Synnex Corporation

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SYNNEX Corporation

44201 Nobel Drive
Fremont, California 94538
U.S.A.
Telephone: (510) 656-3333
Fax: (510) 668-3777
Web site: http://www.synnex.com

Public Company
Incorporated: 1980 as COMPAC Microelectronics, Inc.
Employees: 2,676
Sales: $5.31 billion (2004)
Stock Exchanges: New York
Ticker Symbol: SNX
NAIC: 541512 Computer Systems Design Services

SYNNEX Corporation is a Fremont, California-based information technology company involved in two core business segments. It offers supply chain services to original equipment manufacturers (OEMs) and value-added resellers (VARs). The company distributes personal computers, notebooks, servers, central processing units, memory, communications products, networking products, and software manufactured by 3Com, Computer Associates, Hewlett-Packard, IBM, Intel, Microsoft, Seagate, and others. In addition, Synnex provides OEMs with contract assembly services, manufacturing such products as PCs, printed circuit boards, and networking equipment. Synnex maintains sales offices and distribution centers throughout North America, as well as in China and Japan. Contract assembly is conducted in plants located in California, Tennessee, and the United Kingdom. Synnex is a public company listed on the New York Stock Exchange, but is 70 percent owned by Taiwan-based MiTAC International.

Company Formation: 1980

Synnex was founded by its longtime chief executive officer, Robert Huang. He was born in Taiwan in 1945, the son of a Japanese-educated father who launched a paper trading company, Nichidai Trading, which he relocated to Osaka, Japan, in 1955 to be closer to Western markets, which at the time were beginning to import a great deal of Chinese noodles and relied on the paper boxes Nichidai Trading manufactured. Huang attended high school in Japan and stayed in the country to earn an Electrical Engineering degree from Kyushyu University. Then in 1968 he moved to the United States for his postgraduate studies, earning a master's degree in electrical engineering from the University of Rochester, followed by a master's in management science from the Massachusetts Institute of Technology's Sloan School of Management. Huang returned to Japan to take a job with chipmaker Advanced Micro Devices, eventually becoming an international sales manager. There he learned a great deal about Japanese management styles, attention to detail, and frugality. He applied these lessons when he returned to California and struck out on his own in 1980 to launch Compac Microelectronics, Inc., later to take the Synnex name.

Compac started out exporting computer parts into Asian markets, but soon Huang became fearful of instability in the region and around 1983 focused the company on domestic markets, particularly the West Coast. Overall, the company fared well but after several years, when annual sales reached around $40 million, it hit a ceiling. Huang told Silicon Valley/San Jose Business Journal in a 2004 profile, "I felt we were stretching cash." As a result he sold control of the company and stayed on to run it. Compac enjoyed solid growth over the next few years, expanding from its West Coast base, where it maintained distribution centers in Fremont and Anaheim, California, and Redmond, Washington, to include operations in Addison, Illinois; West Caldwell, New Jersey; and Norcross, Georgia. When Compac's owner began to have financial problems, Huang was able to find a new backer in the form of Taiwan-based MiTAC International, which acquired majority control of the company in 1992.

Adoption of Synnex Name: 1994

MiTAC now provided Compac with computer cases, power supplies, and motherboards, and used its purchasing power to allow Compac to buy other components, like hard drives, at cheaper prices. The MiTAC connection was important in transitioning Compac from a mere "high volume, box-pushing distributor of mass-storage products," in the words of Computer Reseller News, to a value-added business orientation. "They actually brought us manufacturing," Huang told Silicon Valley/San Jose Business Journal. "Combined with our logistic expertise, we went to AT&T and got our manufacturing contract. The model worked so well, we were able to sell to Compaq. Before long we were manufacturing 10,000 (PCs) a day." The ability to now manufacture PCs also brought the company into conflict with one of its suppliers, Compaq Computer Corporation. In 1993 Compac announced a plan to manufacture a line of Compac-branded PCs, leading Houston-based Compaq to sue over trademark infringement. Compac filed a counterclaim, maintaining that it had prior rights to the name. The two parties soon reached a settlement, since it was in the best interest of both to prevent customer confusion. Thus, in early 1994 Compac Microelectronics took the name Synnex Information Technologies Inc. Pronounced "sin-nuks," the name was the fusion of "synergy" and "nexus," which Huang viewed as core components of the company's success. According to Silicon Valley/San Jose Business Journal, "Outsiders familiar with the company note it's one of the prospering survivors in one of the lowest-margin parts of high-tech, with profits akin to supermarkets. The key to success, they say, is to keep products moving and not sitting in inventory, watching all expenses and building a close-knit team." Another important factor in the company's success was its ability to limit the number of vendors it carried to around 40.

