Synnex Beats Expectations With Double-Digit Q2 Sales And Profit Growth

Synnex posted double-digit sales and profit growth for its second-quarter earnings after seeing continued boosts from Windows XP support expiration and strong growth in the Japanese market.

For the second fiscal quarter ended May 31, Synnex sales jumped 33.3 percent over the same quarter the year before to $3.4 billion. Net income for the quarter was $39.6 million, an increase of 28.5 percent over the same quarter last year.

Breaking it down, Synnex's technology solutions division posted sales of $3.16 billion, a rise of 24.2 percent over the same quarter last year, with net income of $70.1 million.

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"Once again, we had amazing growth in our technology solutions business," CEO Kevin Murai said in an interview with CRN after the earnings call. "That's exciting. I think what that speaks to is our execution, really having the right go-to-market strategy, the right partners and really funding growth."

For Synnex's Concentrix division, the distributor had sales of $293.5 million, up significantly from $46.7 million the same quarter the year before due to the company's $505 million acquisition of IBM's Customer Care business last October. The Concentrix division lost $2.2 million in the second quarter due primarily to acquisition-related integration costs after posting a profit of $3.3 million in the second quarter last year.

"The overall performance in Concentrix was excellent, well on track to where we needed to be," Murai said in the interview with CRN.

Murai said that the integration of the IBM Customer Care business is almost complete, with 99 percent of the acquisition completed. CFO Marshall Witt said that Synnex expects one-time costs to begin declining in the second half of the fiscal year as the acquisition is anticipated to be fully completed in the next quarter.

Driving growth in the technology solutions business were two "tailwinds," Murai said on the earnings call, of Windows XP support expiration and consumption tax increases in Japan. Murai said on the call that Synnex saw strong demand in almost all markets and products. While Synnex expects the Windows XP support expiration boost to dwindle going forward, Murai said that through the second quarter the distributor saw Windows XP expiration causing strong PC sales and other ripple effects, including mobility, networking, security, Wi-Fi and peripherals.

"We saw great benefit from that. Really I think it had the impact of raising the water level of demand across a broader range of IT products," Murai told CRN. "We are starting to see the positive impact from Windows XP start to subside right now, but the good news is the overall water level is still higher, we're still seeing very strong demand there across the board."

In addition, Murai said on the call that Synnex saw a huge boost from its Japanese business, from both XP and also the April consumption tax increase. Murai didn’t specify how much the Japanese market was up, only saying it was in line with the previous quarter, which saw around 40 percent growth.

"In particular in Japan, we achieved what I would consider to be North American-type operating margins for that quarter. We do see the demand in Japan normalizing, because both of those drivers, Windows XP as well as the consumption tax increase are now over. ... We do expect by the way to grow faster than the market in Japan, but we also don't expect to see the same kind of profit performance in Japan than we saw in Q2," Murai said on the earnings call.

For the next quarter, Synnex said that it expects revenue to be between $3.3 billion and $3.4 billion. Despite the dwindling benefits of Windows XP expiration, Murai said on the call that Synnex expects continued strong IT demand across all geographies.

PUBLISHED JULY 3, 2014