Tech Data Corp.: A Surprise Adversary

CEO Steve Raymund's No. 1 concern isn't rival distributors.

Steve Raymund has always had the knack for making the right bet. Even with the current state of economic uncertainty, Raymund is betting to grow market share from distribution competitors.

"We think weve got what it takes to outpace the competition regardless of the market climate," says Raymund, chairman and CEO of Tech Data Corp.

Although Raymund is confident Tech Data will continue to attract resellers from competitors such as Ingram Micro and smaller specialty distributors, he remains cautious about the economy. "Our greatest adversary is the economy and the conditions we face," says Raymund.

And in this current economic climate, Raymund and Tech Data executives do not expect the companys fiscal Q1 to mimic the same impressive results it achieved for its fiscal Q4. The company expects a lowered outlook for its fiscal Q1.

Tech Data expects to post Q1 revenue of $4.6 billion to $4.8 billion and earnings of $24 million to $29 million.

To deal with the economic slowdown, the company is taking measures to drive down costs and pay close attention to its metrics. "[We want] to make sure we are fully focused on the right opportunities," says Raymund.

The company recently posted strong results when it reported its financial performance for the Q4 and fiscal 2001 period ended Jan. 31. The distributor reported revenue of $5.3 billion and a net income rise of 42 percent to $52.7 million, compared with revenue of $4.8 billion and net income of $37.1 million for the same period last year.

In Q4, VARs accounted for 56 percent of sales, which was an 11 percent growth; retailers and marketers represented 23 percent of sales, a 25 percent growth; and corporate resellers came in at 21 percent of sales, which was down 1 percent, executives reported.

The distributors top two vendor customers were Compaq Computer and Hewlett-Packard, accounting for 20 percent and 19 percent of total sales, respectively, says Jeffrey Howells, executive VP of finance and CFO.

The current economic climate may also play into Tech Datas favor as it looks to eat into the margins of smaller specialty distributors. "We expect the weaker players in this sector to become even weaker," he says. "Solution providers will be less willing to work with distributors whose futures are in question."

Tech Data, which has more than 75,000 reseller and retailer customers, has slowly won market share from its bigger competitor, Ingram Micro.

Over the past year, Tech Data has attracted resellers disenchanted by Ingrams tactics to replace telephone support with Web-based support. That strategy has backfired for Ingram, which is scrambling to make up for losing long-time reseller customers.

Meanwhile, to go after market share of smaller specialty players, Tech Data has formed nine business units: Com-ponents, Software Licensing, Supplies & Accessories; Information Appliances; CAD/graphics, Digital Imaging; Apple; Enterprise; and Networking Solutions.

In its fiscal Q1, Tech Data signed an agreement to market HPs hosted E-services through HPs AgentDepot Web site. Tech Data will market the service to resellers and integrators that will be trained and serve as agents to help customers in selecting HPs hosted E-services.

Facing the economic chill, Tech Data is not worried. "We dramatically increased our market share," Raymund says.

As a tighter economy pressures all distributors, Raymund has to prove he can still make the right bets, especially in targeting the specialty distributors.