新聚思 (SNX) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

My name is Gerald and I will be your conference operator.

At this time, I would like to welcome everyone to SYNNEX Corporation's fiscal 2010 third-quarter earnings call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

Thank you, I would now like to turn the conference over to Ms.

Lori Barker, Senior Director of Investor Relations.

Ma'am, you may begin.

Thank you, Gerald, good afternoon and welcome to the SYNNEX Corporation fiscal 2010 third-quarter earnings conference call for the period ending August 31, 2010.

Joining us on today's call are Kevin Murai, President and Chief Executive Officer; Dennis Polk, Chief Operating Officer; Thomas Alsborg, Chief Financial Officer; and Chris Caldwell, Senior Vice President of Global Business Services.

Before we begin, I would like to note that the statements on today's call which are not historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

These forward-looking statements include but are not limited to statements regarding our strategy including growth and profitability, expectations of our revenue, net income and diluted earnings per share for the fourth quarter of fiscal 2010, our performance, benefits of our business alliances, general economic recovery, the impact of our recent dispositions and acquisitions, benefits of our business model, IT demand expectations and market conditions, our expectations for our profitability, operating expenses and effective tax rate, anticipated impact of net revenue accounting, and our new director's anticipated contributions to our Company.

These are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements.

Please refer to today's press release and documents filed with the Securities and Exchange Commission, specifically our most recent Form 10-Q, for information on risk factors that could cause actual results to differ materially from those discussed in these forward-looking statements.

Additionally this conference call is the property of SYNNEX Corp.

and may not be recorded or rebroadcast without specific written permission from the Company.

Now I would like to turn the call over to Thomas Alsborg for an update on our financial performance.

Tom?

Thank you, Lori.

Good afternoon, everyone.

Thank you for joining our call today.

Before we get started on the financial results, I would like to welcome Lori Barker as our new Senior Director of Investor Relations.

Some of you may know Lori from her past 15 years in IR at SanDisk, Remedy Software and Symantec.

She's hit the ground running with this quarterly earning release and we're looking forward to introducing her to each of you in the coming weeks.

You'll find Lori's contact information on today's press release.

Now onto our operating and financial results for our fiscal third quarter 2010.

I'll begin by summarizing our results of operations for the quarter with our key financial metrics and then I will provide guidance for our fiscal fourth quarter.

In our third quarter, total consolidated revenues were $2.18 billion, up 7.1% sequentially compared to the year ago quarter.

This represents a 9% increase in revenue, an impressive achievement especially when one considers that the Q3 2010 includes net revenue accounting of $95.7 million for certain service and extended warranty contracts.

As a reminder, this revenue accounting treatment was introduced and discussed at length during our first quarter 2010 earnings call.

Just for comparative purposes on an apples-to-apples gross revenue basis with the prior year same quarter, our year-over-year revenue increase would have been 13.7% before the netting of the $95.7 million in sales.

In our global business services segment, or GBS, the new wins ramp-up that we told you about in previous quarters is growing as planned and the GBS revenue growth rate accelerated to 12% sequentially for an impressive 21.9% year over year, well above industry growth rates.

Our third-quarter net income from continuing operations net of tax was a record $30.9 million or $0.86 per diluted share.

This compares to $21.5 million or $0.62 per diluted share in Q3 2009 and $24.8 million or $0.70 per diluted share sequentially.

ROIC was 11.1%, up from 8.9% in the prior year third quarter, extending our virtual string of year-over-year quarterly growth in ROIC to 12 quarters.

In our third quarter, our consolidated gross margin was 5.74% compared to 5.30% in the same quarter of 2009 and flat sequentially.

Once again, gross margins in the core distribution business were strong, driven by good pricing discipline and continued traction in our growth initiatives.

Compared to Q3 2009, we had a favorable mix change towards our value add products and services such as our enterprise server and storage and networking to name a few.

In addition, the switch to net revenue accounting in 2010 had a positive year-over-year impact on gross margin of about 24 basis points.

The business segment mix impact of the 21.9% year-over-year growth in GSB revenue also contributed to our strong gross margin performance.

