*NEWS*LESS TALK ,MORE ACTION @ TECH DATA

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*NEWS*LESS TALK ,MORE ACTION @ TECH DATA

 user 2006-11-29 at 2:01:00 pm Views: 61
  • #16880

    A Little Less Talk, a Little More Action at Tech Data
    No
    more excuses. Now that IT product distributor Tech Data says it’s done
    with its Europe, Middle East, and Africa restructuring, it’s time to
    get back to business and squeeze some more blood from those bone-dry
    stones.

    If
    you’re not familiar with the company, let me point out that it operates
    in an extremely low-margin business. Tech Data and rivals like Ingram
    Micro and SYNNEX routinely run on gross margins below 6%, and net
    margins very close to that red line. Any change in pricing power,
    operating efficiency, or tax rates can have a tremendous impact on the
    bottom line, given that increasing the net take by one percentage point
    is likely to double the dollar amount.
    That’s why the completion of
    that two-year restructuring project is so important: Not only does the
    company get to reap the operational benefits of this belt-tightening
    move now, but it also no longer has to pay for the process. This
    quarter, $8.9 million was earmarked for the EMEA changes, bringing the
    total restructuring cost to almost $55 million over the past six
    quarters. That’s a heavy load for a company that made a net profit of
    $32.6 million over the past year, including the restructuring cost but
    excluding a $155 million goodwill impairment charge in the previous
    quarter.Computer system builders like Dell and Hewlett-Packard are
    often held up as paragons of virtue when it comes to making profits out
    of massive revenues and sliver-thin margins, but those guys have
    significant server hardware and support services departments, which
    bring margins up from the 4% or so where their PC segments usually
    dwell. A fairer comparison would be Gateway, which doesn’t have the
    luxury of falling back on those cash cows when times get hard, and
    currently sports a 6% gross margin.An investment in businesses like
    Ingram Micro, Gateway, or Tech Data, then, is a vote of confidence in
    the management team. Tech Data pushed $21 billion worth of high-tech
    commodities through its systems over the past year. But a hardware
    distributor doesn’t get to skim much off the top of each order, and the
    challenge is to make the operation run with as little friction as
    possible. Again, any small improvement stands to bring in huge
    benefits.