Tech Data takes Avnet’s Technology Solutions division – bigger global datacentre capabilities

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Despite strong political and social anti-globalisation movements in the UK, America and other countries the IT and Communications industry continues to favour the economies of scale; not least in the distribution of equipment where Tech Data will finalise its $2.6b acquisition of Avnet’s Technology Solutions business along with around 5k staff later this month. My Figure shows the revenues of both companies on a rolling 4 quarter basis, including a split between Avnet’s Electronic Marketing and Technology Solutions divisions. You’ll want to think about the implications of this for the industry.
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Profitability in distribution is typically less than other areas of the ITC industry; typically it has been between 1-2% in the period between 2003 and 2017. The exceptions have been profits inflated through M&A activity and the Credit Crunch in 2008-9 (which Tech Data seems uniquely to have avoided – see my Figure). Spreading internationally and specialisation are the 2 main means of growing business for the leading distributors: in the past Tech Data took the former and Avnet the latter strategy. Clearly this acquisition will give Tech Data both – a global reach and datacentre specialisation.

In my view there are a number of winners and losers as a result. In particular:

  • Winners – Tech Data which will consolidate its position as the leading international distributor along with Ingram Micro; Avnet which will be able to concentrate on component distribution while developing other areas of specialisation; datacentre resellers who need better standardisation. support and service at a country level.
  • Losers – national and regional distributors (which currently make up the vast majority of business) will have more competition for value added solutions and may lose resellers as a result; regional hardware and software suppliers who may find stronger competition from global vendors represented through Tech Data’s wider operations; resellers of both Tech Data and Avnet who will lose one sponsor of their marketing activities.

In all the discussion of the advantages of Cloud Computing we sometimes forget that every application has to be run on real hardware somewhere in the world (everyone’s Op Ex is someone else’s Cap Ex). Despite the rise of the Google, Amazon, eBay, Alibaba etc. there is a growing need for servers, networking and storage systems among the next largest Internet companies, as well as SMB customers. Distributors play a vital role in bringing the right solutions – sometimes to the most remote locations in the world. This announcement shows that Tech Data no longer needs to choose between internationalisation and datacentre specialisation – it can have both. As a result out industry will become more globalised, running counter to the recent and dramatic social and political changes.


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