Third-quarter total selling, general and administrative expense was $72.7 million or 3.34% of revenues compared to $67.8 million or 3.39% in the third quarter of fiscal 2009 and $73.2 million or 3.60% sequentially.

We believe SYNNEX SG&A margin reflects our industry-leading position for lowest cost operating model and is one of the key enablers to our increasingly superior operating margins.

Q3 2010 was marked by particularly good SG&A leverage and continued discipline in cost management.

Going forward, we expect to continue to achieve good SG&A cost leverage even as we continue to make further investments in our growth initiatives in both our business segments.

Operating income from continuing operations before non-operating items, income taxes and non-controlling interests once again grew and this quarter we achieved a record $52.2 million or 2.40% of revenues compared to $38.2 million or 1.91% in the prior year quarter and $43.4 million or 2.14% of revenues in the fiscal second quarter 2010.

Net total interest expense and finance charges for the third quarter 2010 were $4.6 million, a slight increase from the prior year quarter.

As I mentioned last quarter, we are winding down the financing of a large contract in Mexico and all else equal, you should expect to see some of this reflected in a slightly higher net interest expense moving forward.

The effective tax rate for the third quarter of fiscal 2010 was 34.5% compared to 37.0% in the second quarter of 2010.

This resulted in about a $0.035 favorable impact to diluted earnings per share this quarter.

The decrease in the effective tax rate for the quarter was primarily due to the benefit from a release of certain federal tax reserves due to the conclusion of IRS tax audits for the years 2004 and 2005 and the expiration of the statute of limitation for the previous year.

We anticipate a full-year 2010 effective tax rate to be in the range of 35.7 to 36.3%.

Turning to the balance sheet, our accounts receivable totaled $814 million at August 31, 2010, up from $733 million in the second quarter of 2010.

DSO of 39 days was comparable to Q2 DSO of 38 days.

Inventory totaled $794 million at the end of the third quarter compared to $792 million at the end of the second quarter 2010, translating to 35 days of inventory supplied which is down three days from the Q2 DIO of 38 days.

Days payable outstanding was 32 days compared to 34 days in Q2 and hence our overall cash conversion cycle for the third quarter was 42 days consistent with the prior quarter.

Our debt to capitalization ratio remains low at 26%.

Our liquidity and access to cash remains excellent.

At the end of Q3, the Company had over $425 million available between cash and working capital lines.

Other financial data and metrics of note for the third quarter are as follows.

Depreciation expense was $2.8 million, amortization expense was $1.3 million.

Hewlett-Packard at approximately 30% of our revenue was the only vendor accounting for more than 10% of sales.

Capital expenditures were $2.4 million.

Preliminary cumulative year-to-date cash flows used in operations was approximately $33 million.

Now moving to the fourth quarter 2010 expectations.

For Q4 2010 as a reminder, our revenue will be affected by two major types of items.

First is the net change in net revenue accounting in 2010.

Consistent with our prior three quarters, our reporting of net revenue accounting for certain services and extended warranty contracts could reduce sales by about $110 million to $120 million compared to gross revenue reporting which is an approximate 4.5 to 5% downward adjustment to comparable year-over-year revenue.

Second is the net impact of recent business changes.

As noted in prior quarters, we do have a few puts and takes affecting our forward revenue guidance, each of which will have some impact on our year-over-year revenue comparison.

The two most notable items are the sale of our legacy platform manufacturing business that occurred in July and the acquisition of the Jack of All Games which occurred in February.

We think it is noteworthy for our investors to know that by and large from a topline perspective, these changes are expected to offset each other and the net impact on a year-over-year basis is negligible.

So with that said, and taking into consideration the current stability of the demand environment and normal seasonal trend expectations for the balance of our business, our Q4 2010 year-over-year reported revenue growth which would normally have been up in the high single to low double-digit range with the net range now with the net revenue reporting is currently expected to be up about 5 to 9% year over year or in the range of $2.30 billion to $2.40 billion in revenue.

