TD Synnex CEO On AI, Ingram Micro’s IPO And Why He’s Optimistic About IT Distribution

‘I see [AI] as a great opportunity for the business partner ecosystem. I do believe that configurations become richer, meaning the ASP (average selling price) on a PC will likely get a lift based on more technology in the PC. And that sort of same theme will occur across infrastructure and software as well. … I think that the business partner ecosystem will be absolutely participating and bringing a lot of that value ultimately to our customers moving forward,’ says TD Synnex CEO Rich Hume.

'We'll Get Stronger, Stronger, Stronger’

A focus on strategic technologies and a PC refresh driven in part by the coming of the AI PC is expected to help IT distribution giant TD Synnex return to growth this year.

TD Synnex CEO Rich Hume, in an exclusive meeting with CRN, said that he expects revenue growth to resume this year as the distributor finally gets past a couple of legacy issues.

“We believe that as we move through this year we will see a stronger and stronger business partner ecosystem,” he said. “A lot of that has to do with last year, we still had some parts of our portfolio of vendors that were running off backlog. So as we go through this year, we'll get stronger, stronger, stronger. We had stated that we would anticipate gross billings having a little bit of growth next quarter, and then the quarter after and quarter after should see stronger year-on-year results.”

[Related: TD Synnex CEO Talks 2024 Growth Plans, AI Bets]

Leading the return to growth will be a combination of sales of what Hume called TD Synnex’s “strategic priorities” of cloud, analytics, IoT, AI, and cybersecurity. Another driver will be the PC market where growth has been scarce, but will return, he said.

“As we move forward to the back half of the year, there are some growth igniters,” he said. “One of them will be an operating systems refresh. Another will be in the back half of the year, call it July forward, the beginnings of the AI PC coming to market.”

Hume also said the expected return of rival distributor Ingram Micro to the public market via an IPO in the near future will not have much impact on distribution given that Ingram Micro has been a public company in the past.

The year 2024 looks to be a good one for TD Synnex as the distributor sees its multi-quarter drop in revenue starting to bottom out while margins, gross profit, and earnings rise.

Taken together it is a sign of a brighter 2024 for TD Synnex, a view shared by investors who have driven the company’s stock price up by nearly 8 percent in the day-and-a-half since it unveiled its first fiscal quarter 2024.

The following is a lightly edited transcript of CRN’s interview with Hume.

TD Synnex’s revenue fell year-over-year 8.5 percent in the first fiscal quarter 2024. What's behind the revenue decline?

Yeah, revenue was down, but it was within the guide that we provided to the market. The COVID impact cycles are still impacting not only the channel, but also a good part of the vendor side as well. But what's transpiring here is, the declines on a year-to-year basis are becoming lower, lower, lower. I would say that it was within our anticipated guidance range as of 90 days ago.

When do you expect that decline to bottom off?

We believe that as we move through this year we will see a stronger and stronger business partner ecosystem. A lot of that has to do with last year, we still had some parts of our portfolio of vendors that were running off backlog. So as we go through this year, we'll get stronger, stronger, stronger. We had stated that we would anticipate gross billings having a little bit of growth next quarter, and then the quarter after and quarter after should see stronger year-on-year results.

With the decrease in revenue TD Synnex saw, are there any areas of TD Synnex that have seen an increase in revenue over the last year?

Our strategic technology categories—cloud, analytics, IoT, AI, as well as cybersecurity—all saw growth. In addition to that, this is the first quarter in a while where, although marginal, we saw the PC category actually have a little bit of growth. The market has been waiting for PCs, and I think the PC category will get stronger as we move through the second, third, and fourth quarters of the year.

What's behind the PC growth?

There were big declines in PCs for the industry last year, I think in all four quarters. I'm using calendar year now because that's the common denominator. So that now has wrapped. And in addition to that, as we move forward to the back half of the year, there are some growth igniters. One of them will be an operating system refresh. Another will be in the back half of the year, call it July forward, the beginnings of the AI PC coming to market. We think that as well will be a catalyst moving forward.

In addition to total revenue still declining, although at a slower rate, TD Synnex also posted a higher net income over last year. What's behind that?

