Synnex CEO: Westcon Americas Gives Synnex A $10 Billion Total Addressable Market Boost

The Westcon Americas acquisition will dramatically boost Synnex's addressable market as it gains a foothold in Latin American and fills in line card gaps around security and communications.

Synnex CEO Kevin Murai said the $830 million purchase of Westcon Americas, which closed Sept. 1, will enable the Fremont, Calif.-based business process services company to fill vendor and capability gaps in segments that are growing faster than the overall technology industry. The purchase would add around $10 billion more to Synnex's total addressable market (TAM), according to Murai.

"We were growing our business in security and communications with a limited line card," Murai (pictured) told Wall Street analysts on Monday. "Today, we have a significantly better offering to take to the market, and that just opens up billions of incremental TAM for us."

[Related: Synnex Completes Westcon Americas Purchase; Partners Look For Consistent Staffing, Service Levels]

Buying Westcon-Comstor's $2.18 billion North American and Latin American businesses brought leading data center network vendors like Cisco, Palo Alto Networks, F5 Networks and FireEye onto Synnex's line card for the first time. Synnex had been the only North American broad line distributor not carrying Cisco, while 32 percent – or nearly $700 million – of Westcon America's revenue came from Cisco.

The acquisition also opens up the Latin American market to Synnex for the first time, too. Westcon-Comstor's business in Latin America today are only focused on specialty products, Murai said, meaning that the company doesn't participate in the larger, broad line market serviced by Synnex in North America.

"That mints a longer-term opportunity for us as we leverage the relationships that we have here in North America to take to the customers at Westcon-Comstor that, frankly, would like to buy that product from them if it were available," Murai said.

In just a few months, operational integration of the two companies will start showing results. "We fully expect that we are going to gain significant traction on those synergies at some point in 2018," Murai said.

Murai said he considers Westcon-Comstor to be the strongest specialty distributor in the market as it relates to communications and security. Thus far, Murai has been pleased by the strength of the Tarrytown, N.Y.-based distributor's workforce as well as the strong relationships it enjoys with vendors that Synnex has never worked with before.

Synnex plans to preserve both the Westcon-Comstor brand as well as its specialized capabilities to ensure that channel partners can continue leveraging the strength and value that both operations bring to the table, Murai said.

In the current quarter, which ends Nov. 30, Westcon-Comstor is expected to contribute $550 million of revenue and non-GAAP earnings per share of approximately $0.17 per share, according to Marshall Witt, Synnex's CFO. Acquisition and integration costs are expected to run between $20 million and $25 million over the next year, Witt said, with the majority of those expenses starting to occur in December.

Although Synnex is focused on reducing operational overlap in the Westcon-Comstor acquisition, Murai said the distributor would continue to make investments where needed. "We have a strong history of investing in growth in our business," Murai said. "It has served our shareholders very, very well."

Synnex saw revenue in the quarter ended Aug. 31 climb to $4.28 billion, up 16.5 percent from $3.67 billion last year. That crushed Seeking Alpha's estimate of $4 billion.

Net income soared to $75.2 million, or $1.87 per share, up 28 percent from $58.7 million, or $1.47 per share, last year. On a non-GAAP basis, net income jumped to $86.8 million, or $2.16 per share, up 26 percent from $68.9 million, or $1.73 per share, last year. That smashed Seeking Alpha's projection of $1.97 per share.

Synnex's stock price climbed steadily after hours, advancing $10.45 (8.97%) to $126.95 on Monday evening.

In the most recent quarter, Synnex's technology solutions sales climbed to $3.78 billion, up 15.8 percent from $3.27 billion last year. Operating income for the division jumped to $100 million, up 25.9 percent from $79.4 million last year.

Revenue for the Concentrix customer care business jumped to $496 million, up 21.9 percent from $406.7 million last year. Operating income improved to $22.2 million, up 19.8 percent from $18.6 million the year prior.

For the coming quarter, Synnex said it expects non-GAAP earnings of $106.1 million to $110 million – or $2.63 to $2.73 per share – on revenue of $4.75 billion to $4.95 billion. Analysts had been expecting earnings of $2.49 per share on sales of just $4.36 billion.