With MiTAC's backing, Synnex was able to grow internally as well as through strategic acquisitions during the 1990s. In 1993 it acquired some assets, including eight Novell-authorized training centers, from Microware Distributor Inc. that made it a top Novell-authorized distributor and spurred its growing VAR business. The company also added Microware's contract to distribute very important networking lines of Intel Corporation and Standard Microsystems Corp. Synnex was further strengthened when its parent company added its U.S. operation to the mix, so that the company now began assembling Mitak's PCs and Mitak-branded mass storage products. In early 1994 the company, which was already strong on the East and West Coasts, opened a seventh distribution center, located near Houston, Texas, which helped to fill in coverage in the middle of the country. Later in the year Synnex bolstered its mass-storage line by signing distribution agreements with a number of important manufacturers, including Western Digital Corp., which had many loyal customers; Exabyte Corp., to serve the high-end LAN and Unix markets; and Fujitsu Computer Products of America, an aspiring player in the high capacity market. Also in 1994, Compac launched a Technical Products division to take advantage of its Novell alliance and further position itself as a distributor of higher-end networking products. As a result of these moves, Compac went from an obscure, regional distributor to one of the top ten in the country and revenues began to increase at a rapid clip. Sales totaled $140 million in 1993 and improved to about $250 million in 1994. Synnex landed its first manufacturing contract with a major tier-one computer company in 1995 and revenues ballooned to $730 million.

To help drive the company to the $1 billion annual sales level in 1996, Synnex reached distribution agreements on a number of product lines, including U.S. Robotics Mobile Communications Corp.'s Megahrtz line of mobile modems complementing the Sportster line, already top sellers for Synnex; Motorola's full line of SURFR modems; Intel networking products; multimedia solutions by Creative Labs; and Iomega Corporation's removable storage drives. According to Computer Reseller News, $1 billion was a magic number because distributors believed that "vendors' perception of them changes for the better. Big-name manufacturers, such as Compaq or Hewlett-Packard Co., may not even look at smaller wholesalers as potential partners, but distributors believe that reaching the $1 billion level proves to vendors that they can handle large volumes for a wide customer base." It was an even more important milestone for a company like Synnex, more of a specialized distributor, focused on mass storage and networking products.

Synnex grew by external means in 1997 with the acquisition of Merisel FAB Inc., a subsidiary of Merisel, Inc. that included the ComputerLand chain of nearly 200 franchised operations providing computer products and services to business clients, and the Datago aggregation business comprised of 500 affiliated resellers. In one stroke, Synnex jumped over the $2 billion sales mark and set the stage for ongoing growth, as the Merisel FAB acquisition paved the way for the company to begin distributing top-tier PC lines from IBM and Hewlett-Packard on a channel assembly basis. A channel assembly program allowed a distributor to make PCs bearing the logo and warranty of the manufacturer to fill orders on a more timely, thus cost-effective, basis. In 1998 Synnex launched certified channel assembly programs for both IBM and Hewlett-Packard to assemble PCs. In 1999 Synnex was ranked as Hewlett-Packard's top channel partner.

Synnex expanded into a new area in 1999 with the formation of a computer-telephony division to offer call center, unified messaging, and IP-based solutions. A year later Synnex created a subsidiary, ecLand.com, to help smaller resellers create customized web sites where customers could buy from them online and have access to more than 100,000 products and services available in a virtual warehouse. A companion business, eManage.com, was created to run the customer's web site. Also in 2000 Synnex opened a sales office in Beijing, China, and acquired MiTAC U.K. to gain a contract assembly plant in the United Kingdom. Synnex was flying high, on its way to recording more than $3.8 billion in sales in 2000 and taking steps to make an initial public offering (IPO) of stock. But then the Internet bubble burst and the high-tech market collapsed, forcing the postponement of the IPO.