This represents a sequential increase of approximately 6 to 10% over Q3 2010, again keeping in mind that both Q3 2010 and our Q4 guidance are based on the same net revenue reporting.

Turning now to income and EPS.

Our forecast for net income is expected to be in the range of $34.0 million to $35.0 million and diluted earnings per share is anticipated to be in the range of $0.94 to $0.97 per share.

The calculation of diluted earnings per share for the second -- for this quarter is based on a diluted average weighted average common share of 36.2 million shares.

As a reminder, all of these statements are forward-looking and actual results may differ materially.

I will now turn the call over to Kevin Muari for his perspective on the business and the quarterly results.

Kevin?

Thank you, Thomas.

Good afternoon, everyone, and thank you for joining our call today.

Before I begin my comments, I would also like to welcome Lori to the SYNNEX team as our Senior Director of Investor Relations.

I would also like to welcome another member to the SYNNEX team.

You may have seen a separate press release today in which we announced that Andrea Zulberti has been elected to the SYNNEX Board of Directors.

The appointment of Ms.

Zulberti as a new independent director and financial expert to our Board, bringing the total number of independent directors to six and the total Board membership to eight.

In addition to joining the SYNNEX Board, Andrea has been appointed to the Company's Audit and Compensation Committees.

Andrea's risk management background combined with her global leadership experience will provide a valuable perspective to SYNNEX's already strong and diverse Board.

And now onto the results for the quarter.

I'm pleased by our continued strong sales growth and even more pleased with our operating income, margin expansion and profitability results.

We set new records for operating income from continuing operations and net income from continuing operations.

And once again, we extended our streak of year-over-year quarterly ROIC growth now at 12 quarters.

SYNNEX's third-quarter results once again demonstrate that our hybrid distribution model including our unique go-to-market vertical and technology strategy together with our GBS business process outsourcing segment drives superior market penetration, high partner satisfaction and leading industry operating and financial performance.

In the third quarter, the US IT market exhibited better than expected demand and we experienced good growth across the breadth of our product lines and services.

We continued to add new vendors, we continued to achieve good performance from the Jack of All Games acquisition and we drove excellent growth with our SMB VARs, direct market resellers and consumer electronics retailers.

And importantly, we achieved robust growth in our specialized technology solutions division such as enterprise server and storage, unified communications and wide format print.

Like the US, signs of Canada's pending economic recovery have been mixed with Canada reporting slowing GDP growth but improving unemployment numbers.

Nevertheless, our sales growth in Canada continued to increase and we outperformed the overall market as we continued to increase our market share.

From an end market standpoint, IT demand remains solid with relatively normal demand trends throughout the entire quarter for both the US and Canada.

Now turning to our global business services segment, as Thomas noted, we grew sales very nicely this quarter at almost 22%.

The team has done an exceptional job in driving growth through recent wins, both with existing clients and the ramping of new clients.

Our growth is even more impressive given that the BPO market has been slow to recover from the recession.

GBS operating income from continuing operations was up 25% year over year and GBS ROIC continues to achieve our double-digit target which exceeds our corporate average.

SYNNEX will continue to invest in this segment and seek more opportunities to leverage our relationships with our partners on both the distribution and GBS sides of our business.

So summarizing the results of our third quarter, we posted yet another excellent quarter of record-setting profitability and industry-leading margins.

We have established a solid business growth strategy for both our distribution and GBS businesses and are making good progress towards our strategic goals.

We continue to feel very confident about our future.

So now as we've almost completed the first month of our fourth quarter, we're seeing continued strength and stability in IT demand.

We expect that we will continue to build on the success we've achieved so far in our key growth areas as well as continue the momentum we created in our GBS business.

Thomas mentioned a number of items to remember when looking at our sales forecasts.

However, the punchline is that we expect to perform better than the overall market and grow our business well over 10% sequentially on an apples-to-apples basis.

We expect to deliver excellent operating profit through operating leverage and traction in our key growth initiatives.

Since late last year, we've seen positive year on year growth in the US market.

This was driven by pent-up demand in the SMB and enterprise markets.

