Distributor will focus on higher-value, higher-margin products to drive growth and profitability for itself and partners
Broadline technology distributor Tech Data didn’t light up investors with its modest growth in 2018, but it has a solution: doubling-down on high-value, high-margin products such as cloud computing, Internet of Things (IoT), and security.
The Lowdown: Tech Data is looking to high-margin advanced products and services as a means of offsetting a revenue and growth drag caused by low-growth, low-margin legacy products. CEO Rich Hume says the pivot toward higher-margin advanced and emerging products will provide Tech Data and the channel partners it serves with more opportunities for growth and profitability.
The Details: Just which advanced and high-value products Tech Data will focus its attention on are undefined beyond broad categories that include IoT, cloud computing, and security. On its earnings call, Tech Data officers described a deliberate process for determining its future product strategy in which the distributor will make a determination based on the return on investment and the level of investment required to effectuate a positive return.
An example of high-value products with commensurate investment is cloud computing, in which Tech Data has made significant investments. The disty’s Cloud Solution Factory, for example, provides partners with support for integrating, delivering, and supporting complex cloud solutions, as well as simplified administration and billing mechanisms.
Some reports say Tech Data will divest of less advantageous, low-growth technologies such as personal systems. However, Tech Data says it will continue to sell and support across the spectrum of technology products regardless of the growth potential. The difference, Tech Data says, is the level of available support and resources applied to different technologies.
Background: Clearwater, Florida-based Tech Data announced that its 2018 net revenue increased 11 percent over 2017 and fourth-quarter revenue grew 4 percent. While the distributor’s numbers are strong, they failed to meet Wall Street expectations. Tech Data expects 2019 revenue to maintain pace with the rest of the IT market growth, which is currently projected at 3 percent.
The Buzz: “We summarize our strategy as moving to higher value,” said Tech Data CEO Rich Hume on the company’s earnings call. “This means delivering higher-value solution offerings to our channel partners, providing our colleagues with enriching opportunities, and creating value for our shareholders through an enhanced financial profile and emphasis on cash flow and return on invested capital.”