Partners: Tech Data-Avnet Deal Opens Door For Distribution Competitors To Snag Business

Some IBM and Hewlett Packard Enterprise partners say Tech Data's $2.96 billion acquisition of Avnet Technology Solutions opens the door for them to switch business to competing distributors, including value-added distributor Arrow Electronics' Global Enterprise Computing Solutions group.

"I have a longstanding relationship with Avnet and have no relationship with Tech Data," said the CEO for a top HPE enterprise partner, who did not want to be identified. "If I am going to have to establish a new distributor relationship, then before we sign our next contract I am going to talk to other distributors like Arrow and Synnex. Every reseller is going to leverage this as an opportunity to get better pricing and better programs to stay with Avnet. The opportunity is definitely there to move our business to another distributor. We are going through that evaluation right now. I have been loyal to Avnet. I like Avnet a lot, but this is a big change."

[Related: CRN Exclusive: Avnet President On How Becoming Part Of Tech Data Will Benefit The Channel]

A top channel executive, who did not want to be identified, said the deal signals the start of an "open season" campaign by rival distributors to go after the business of IBM and HPE partners currently committed to sourcing data center products from Avnet. "Until this Tech Data-Avnet deal is closed, every large account from both companies will be attacked by competing distributors," said the executive. "Every distributor in the country knows these partners and is going to be calling on them to sign them up."

The closed value-added distributor model requires partners to commit to a value-added distributor usually for a period of six months or a year.

Tech Data, Clearwater, Fla., said the blockbuster deal will increase the share of overall revenue coming from the data center from just 29 percent to 45 percent while more than doubling non-GAAP operating income after cost savings.

The 5,000-strong Avnet Technology Solutions business has about 40 vendors including IBM and HPE data center products. IBM's business accounts for 11 percent of Avnet's total annual sales including Technology Solutions.

Some IBM and HPE partners said Arrow is in the best position to capture the Avnet business because of its value-added heritage in the data center market.

Tech Data would not comment on the potential for IBM and HPE partners to move to competitors like Arrow, except to say the response from solution providers to the deal has been "overwhelmingly positive."

Avnet Technology Solutions President Patrick Zammit, for his part, said IBM and HPE partners have always had the ability to switch to another distributor.

"There may be financial consequences for them, but partners always have the possibility to switch," said Zammit in an interview with CRN. "Our partners have been with us for a very long period of time for a reason. It was the quality of the relationship, the quality of the support provided by the team, the quality of the line card. All that is not changing. All that is going to be maintained."

Zammit said he expects the combined Tech Data-Avnet to offer a stronger value proposition, including more robust credit lines and more solutions opportunities than competitors.

"I strongly believe that the integration plan which will be put in place is going to secure what made Avnet successful in the U.S., what led the partners to come to us," Zammit said. "So, of course, partners have the choice to move, but I think that because of the plan partners are going to see not only that what they like at Avnet is going to be secure, but most importantly, we will be able to come to partners post-closing with new solutions and new vendors, which I think partners will appreciate."

The CEO of a top IBM enterprise partner, who already teams with Avnet rival Arrow, said IBM and HPE data center VARs sourcing products from Avnet are "freaking out."

"You build relationships over many years with a data center distributor and to have that business move to a more open desktop networking distributor like Tech Data without anyone consulting you is very, very stressful," said the CEO, who asked not to be identified.

The IBM partner said he expects scrambling among rival distributors looking to swoop in and try to win more of that IBM and HPE value-added distribution data center business.

"The other value-added distributors are going to love this," said the partner. "Where there is mayhem, there is margin. There are a lot of VARs that are going to be looking at Arrow. The question is: Will IBM or HPE even let them move their business with this deal in the works? The value-added distribution business is a closed distribution model unlike the volume Tech Data business. I know Tech Data has been trying to get a bigger footprint in the data center market, but saying you want to get into the data center market and then buying Avnet is something else entirely."

The top sales executive for an HPE enterprise partner, who did not want to be identified, said he sees the deal as another reason for partners to move more quickly into the cloud services business.

"This deal is evidence of the pressure on the on-premise data center infrastructure vendors and VARs," said the sales executive. "If you don't see this as a warning as a data center reseller that you need to reinvent yourself, then you are in trouble. The data center market is being squeezed. There is consolidation and there is going to be more consolidation ahead. That's one of the reasons we are going into the service provider applications market. Lower margin was a fact of life in the data center market. This is just another sign of that."

Avnet Technology Solutions, which includes both IBM and HPE data center business, struggled in its 2016 fiscal year ended July 2, with sales falling 9 percent to $9.65 billion compared with $10.58 billion last year.

MICHAEL NOVINSON contributed to this story.