Q&A: Synnex CEO Talks HP-Aruba Deal, Telco Investment, Server Success
Servers, Cloud Lead The Way For Synnex
Synnex had a slower-than-expected start to 2015, as sales for the Fremont, Calif.-based distributor grew 5.8 percent, to $3.2 billion, and non-GAAP profits climbed 21.9 percent, to $58.2 million. CRN spoke with Synnex CEO Kevin Murai after the earnings call last week to talk about how partners will benefit from HP's purchase of Aruba Networks, why telecom companies are looking to leverage distribution, the state of the Windows Server 2003 refresh and the enterprise server business, plus what vendor consolidation of distribution partners would mean for Synnex.
What is the biggest takeaway from Synnex's Q1 performance?
Overall, it was solid demand market in IT. We saw significant opportunities in some key vertical markets and some key technology areas. We're investing in capability in those areas, [so] partner with Synnex and grow.
Is softness in the consumer market a long-term phenomenon?
It's relatively short-term. We actually came off a very strong holiday season, including December, and we thought the optimism would carry through into the next year. And actually, what we found was that January and February was seasonably a little bit softer than what we had seen in the past. All that said and done, there's a lot of reasons to believe that the consumer markets in the U.S. in particular are going to continue to be good because the overall economy continues to be strong. There's a lot of great new products that are coming out, especially in the tech-related area -- things like wearable technologies and home automation and control.
What accounts for the uptick in server sales?
We're seeing good demand across the board in enterprise. From a server perspective, it's really from low-end servers all the way up through the higher-end enterprise servers. I think we're still in relatively early innings on [the Windows Server 2003 refresh]. As you know, the end of life happens July 14. There's been a lot of excitement around it, over the past four to six months, a lot of conversation. It is a driver of what we're seeing in server growth right now -- it's not the only driver, but it is a driver.
Ho w far along are we in the Windows Server 2003 refresh process?
I do believe that, as we get closer to the end of life, we're going to see a lot more opportunity and even more uptick than we've been seeing recently. In particular for Server 2003, it's across the board in SMB. So any vertical in SMB -- SMB is, of course, the sweet spot of where Synnex plays. It's the sweet spot of where many of our customers play. From my perspective, I think it's equal opportunity for all markets and all verticals, and equal opportunity for all our VARs.
How does the Windows Server 2003 upgrade appear to be breaking down?
A good chunk of the refresh is going to stay in like-for-like and migrate onto a Windows server platform. Some will be going into an existing server farm, and others will be moving up into the cloud. Obviously, we'll be pushing for those movements up into the cloud in the Microsoft ecosystem in Azure. … Beyond Microsoft themselves, on the hardware side, it's all the server vendors we deal with [pushing to capture some of the Server 2003 upgrade business] -- HP, Lenovo and Dell.
What initiatives is Synnex rolling out to capitalize on the recent public sector strength?
Public sector is Synnex's largest vertical, and we've had a significant business in that vertical for many, many years. We have dedicated resources in there, and very deep market knowledge. We're the go-to distributor for the public sector in the channel. … We own our own GSA contract in the federal space, we are aligned with a number of the different buying groups in state and local as well, but we also have resources that help our VAR customers be able to participate in government business as well as help them bid on government business.
What about in education?
There's been a real shift toward the Chromebook in education and K-12. We were the first distributor to represent Chrome management console. In the education space, obviously, Google for Education is obviously a key platform that's getting a lot of attention and getting a lot of business. … In addition to that, we also are strategically aligned with Microsoft, and the Microsoft ecosystem for education is also very robust. We're doing a lot there. We have dedicated resources specific to K-12 education, which includes a small team of former educators that understand not only how to sell into that market, but also what the challenges and opportunities are as an educator in K-12.
What initiatives has Synnex undertaken in the cloud?
We've been making a number of investments in the cloud space. There's really a handful that we're focused on right now. One that I want to call out is the creation of our cloud community. This is really creating a community of resellers, all the way from born-in-the-cloud resellers to those that are cloud component to those that are more cloud novices, and then helping them evolve their business model, training and education, and then helping them to assemble those solutions in the cloud so that they can effectively take them to market.
Is Synnex looking to make a play in hosted cloud?