The stability and growth has since continued and we believe the economic recovery will remain relatively stable.

In Canada, we started to see positive growth around midsummer as the Canadian IT market seems to be trailing the US by a number of months.

Overall, we are optimistic about the future market environment as there are a number of trends that we believe will continue to stimulate growth in IT and consumer electronics products.

As the unemployment rates are expected to be high for the next couple of years, the need for productivity improvement through better IT will likely continue to drive refresh and consolidation.

Solution space segments that we invested in over the past two years such as healthcare, unified communications and [Pro AV] provided growth during the recession but are really taking off now as the economy improves.

Mobility continues to evolve and with the anticipated launch of Android-based tablets, we believe that any cannibalization of netbooks will be offset with tablet sales especially with the focus SYNNEX has on the consumer market.

We expect the holiday season this year to be better than last year and we expect to capture incremental growth with our acquisition of Jack of All Games.

In addition to our more visible investments in growth such as Jack of All Games, we've also been investing in people.

Over the past nine months, we've hired a number of people in sales, product management and business development that are focused on growing our share of wallet with existing customers and on-boarding new businesses in our technical solutions segment.

Next week we will be hosting our annual national sales conference in Greenville, South Carolina.

We're projecting record attendance from both our customer and vendor partners which we believe to be a strong vote of confidence in their partnership with SYNNEX.

So in closing, I would like to thank the entire SYNNEX team for once again delivering another outstanding quarter and also thank our customers and our partners for their continued support of SYNNEX.

So, Lori, let's now turn the call back to the operator for questions.

Thank you Kevin.

Gerald, we would now like to open up the lines for any questions.

Craig Hettenbach, Goldman Sachs.

Kevin, can you talk about the GBS pipeline of business for the next six to 12 months and then also your efforts in the enterprise space and any changes to the line card there?

Sure, as we talked about, since the beginning of the year, we have had actually a record number of pilot programs that we have been on-boarding with new GBS clients, new opportunities.

But probably to add a bit more color on that, Chris Caldwell is here.

He's better positioned to do that.

So from a pipeline perspective, what we are starting to see is a number of our customers bringing products to market as the economy heats up.

And we generally see a four to six month lag time from those products hitting to when you start to see growth in our business.

So, from a growth perspective, the numbers we see now are sustainable as we continue to go into the next year.

Okay and then on the enterprise side, Kevin?

Well pipeline across the board on the IT side of the business is very strong, in particular through -- since the beginning of the year both on the enterprise side and on the other what I would call other commercial side of the business.

It's been very, very good.

But that has been building in particular over the past few months.

Enterprise for us of course is probably a much stronger segment than the underlying the market which itself is strong too because of the focus that we have in particular focusing on the HP enterprise server and storage areas.

So that pipeline for us continues to be very, very strong, a lot of it driven by continued consolidation and virtualization.

But we are optimistic on what we see there, Craig.

Okay and then just a follow-up.

You commented that you expect normal seasonal trends.

Can you just comment on the pricing environment, how it was in the quarter and then expectations since the current quarter?

Yes, nothing to write home about on the pricing environment.

It's been relatively stable.

We expect that that will likely continue through the current quarter as well.

Okay.

Thank you.

Brian Alexander, Raymond James.

Thanks and nice quarter, guys.

Your sales and your gross profits were up about 7% sequentially but your OpEx was down about 1%.

I know you had about $1 million or so of integration costs for Jack in your Q2 OpEx.

But adjusting for that, your expenses were still basically flat on pretty good growth.

Can you just talk about whether there were any other factors we should consider that led to this performance whether it be bad debt accruals or just other unusual items?

I'm just trying to get a sense for whether this is the right OpEx to model off of going forward.

The first thing I would comment on is with the sale of the manufacturing platform business, there was a wholesale reduction and some of our SG&A expense, that will be long term.

So that's another important factor.

And that's I would say on a net net basis probably the factor.

There are in every quarter going to be puts and takes between things like bad debt expense, compensation expense and so forth.

And our bad debt this quarter happened to be a little bit lower.