Company Perspectives:

The company has built a solid reputation as an outsourcing partner, providing customized, fully integrated computing solutions to its customers.

Synnex's discipline and ability to survive on razor-thin margins helped the company to weather the downturn in the economy. Sales dipped to $3.2 billion in 2001 and net income dropped by a third, but Synnex remained profitable, posting $25.8 million in net income for the year. Unlike some competitors, Synnex was healthy enough to take advantage of conditions to make strategic acquisitions. In 2001 it acquired Merisel Canada Inc. for $20 million. In that same year the company also added five new distribution centers in the United States, and was named IBM's number one domestic distributor, as well as Hewlett-Packard's number one growth distributor of the year.

In 2002 Synnex completed additional purchases. It acquired distribution and sales assets from Novitech S.A. de C.V. and launched a Mexico operation. It also added to its web business with the $3.3 million acquisition of License Online, Inc., which provided web-based software licensing technology. Synnex added software to the business mix through the $44.5 million acquisition of Gates/Arrow Distributing from Arrow Electronics, Inc. Software allowed Synnex to tap into a different customer base. It was already distributing software in Canada, but the Gates acquisition opened up the Quebec marketplace for the Canadian operation. During 2002 Synnex was active in signing distribution agreements with other major vendors, such as Abit, Creative Labs, Intel, Seagate, and Storcase. In addition, the Hewlett-Packard and Compaq merger opened up the way for Synnex to expand its channel assembly program to include Compaq's Access Business Group line of desktops, notebooks, and handheld devices. Previously Synnex was relegated to distributing Compaq products on an indirect basis. Sales rebounded in 2002, totaling nearly $3.8 billion and net income improved to $28 million, but another attempt to take the company public was scrapped in 2002.

Taken Public in 2003

Synnex had now emerged as the number three broadline distributor, albeit a distant third, trailing Ingram Micro Inc. with $22.5 billion in sales and Tech Data Corporation with $15.7 billion. In 2003 Synnex was finally able to complete its IPO. In preparation the company was reincorporated in Delaware in October 2003 and changed its name to Synnex Corporation. The offering was conducted in November 2003, with the company netting almost $49 million in what was considered a lukewarm reception from investors. Nevertheless, Synnex continue to post strong results, recording nearly $4.2 billion in sales in 2003, the surge continuing in 2004, when the company completed a pair of acquisitions. Greenville, South Carolina-based BSA Sales was acquired for $4.5 million, adding outsourced sales and marketing services to manufacturers and solution providers. Both Ingram Micro and Tech Data offered such services, but rather than start an operation from scratch, Synnex concluded that it was better to buy into the field. Also in 2004, Synnex acquired a Canadian niche distributor, EMJ Data Systems, which had competed with Synnex Canada in some product lines. The addition of EMJ not only eliminated some competition in Canada, it also provided the U.S. operation with EMJ's expertise in bar code, point-of-sale, and autoID Technology. To some observers, the deal was a harbinger of things to come: broadbase distributors such as Synnex gaining value-adding capabilities by picking up niche distributors, with both hopefully able to play off each other's strengths. One of those new markets Synnex was interested in entering was enterprise storage products. The first step was taken in January 2005 when Hewlett-Packard authorized Synnex to sell its enterprise storage products.

With more than $5.3 billion in sales in 2004, Synnex was well positioned to continue enjoying long-term growth, especially in light of a resurgence in high-tech spending by U.S. companies after a prolonged slump. Huang, now 60 years old, was also grooming a successor, hiring John Paget, a former General Electric Commercial Finance executive, to take over as president and chief operating officer. Paget took advantage of his ties to GE to arrange a program to work with resellers to offer financing to end users. Synnex could be expected to add other types of services to broaden its core distribution business in the years to come.