By
Tom Taulli
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September 25, 2007
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SYNNEX's (NYSE: SNX ) third-quarter improvement should be a big deal in the razor-thin information technology distribution sector. So why did the market greet the news with a shrug?
On Monday, the company reported an 11% increase in revenue to $1.76 billion. Net income was $14.4 million, or $0.44 per share, which was up from $13.8 million, or $0.43 per share, in the same period a year ago. In addition, gross margins improved nicely, to 5.18% from 4.56%.
However, SYNNEX has ramped up spending on facility consolidation, merger expenses, and investments in new areas as it tries to expand beyond its distribution roots and move into higher-margin categories.
On its face, the strategy makes sense. SYNNEX has a sophisticated infrastructure and key relationships with companies such as IBM (NYSE: IBM ) , Hewlett-Packard (NYSE: HPQ ) , Symantec (Nasdaq: SYMC ) , and Microsoft (Nasdaq: MSFT ) .
Over the past year, SYNNEX has struck a variety of deals to boost growth. One notable acquisition was HiChina Web Solutions, which provides domain registration and site-hosting services in China. Another deal snapped up Link2Support, a Philippines-based company that handles outsourced technical support.
Despite the aggressive deal making, SYNNEX's results still look mixed. Its guidance for fiscal Q4 predicts revenue of $1.875 billion to $1.925 billion, with earnings per share of $0.52 to $0.54. It's never easy for a company to move into new categories, and SYNNEX seems to be no exception.
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