We had a little bit higher compensation expense related to some of the variable costs associated with revenue as well as some stock expense.

And so those tended to generally speaking net each other out.

And so I think that the rate we are at this quarter overall I think is representative of the leverage that we can get out of this business for this level of sales.

Okay and then just looking at your guidance for Q4, it looks like the implied operating margin is 2.5% and that's great performance versus where you've been historically.

But if I look at it sequentially, it's up about 10 basis points versus Q3 and I think the prior three years operating margins have tended to go up by about 30 basis points sequentially.

And I would've thought the leverage would be even more pronounced now that you have Jack of All Games and they've got pretty big seasonality in Q4.

So what am I missing here that's driving kind of a more muted margin expansion in the fourth quarter as per your guidance?

Is it the consumer guidance business that's weaker than you expect or is it something else?

No, I would comment that the consumer business is pretty much tracking to our expectation and without getting into very specifics, one of the other things we've mentioned in our prepared remarks was that we continue to make investments in our businesses both in the GBS side and on the distribution side of our business.

We will continue to be doing that in Q4 as well.

And so our guidance allows for some of that.

Other than that, I would not tell you that there's anything structurally changing about our business.

Okay and then just final clarification, Chris, I think you mentioned the growth in GBS is sustainable given the pipeline and the lag time from new product launches.

So I guess if I read that literally, you expect 20% plus growth for the next few quarters, and then also what would your comment be on operating margins for GBS going forward?

So from a growth perspective, I think what we've always said is we want to grow faster than the market.

And so I wouldn't necessarily peg it at that that 20% range.

But I would say you're getting close.

That's our goal and that's what we see from the pipeline currently in front of us, provided the customers [bring some product to the market] that we're talking to them about right now.

So I think that is in line.

As far as the operating margin, we are making some investments in bringing on some new facilities and growing some additional facilities.

So what you'll tend to see is some fluctuation up and down by some percentage points in the operating margin as we bring those on and then gain leverage as we fill them up.

And you've seen that probably over the last six quarters and you will continue to probably see that going forward for the next perceivable future as well.

I would just add, as we shared at our investor day, Brian, that longer-term, we do expect to see operating margin expansion in the GBS segment as we change the mix of our business particularly towards platform offerings.

Is it fair to assume that in Q4 you would expect GBS margins to be down sequentially due to some of these investments and maybe that is driving some of the overall operating margin guidance per my previous question?

That could be a factor in Q4.

Matt Sheerin, Stifel Nicolaus.

Just a question regarding the manufacturing assembly business that you sold.

How much revenue did you recognize in the quarter before you sold it?

Could you give us a ballpark?

Matt, that business at large was running at about a $350 million to $375 million annual run rate and so if you do the math on that, I think it's about $30 million or so a month, putting aside seasonality.

We sold the business at the end of July, so roughly speaking, we're in the $60 million range.

So $60 million.

So if you look at the November quarter then, so that's about on an incremental basis, about $60 million, I guess, right?

And so I'm just trying to look at seasonality because you've got more consumer exposure than you did a year ago.

So if you add that, you're looking at sort of 10 to 12% revenue increase sequentially and that seems like it's more seasonal than your actual guidance was.

Does that make sense?

Yes, if I follow you, the fact that we do have more consumer electronics business and especially with Jack of All Games, you will expect -- you should expect to see heightened seasonality in our Q4 period particularly and slightly in Q3 as well.

Just getting at -- on the apples to apples basis, that's right.

So (inaudible) seasonality.

Okay.

Yes, so just to kind of make sure we're clear, I think that that $60 million reference point relative to Q3 is a fair reference point.

I think again as I commented in our prepared remarks that the offsetting part of that is the Jack of All Games business because (inaudible) commented before, that's a highly seasonal business that tends to do nearly half of the Company's revenue in the months of October, November and December.

You would also expect to see almost the exact same amount of increase in revenue which generally speaking offsets the manufacturing piece.

I gotcha.

Okay, great.

