Tech Data reported its highest quarterly revenue ever in Q3, but its newly created Advanced Solutions division continued to suffer.
Net sales surged by 41 per cent annually to $9.14bn (€7.69bn) during the three months ending 31 October, while GAAP operating income reached $79.6m, a 27 per cent year-on-year increase. Operating margin however dipped by 0.1 per cent to 0.87 per cent of sales.
On an earnings call transcribed by Seeking Alpha, CEO Bob Dutkowsky conceded that datacentre sales - mainly stemming from its acquired Avnet TS business which has now been integrated under its Advanced Solutions arm - have been soft, while its end-point sales have enjoyed an unexpected surge in demand.
In Europe, demand for smartphones, notebooks, software subscriptions, security, networking and storage was exceptionally high, according to Tech Data, while computing components, printer supplies and traditional software saw declines.
"The datacentre demand has been relatively soft, and I think the best reflection you can get of that is to look at the primary datacentre vendors and their performance… Our view is that overall demand in the datacentre was mixed," said Dutkowsky.
"Then secondly, the datacentre is clearly in a period of transition, as both technologies move from legacy technologies to new modern next-generation platforms like converged and hyper-converged, solid state storage, software-defined networking, and then the impact that the cloud and hybrid cloud has on all that."
On a geographical basis, Europe was still Tech Data's highest revenue-generating region with 53 per cent of global sales. Revenues increased by 25 per cent year on year, thanks mainly to the inclusion of Avnet TS, while operating income dipped by $4m to $29.9m. The Americas meanwhile saw sales explode by 53 per cent, while its bottom line swelled by $23m year on year to $55.6m. Lastly, APAC added $300m to its top line as a new geographic region for Q3.
During Tech Data's Q2 earnings call, Dutkowsky blamed faltering European margins on increased competition, a phenomenon that has continued into the firm's third quarter.
Responding to analyst questions, the CEO said: "The competitiveness that we saw in the European market in Q2 has extended across our whole footprint now. And so I think that we did a really good job in the quarter of remaining disciplined, pursuing the pieces of business that delivered the proper profitability and use of capital, and also helping our customers with projects that were strategic to their customers.
"It has always been competitive. I've been here for 11 years and it's always been competitive, it is a competitive market. If you don't like competition, don't get into IT distribution, it is a competitive game and we compete on the breadth and capabilities of our company and we're very, very confident we're well positioned to compete."
He said that Tech Data is better positioned in Europe as a result of completing the integration of Avnet TS in two of its largest geographies - the UK and France.
"[Integration in Europe is] slower than it is in the other regions due to us rolling out the IT systems country by country; and as we noted on our previous calls, those synergies will be realised over the two-year period and will be more towards the back end versus the front end," he explained.
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