Distributors across the board are feeling the market crunch, but Tech Data Corp. seems to feeling it less than the competition.
According to second quarter (Q2) results, Tech Data’s diluted earnings per share rose US$0.25 while Ingram Micro Inc. saw its fall by US$0.08. Merisel Inc. suffered an even greater loss of US$3.02.
Rick Reid, president of Tech Data Canada, says both he and the U.S. head office are very pleased with its performance in Q2 despite Canadian sales being down 10 per cent year-over-year and falling behind Q1 standards. “Q1 in Canada is always fantastic because it includes the government year end and there’s a lot of business done in March in Canada, so our quarter-over-quarter growth was actually negative.”
(Tech Data does not disclose figures for its operations in each country. Reid would only speak in terms of percentages.)
In Q2, systems accounted for 37 per cent of Tech Data Canada’s overall business; peripherals and components were next at 34 per cent; networking was 17 per cent; and software was 10 per cent. Reid says he would have liked to have seen more sales in software because the market is growing, but circumstances beyond his control prevented any headway.
“Part of the reason why we were only at 10 per cent last quarter was that a few of our competitors decided to start some very aggressive price wars and Tech Data just refused to participate in that type of thing because we feel it’s prudent for us to show a profit for our shareholders,” says Reid.
While the software market is growing, the same cannot be said for networking. Reid says it is down dramatically thanks to Y2K programs, the demise of the dot-com and customer being content with what they’ve got.
This wasn’t the only contraction. Reid says the company reduced operating costs by 10 per cent in Q2 over Q1.
“We did that through some very aggressive cost containment, managing our headcount properly, we reduced a lot of our incidental travel and miscellaneous expense as well,” says Reid.
As for next quarter and beyond, Reid says he doesn’t expect any huge changes in the business. He says people are holding off on expenditures, and while some larger bids are coming in, it is the exception rather than the rule.
“There’s no real hot application or hot product that everyone absolutely must have. I think when you see the big up turns there’s something hot that people had to get. The new Windows release doesn’t run on the 386 (so) you had to replace everything,” says Reid.
“We’re battening down the hatches and looking after our expenses through the balance of the calendar year with an anticipated resurgence in volume, which is really what distribution depends on, some time in the first quarter next year.”
