What the IBM Deal Means for Synnex Earnings

Few investors knew about the business-services company before its buyout of IBM's customer-care business, but the impact on Synnex earnings could be substantial.

Dan Caplinger
Dan Caplinger
Sep 23, 2013 at 5:30PM
Technology and Telecom

Synnex (NYSE:SNX) will release its quarterly report on Wednesday, and investors have gotten a lot more excited about the little-known provider of business-process services since the company agreed to pay $505 million to buy IBM's (NYSE:IBM) customer-care services business. But looking beyond the IBM buyout, shareholders have to wonder what the long-term impact of having a larger business will be on Synnex earnings in the future.

Synnex plays a vital role in bridging the gap between IT product manufacturers and the customers who buy them. With its distribution-services business, the company works with its suppliers to get thousands of popular tech products and then distribute them through its network of reseller customers. At the same time, the business-services division provides tech support and customer service of the type that IBM's sold-off segment provided. Combined with contract-assembly services, Synnex has a wide array of offerings for customers to take advantage of. Let's take an early look at what's been happening with Synnex over the past quarter and what we're likely to see in its report.

Stats on Synnex

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$2.72 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

How will Synnex earnings fare this quarter?
In recent months, analysts have had mixed views on prospects for Synnex earnings. In the short-term, they've cut August-quarter estimates by $0.01 and projections for the current fiscal year by $0.04 per share. But they've boosted their fiscal 2014 expectations slightly, and the stock has responded positively to the IBM deal, rising 45% since mid-June.

Clearly, the purchase of IBM's customer-care division is the biggest news to hit Synnex in a long time. Synnex believes that the move will push its Concentrix division into the top 10 globally in its industry, giving the company a lot more exposure than it has gotten in the past.

But perhaps more important will be the continuing relationship between Synnex and IBM going forward. As part of the deal, Synnex will become an IBM preferred business partner for customer-care outsourcing services, helping IBM in its quest to deliver broad-based IT solutions to its own customers. IBM also accepted part of the payment for its customer-care business in Synnex stock, giving IBM a stake in the company going forward.

Yet Synnex isn't putting all of its eggs in IBM's basket. In July, the company said that it's participating in the Microsoft (NASDAQ:MSFT) Devices Program, with the aim of helping Microsoft resell more of its Surface RT and Surface Pro tablets to business customers. Synnex created a Microsoft-specific business unit to handle Microsoft's extensive array of products and help it improve the flow of those products from manufacturer to end-user. Last month, Comcast made Synnex its first distributor to serve as a master agent in its Business Solutions Provider Program. Synnex hopes that being part of Comcast's program will help it in its broader mobility strategy, helping its resellers offer their customers better connectivity solutions.

In the Synnex earnings report, watch to see how much the company focuses on its IBM acquisition. With the potential to transform its business, Synnex will have to be careful not to upset the balance of the its other customer relationships if it wants to keep pushing ahead on all cylinders.

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