‘I think the refresh cycle for general compute, server and PC is not over. So that’s a tailwind. The need for AI functionalities is increasing for both PCs and servers. In particular, enterprises are starting to build their AI factories to run their agents. I think that this is a clear tailwind. So you have a lot of positives in the market,’ TD Synnex CEO Patrick Zammit tells CRN.
[Related: TD Synnex CEO On Hyve Momentum As AI-Linked Data Center Demand Accelerates]
The good news cheered investors, who during the day pushed TD Synnex’s share prices up by over 5 percent to $168.71 per share.
TD Synnex CEO Patrick Zammit told CRN that he expects the rest of 2026 to be a good year financially despite potential headwinds.
“There will be a big question mark on three categories: PCs, servers and storage,” Zammit said. “I think the refresh cycle for general compute, server and PC is not over. So that’s a tailwind. The need for AI functionalities is increasing for both PCs and servers. In particular, enterprises are starting to build their AI factories to run their agents. I think that this is a clear tailwind. So you have a lot of positives in the market.”
TD Synnex also broke out the financials of its Hyve hyperscaler data center business for the first time, a move Zammit said was necessary because the business has grown to the point where it needed reporting for compliance purposes.
“I think it’s a good thing for investors because they now have better visibility on how our results are being formed,” he said. “Before, everything was a little bit blurred. Now it’s very clear. What is the contribution of distribution? What is the contribution of Hyve?”
Here is more of CRN’s conversation with Zammit.
TD Synnex reported record revenue for the quarter. How much of that record revenue comes from inflation as opposed to increased sales?
If you look at [the growth of our] distribution [business], 4 percent growth comes from currency, 1 percent comes from ASP [average selling price] increases, and 1 percent from pull-forwards. And why only 1 percent from ASP when everybody’s talking about price increases of 15 or 20 or 25 or even 40 percent? So we entered Q1 with a large inventory. If you recall when we talked about Q4 results, I told you that we had anticipated memory price or the component price increases, and we built a good inventory. What we’ve done, and I see this as a value we need to bring to the market, we basically helped our resellers navigate brutal price increases. Basically, we have postponed, so to say, the impact on the channel and the end users. Obviously, we cannot do it indefinitely, but we managed to do it for Q1. I think that’s an important factor to mention because I think the role of a distributor is to help our resellers when facing volatile moments like this.
But you don’t expect only a 1 percent contribution from inflation in Q2, right?
Q2 is a different story. We gave guidance, and I will stick to the guidance. But I believe that the ASP increase impact will increase because when you look at the backlog, we are starting to see some significant price increases. The good news for our resellers is that vendors during Q1 have been very transparent about it. And last quarter, we also talked about quote validity, which has been dramatically reduced. That means for our customers, the ability to take quote validity into account when they quote the end user has been in place, and so it should be less of an issue for resellers. But yes, in Q2 I’m expecting to see the impact of ASP increases.
How has the channel accepted the shorter quote validity issue? Is there any pushback?
There’s nothing you can do. You have to deal with it. What is important is that the channel very rapidly gets visibility on what’s happening, which is what we offered. We immediately briefed our resellers on the changes so they could take it into account when they quote their end users. I think our resellers have updated the end users, and end users are very clear about what the market conditions are today and what they should expect in terms of pricing. We still have a few vendors who reserve the right to increase the price at shipment. So that’s still in place. So the situation will continue to be tense. And the reason for that is not because the vendors are greedy. It’s simply that their visibility in terms of the memory vendors is very limited. But I would say today, I think in one quarter, we’ve provided the visibility to the market, to resellers, to the end users, so everybody is now working with those new conditions in mind.
Has there been any progress on the shortage front?
For the moment, I’m not aware of major delivery or shortage issues for our customers. … The price increase is real. The shortages, again, I’ve not heard of big issues for the moment. If you look at our results in Q1, we didn’t have many issues. For Q2, we’ll see.
This is the first fiscal quarter that TD Synnex broke out its Hyve finances separately. Why did TD Synnex feel the need to break out Hyve separately?
It’s a compliance issue. The way I’m managing the business is, distribution has four regions, and each region enjoys a high level of autonomy. And on top of it, when you look at Hyve’s value prop and operating model, it’s different than distribution. The Hyve business has a material impact on our overall results. Because of this, we have to report the business unit separately. Basically, when I took over, I reorganized my team, and one year later, because of my governance model, we were obliged to report it separately. By the way, I think it’s a good thing for investors because they now have better visibility on how our results are being formed. Before, everything was a little bit blurred. Now it’s very clear. What is the contribution of distribution? What is the contribution of Hyve? Both businesses have got their specific competitors, and so it facilitates benchmarks. So I think it’s a win for everybody. But compliance was the first reason.
Who are the biggest competitors of Hyve?
Flextronics [Flex], Jabil, Celestica, Sanmina. In Taiwan there’s Foxconn and the Taiwanese ODMs.
For IT distribution in general, how is the rest of 2026 looking?
You have some headwinds … [including] the Middle East war and how that will impact demand. The second one is, obviously, ASP increases versus volume. Are we going to see a big drop in volume because of the ASP increase? That, again, is a question mark. As you know, we are active in B2B, and I continue to believe that elasticity will be much lower in B2B than it will be on the consumer side. Those are the two main headwinds I can see.
On the other hand, there are lots of tailwinds. ASP increases will be a tailwind. Security, cloud and software will continue to perform well. Networking is back. Networking is not so much impacted by price increases. Again, the demand is back. There is a refresh of equipment. So again, I think it’s going to be a tailwind for next year. There will be a big question mark on three categories: PCs, servers and storage. I think the refresh cycle for general compute, server and PC is not over. So that’s a tailwind. The need for AI functionalities is increasing for both PCs and servers. In particular, enterprises are starting to build their AI factories to run their agents. I think that this is a clear tailwind. So you have a lot of positives in the market.
Which will prevail? I would say in the first half, for sure, the tailwinds are clearly overtaking the headwinds. And in the second half, it all depends on the impact of the war in the Middle East. If it stops rapidly, I think the overall impact will be relatively limited. And then we have to wait to see the elasticity of the ASP increases’ impact on volumes. So let’s say, if the tailwinds overtake the headwinds, I think we will have a decent year. And at least the first half should be very healthy. The second half, let’s put it this way, I’m cautiously optimistic for the reasons I mentioned.
Did I hear you correctly that ASPs are both a headwind and a tailwind?
It’s a tailwind because basically, when you sell a PC and prices have increased 20 percent, you will do 20 percent more sales in dollar terms. At the same time, it’s a headwind because if prices increase 20 percent but volumes decrease 30 percent, you will have a decline. And this is what we need to figure out. What will be the elasticity? Are we going to see a dramatic drop in volume because of the ASP increase or not? And that’s the reason I mentioned all the tailwinds because I think they could soften the potential impact of ASP increases on demand.
Finally, you just said that networking seems to be coming back. The U.S. government just recently moved to ban sales of foreign-made networking routers for fears of security threats. What are you seeing in terms of the potential impact on the channel and distribution from that?
We don’t sell those types of network equipment, so the impact is very limited. It’s immaterial. I mean, the majority of our networking business comes from the Ciscos and HPEs of this world. So I would say, thanks to a very diversified portfolio, we should not be penalized, and maybe we’ll even have an advantage because of the quality and the profile of our portfolio.
