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Tech Data Stock Dives As Weak Enterprise Demand Drags Sales

Michael NovinsonAccording to   Down Poor North American enterprise demand and a more mobility-heavy sales mix resulted in slumping sales and profits for Tech Data in the third quarter.The Clear water, Fla.-based distributor saw net income dip 0.2 percent for the quarter ended Oct. 31, from $45.3 million in the third quarter of 2014 to $45.2 million, or $1.28 per share on a non- GAAP basis. This was an all-time, third-quarter earnings-per-share high, but fell well short of Seeking Alpha expectations of $1.42 per share.
Sales sunk 4.9 percent, from $6.76 billion in last year’s third quarter to $6.43 billion in this year’s, missing Seeking Alpha’s projection of $6.53 billion.
“At the higher end of the [business size] curve, growth is not that good,” Tech Data CEO Bob Dutkowsky said during the earnings call Tuesday. “[But] weakness at the enterprise level doesn’t hurt us as much as other vendors.”
Wall Street was disappointed with the figures, sending Tech Data’s stock price down 12.3 percent, to $66.42 per share. Earnings were released before the market opened Tuesday.
Tech Data has ramped up its mobility practice — particularly in Europe — to respond to strong demand, which has taken a bite out of the distributor’s gross margins, according to CFO Chuck Dannewitz.
But mobility also has lower associated sales, general and administrative (SG&A) expenses associated with it, Dannewitz said, making it a solid capital investment.
Robust mobility growth in Europe also allowed Apple to, for the first time, surpass HP as Tech Data’s largest vendor partner, accounting for 20 percent of its overall business, while HP accounts for just 19 percent. That’s a major shift from two years ago, when HP accounted for 23 percent of Tech Data’s overall business and Apple accounted for just 11 percent.
Apple should remain a dominant player for Tech Data even if iPhone sales level off next year, as many analysts are projecting, Dutkowsky said. Only one-third of Tech Data’s Apple business is related to the iPhone, Dutkowsky said, with the remaining two-thirds coming from the desktop and laptop space as well as products such as Apple TV or the Apple Watch.
“This is not just an iPhone phenomenon being manufactured around Apple,” Dutkowsky said.