The tools that you need to be able to run a services business, a hosted business, are much different than traditional IT. For the past four years, we've been investing in our CloudSolv marketplace, and this is an end-to-end platform that our resellers can use to do everything from put up their own marketplace of services … to the single invoice and billing of those services. So they create their annuity stream on our platform. And as part of doing that, we've worked very closely with a number of cloud service providers, including companies like Symantec and Microsoft, to migrate APIs directly into our CloudSolv platform.
How significant will automation be to success in the cloud?
I think it's key. It's a very different business model and different processes in running an annuity-type business. So number one, you have to provision each end user to each service. And what you don't want to do is have to go in and replicate that same process with every service that you need to bring up for those users. This is where a platform makes that much more simplified, where you basically store once, then provision many times.
What else needs to be done to deliver an integrated cloud platform?
For example, everybody talks about Office 365. But beyond hosted office productivity solutions from the traditional on-premise, you have to migrate all of your data over to the new service. And it's not the easiest thing to do. So we also have recruited partners like BitTitan that provide these services that we'll sell to our solution providers that actually perform that service for them. So really providing all the capability, the tools, the platform, the education, you want resellers to get them cloud enabled.
What do you think of HP's purchase of Aruba?
First of all, I applaud HP for their investment here. We've been an HP network and Aruba distributor for a number of years. In fact, we won Aruba's distributor of the year award last year. So we've really grown that business. Aruba has what I believe to be best-of-breed mobility software. ... HP has a pretty broad networking portfolio. So by combining the two, I think they have a much more enhanced portfolio of products and software that they can take to market as a more complete solution. So overall, for HP, I think it's a great move.
What impact will the acquisition have on your channel partners?
What that translates into for channel partners is that they now have, down the road, a more homogenous solution that they can now sell and take to market from a networking and communications perspective. I think Synnex is very well-positioned as well, because of our long-lasting relationship with both Aruba and HP networking. I've had personally a number of discussions with HP management. They're working through their plans right now. Obviously, they have the other major project of splitting the company going on at the same time. What they've said is they will have Dominic Orr, who is the head of Aruba, run the HP networking business.
How has Synnex been affected by vendors culling their list of distribution partners?
First of all, I think most vendors today choose their distribution partners based on relative strengths they believe they have in reaching different parts of the market. When that happens, Synnex usually does becomes the beneficiary of that because of the penetration and the strength that we have in a number of different markets, like SMB, like public sector. We are really the only true favored distributor that does everything from broadline products all the way up to enterprise, which certainly gives us an edge. We also have a number of dedicated resources against different market verticals and against different product platforms as well.
Have you seen a trend of vendors consolidating distributors?
Taking one example doesn't necessarily translate into a trend, but overall, when there is consolidation of partners, Synnex is typically the beneficiary. I don't see a trend to consolidate. Sometimes you do see some of that happening or even a re-look at who distribution partners are, but I wouldn't call it a trend to consolidate at this point.
Why are we seeing distributors getting more involved with telecom?
First of all, it comes down to connectivity, and mobility and the Internet of Things. Starting off with more and more mobile devices being connected to the network. You've got to provide a number of different ways to do that. So beyond wired, beyond WiFi, then 4G LTE, of course, is the next area. Most of these telcos understand that, in order for them to really penetrate the commercial business, in particular SMB, they need to go through the channel and partner with distributors in order to educate and enable resellers to do so. But it goes beyond that as well.
What else does it get into?
A big focus that Synnex has is on the Internet of Things, so as new devices get connected to the Internet over the next number of years -- depending on whose forecast you look at, that could be 30 billion devices or it could be 60 billion devices over the next five years -- the bottom line is, it's a lot. And these devices not only have to be connected, they have to be managed, they have to be secured, and you've got to figure out what to do with that data. … Some of them are going to be connected through 3G gateway, and ultimately into a cell provider like a Verizon.
What efforts has Synnex made to grow these businesses?
For us, it's a critical relationship. We do partner with Verizon … as well as AT&T. … But beyond that, our strategy on IoT goes much beyond just those partners. It gets into creating solutions that provide capability that never existed before. … Now you have the ability to monitor health and status in real-time. …. Not to mention the wearable technologies that are coming out, many of which are being connected to the Internet too. So that is a huge growth area moving forward. It cuts across the consumer space and the commercial space. Anything to do with connectivity, networking, security is going to continue to be a growth area.