Based on a strong fiscal Q1 earnings report, investors scooped up shares in SYNNEX
SYNNEX is the third-largest IT supply chain firm, distributing peripherals, system components, and software to a variety of companies. Its global footprint includes 16 distribution facilities in the U.S., Canada, China, and Mexico.
First-quarter revenues increased 5.8% to $1.59 billion, and net income shot up 30% to $13.9 million, or $0.43 per share. Gross margin improved slightly, but selling, general, and administrative expenses swelled from 2.85% to 3.12% of revenues.
Why the deterioration? SYNNEX has been plowing money into acquisitions, hoping to provide additional services for major OEM partners such as Microsoft
Its acquisition of PC Wholesale, for example, will deliver refurbished equipment, and its new Link2Support subsidiary will provide technical-support services via phone, email, and chat. The latter deal should also fit nicely with SYNNEX's recent purchase of call center support provider Concentrix.
These acquisitions not only help to cement OEM relationships, but also bring higher margins -- a godsend in the razor-thin world of IT distributors. SYNNEX's acquisitive strategy is still in its early phases, so we're likely to see further benefits as more synergies kick in. Investors shouldn't be surprised if more upside lies ahead for the stock.
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