Tech Data Corp
) will be selling selected
products through Electronic Software Delivery ("ESD") as the two
agreed to extend their partnership. Resellers can easily download
several Microsoft products, including Microsoft Office suite,
through Tech Data's online portal ActivateHere.
ActivateHere will not only help in the secured and efficient
delivery of the software electronically, but it will also lower
resellers' cost burden, as it will eliminate the need of physical
storage. The process will enable end users to instantly activate
their Microsoft products, which will boost business efficiency.
This will bolster customer base of the resellers, which will
ultimately help Tech Data to earn higher revenues going
Moreover, we believe that a timely delivery of the products
will boost Tech Data's creditability in ensuring a better
customer satisfaction. This will expand its customer base over
the long term. Lately, Tech Data has been diversifying its
operations to get a better traction in the small to mid-size
business ("SMB") segment. We believe that the extended
partnership will help it to further penetrate this segment going
Currently, Tech Data has partnerships with all three major
companies of the PC industry -
) and Microsoft. Although sluggish PC shipments are expected to
hurt Tech Data in the coming quarters, we believe that its
diversified business model will help it to offset any significant
weakness going forward. Tech Data derives approximately 15% - 20%
of revenue from PC distribution.
Moreover, we believe that Tech Data's strategy of shifting
resources from lower-performing regions to higher-growth regions,
cost reductions (shutting down businesses in the loss-making
Brazilian and Colombian units) and accretive acquisitions (14
acquisitions added $1.5 billion in sales over the last four
years) will drive growth over the long term.
However, Tech Data expects IT spending to remain sluggish in
fiscal 2013. We believe that Tech Data faces a number of
headwinds in the near term, including a volatile European market
(approximately 60.0% of revenue) as well as lack of visibility in
government spending in the U.S.
Thus, we maintain our long-term Neutral recommendation on the
stock. Currently, the stock has a Zacks #3 Rank (Hold).
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