Tech Data CEO: Tablets Now A Billion-Dollar Business

Tablets have become a $1 billion business for Tech Data, with no signs of slowing down, according to Bob Dutkowsky, CEO of the distributor. Dutkowsky spoke with CRN's Scott Campbell about tablets and a number of other subjects. The following are excerpts from the conversation:

You said on your first-quarter earnings call that tablets were a $1 billion business in the last fiscal year, up from $300 million the year before. Can provide more details on that and how much of that business went to consumers as opposed to commercial customers?

We don't break out to that granular a level, but suffice to say that the majority was not into the big box guys but into Apple certified resellers that are taking that into the commercial channel. Apple knows how to sell to Best Buy. They don't need distributors for that, though we do some business there. In Europe, we sell more into the retail side than in the Americas, where the primary target for us, for the iPad in particular, is Apple certified resellers.

The point with the numbers is to show the growth, when two years ago we didn't even sell the product. I'm sure there will come another product that today is not even a glimmer on our revenue stream. Another example of that was the advent of VMware. We weren't even selling it, and then we became the biggest distributor for VMware.

Apple aside, how is the business for other tablets?

The other tablet players are attempting to create traction, but I'm not sure if you add all the Android tablets together, that they could counter the Apple product. We don't break it out, but the majority of our [tablet] revenues are iPads. The other flavor, Android, is split among several vendors.

What kind of impact do you think Microsoft Windows 8 will have in the tablet form factor? Can that dent Apple?

We're all watching Windows 8. When that comes out, it could change things in the tablet space. I was just in Microsoft for a day and a half of meetings, and Microsoft gave us a Win 8 tablet to use. We have to give it back because it's a prototype, but we got to work with it for a day and a half. It's very, very slick. It works well. It's fast, intuitive, easy to navigate.

Next: Windows 8 On The Horizon

Will Windows 8 tablets make the tablet pie bigger or just grab share away from Apple?

We think it's incremental. If there are customers out there in the world saying 'I have a Windows desktop or laptop and I don't want an apple tablet device,' then when the Windows 8 device is out, we could see that customer buying a tablet then. If they sat on the sidelines waiting for a Windows tablet to become a reality, then they will jump at one. But remember there are tens of millions of customers with PCs that have iPads. There are different classes of buyers.

The beauty of the Tech Data models is we serve both. We don't care which platform we jump on. Customers like alternatives. Many customers are waiting for Windows 8 for the alternative in the marketplace. We think it will be in our revenue stream into the later part of the year.

Is it fair to say you're not bullish on the Android platform for tablets?

We sell android platforms. In the cell phone business, Android is a huge component for us because we don't sell the iPhone. It's a big piece of Tech Data. I'm not trying to denigrate it as a tablet platform, but in the market, the [Android] tablet has not taken off. With Ice Cream Sandwich [Android 4.0] out now, Android is a more viable tablet OS. I have two Android tablets for my own use. It's a nice alternative in the marketplace but just hasn't gotten traction. I think Windows 8 will get another degree of traction. Also, the Android platform is spread across multiple vendors. We don't see momentum with one vendor as we see with the iPad, which is one platform, one OS, versus Android spread across Motorola, Lenovo, Acer and more. That's spread all over the place. You're not going to get the same visibility with us.

PC sales were not strong for you in the quarter, while tablets were solid. Do you still believe that tablet sales aren't impacting sales of desktops and laptops?

We don't see it as a cannibalization like many have talked about. As all distributors, we put all products out there and let the markets decide which to sell and not sell. Manufacturers have to buy parts, chips, memory. They have to bet right. We just put it on a shelf and let the market decide.

Next: TDMobility Grows

You also mentioned on the analysts' call that Tech Data now has 300 VARs using TDMobility. Can you tell me more about that? What kinds of VARs are signing up? Is that just U.S. or does that include Europe too?

TDMobility is just in the U.S. Brightstar is our [mobility venture] in Europe. In Europe, the primary route to market for phones is retail stores. The primary markets here for phones are carrier stores. We formed TDMobility to bring cell phones to the VAR channel. Turn back the clock, VARs tried several times to get into the cell phone business, but because of the economics of it, the subsidies, it's hard to make money. Now, it's hard to delineate the difference between laptop and smartphone. One is little, one's big. But, you are my email guy, Mr. VAR, so I want you to do the phone. They are missing out on a revenue stream. Acquiring and activating a phone and billing and recouping the subsidy of the rebates are big problems for VARs in the channel. TDMobility solves those problems. It makes it easy to be one stop to pick a phone, sell the phone, put it on a plan, consolidate and get the rebate, all under TDMobility.

We launched it in February and have gotten 300 VARs to sign up. I would say we had a measured roll out too. We didn't want to open the flood gates. TDMobility is on track. We are optimistic it will be a nice initiative. It's mainly because many VARs tried and failed with cell phones before.

VARs can also add in other services such as security and managing the mobile device, correct?

Many are setting up a practice to manage mobility for their customers, whether it's a smartphone, or it's tablets. The Windows tablets are rumored to be LTE compatible, so those might be activated on a cell phone network. Who's going to do that? That's what TDMobility positions us for. We think in the long run, many devices will be attached to networks, and we want to be there.