone to great lengths to change the corporate DNA from a low-margin distributor persona into a true value-added solutions provider and ‘cloud’ seems to be a key component of this strategy. A quick look at the SYNNEX corporate website is quite telling of the transformation for the Company. No longer is a ‘great price on this particular disk drive’ prominently featured on their website. Rather this language is replaced with language more relevant and value to business consumers such as ‘process services company’ and ‘technology solutions’ (instead of ‘distribution products’). While it’s clear that SYNNEX still runs their traditional distribution business these corporate DNA changes are significant and ‘cloud’ plays a big part into this.
SYNNEX to the Cloud?
While this might be a bit of a stretch since I don’t know anything other than what’s available on their website about their cloud business, I bet that ‘cloud’ is a significant part of the overall SYNNEX strategy.
For example, only one-click deeper on their website displays a well-organized list of who’s-who in the IT space such as Microsoft, Symantec, Adobe and many others as technology partners for SYNNEX CLOUDSolv Solutions.
What do you think? In your opinion is this enough of a good strategy to help SYNNEX be successful in the long run?