The non-GAAP income, which is really the one we measure predominantly, was actually declining a little bit from my recollection by 4 or 5 percent. But the operating income, the GAAP income, was actually up a little bit. So that probably means that there were some integration or transition charges for the merge [between Tech Data and Synnex] that have abated. So that grew a little bit.

What are some of the strategic priorities you have for this quarter?

We're a bit of a broken record on what we call strategic technologies that, while some of the more traditional stuff has been caught up in the ‘COVID adjust cycle,’ have allowed us to backfill some of those declines with categories or segment that as a group have a healthier profit margin profile. I think those strategic technologies—cloud, analytics, IoT, AI, cybersecurity, and hyperscale infrastructure—are definitely our priorities moving forward. In addition to that, we see recovering strength in the core. We would anticipate strength in the PC ecosystem going forward. And what I'll call the advanced solutions or the infrastructure technologies also will begin to recover in the back half of the year. So we're feeling like the industry is at a turning point here whereby we can get beyond some of these challenging compares that were assisted by a backlog run off and get behind that by the middle of the year and into the third and fourth quarters.

Is TD Synnex doing anything actively in these areas? Any new programs?

Lots of investments, all of the time. So obviously, AI is a new emerging category. We've been out with some programs for AI. Just to give one example, Microsoft has come to market now with Copilot. That's a whole new set of enablement for the channel partners that we're engaged with. In addition to that, cloud platforms are becoming more sophisticated. So we are continuing to invest in making sure that we're improving our overall vendor and customer experience with our platforms to enable that. And then there’s more and more investment into the strategic technology category. That is a good opportunity for us going forward.

What kind of impact are you seeing from AI or GenAI on distribution?

AI, I believe it's going to be just an outstanding opportunity for the IT industry as well as for the business partner ecosystem. AI will emerge first as a capability that will infiltrate all of our historical segments. So we talk about the AI PC, and we should see that in the back half of the year. When you move to software, you'll see all of the application suites that we traditionally know start to become AI-enabled. A good example of that is Microsoft Copilot. We're working with the same sort of foundational Microsoft Office suite of products, but it's much more intelligent. And so we can participate in that. And in addition to that, we are beginning to see the infrastructure show up AI-enabled, and there's opportunities across the business partner ecosystem to serve customers with a AI enabled infrastructure. And then lastly, a bit unique, maybe to our scenarios, we have our Hyve [digital infrastructure] business with the hyperscale infrastructure, and certainly there'll be AI components to that.

So I see it as a great opportunity for the business partner ecosystem. I do believe that configurations become richer, meaning the ASP (average selling price) on a PC will likely get a lift based on more technology in the PC. And that sort of same theme will occur across infrastructure and software as well. I think that it's going to be a great era moving forward. And I think that the business partner ecosystem will be absolutely participating and bringing a lot of that value ultimately to our customers moving forward.

For distribution as a whole, how do you see the health of the industry?

I can continue to see distribution as playing a vital role for vendors and for the entire business partner ecosystem. As a new technology comes to the market, like AI, not only does our vendor set expect us to help them enable that, but at times they look to us to take more of the traditional work that has been done so they can free up more resources to go after these new categories as well. So I feel real good about distribution and the future ahead for distribution, and really being able to help vendors and enable the entire business partner ecosystem. And of course, we feel strongly that, as we look at the world now and in the future, having an end-to-end portfolio is a really beneficial asset for us. Furthermore, our global footprint is becoming more critical, especially with vendors who join cloud platforms. They like the opportunity to on-board offerings to our global platform and have them deployed across the world.

The big news in distribution this quarter is the apparent move by your biggest competitor, Ingram Micro, to hold an IPO. How would such an IPO impact distribution as a whole?

First, we have a lot of respect for Ingram. We've seen Ingram in the public forum before as a public entity. We've seen them owned by two different private owners. At the end of the day, they are a strong competitor. I would anticipate that as they move forward, and if they change their business structure, that we’ll continue to compete the way we have historically competed with them. Again, we've seen them as a public company before. We've seen them as a private company. We've got a lot of respect for them. And we expect that as we do every day, we roll up our sleeves and compete with not only Ingram but the rest of the competition across our, our landscape.

Any tips or any suggestions to Ingram Micro, things that they should watch out for if they become public again?

A lot of Ingram people were there when it was a public company. So they have their eyes wide open, I'm sure. Paul [Bay, CEO,] runs a good shop.