And then just looking at this quarter, again if you subtract out the $30 million from August, you had a very strong quarter, better than the high end of your guidance and it sounds like, Kevin, you are talking about strength across all end markets.

Was there one specific market that was better than others that drove back?

Yes, there's always going to be slight differences.

But as an end market comment, we actually grew in all segments of our business.

Some of the stronger markets I would say -- and I highlighted some of those in the prepared comments -- our traditional commercial market which is primarily SMB was stronger than average here in the US, same comment for Canada.

Our direct market segment was strong here.

Government sales overall were good, but federal government in particular was stronger, state and local being a little bit softer.

And of course with our investments and focus on the enterprise space, our enterprise customers were also much stronger.

Okay and then just on your commentary on government, so looking at September here which obviously is the big month for federal, did you see the normal federal budget flush that you normally see?

Yes, we're seeing normal federal government business right now.

Just my last question on operating margins.

As Brian pointed out (inaudible) very strong year.

You're at record margins.

Can you give us an idea of how much can you push the envelope in terms of where you would like to take the margins given the change of business mix?

Matt, we want to take it -- we want to continue taking it up and to the right.

And you know, what we're not going to do is set a target in terms of where we're going to take it to and when.

But even going back two and three years ago, we talked about our strategy, how we're focusing on diversifying the markets that we're in, focusing on enhancing the overall business with services both on the distribution side of the business, but also continuing to grow and invest in our GBS business.

And I think what we have been able to demonstrate over the past three years is that with traction in that strategy, that is working.

So we still have significant opportunity to continue to grow in these key growth areas that we have that do offer better margin opportunity for us.

So without giving you a target, it's certainly our intention to continue to grow our margin.

Got it.

Okay.

Thanks very much.

Shaw Wu, Kaufman Brothers.

Great quarter.

Just a couple of questions.

First, I just wanted to -- just a deeper dive into the revenue guidance.

You commented that basically the Jack of All Games, the seasonality is more -- pretty much I guess offsetting the sale of your contract manufacturing business.

Yet you're still guiding above consensus.

So just wanted to understand like, what's the delta there?

Is it something else?

Is it the core business or is that Jack of All Games?

That's the first question.

I'm sure that the consensus that was put together was not based on the knowledge of our Q3 numbers of course, Shaw.

So given the market has performed a little bit better than even we expected over the last quarter, our run rate heading into Q4 is greater than it used to be.

That's probably the most significant factor.

After that, I think that as I have commented that our revenue again adjusting for 4.5 to 5% net, if you add that back to the revenue forecast that we gave, it gets us into the low 11, 12% year-over-year range which I think is pretty much what investors can expect given our current mix of business and a stable demand environment.

Okay, thanks.

And then the second question is, any comments on -- I'll put the other two -- the second question is, any comments on the digital TV market?

And then the last question is just, you talked about -- you talked a little bit about seasonality.

I guess the February quarter, normally you see a double-digit decline.

I know those last couple of years have been a little strange.

I guess with Jack of All Games, could that be -- it's usually down low double digits.

Could it be down more than that sequentially?

This is for the February quarter.

Thanks.

I will address the TV question first.

I think from a consumer electronics standpoint, where we have been -- I think where we have done our homework and where we have done a really good job is partnering with the right vendors and being in the right markets.

Because our TV business is actually up significantly year on year.

As measured in units, we're up about 50%.

Understand that according to the latest NPD data that the overall market in North America was down I think around 3% in units, but the partners that we have, the areas that we play in have seen good growth.

What we're seeing is -- I guess just some commentary on what we're seeing in the TV market is the opening price point category is really where it's hot right now.

So some of the smaller formats, LCD and even plasma, certainly [720P] is where we're seeing a lot of volume.

Probably a bit of a slow adoption on the 3-D versions, but here's where I think the opportunity lies in the coming months ahead is on-boarding of some of that new technology.

But we're pretty optimistic about our TV business.

And on the question about the seasonality, it is correct that you would expect with a heightened Q4 seasonality that the declines into Q4 and Q1 would also be more pronounced than it had been previous to our entrance into the consumer electronics and so forth.

One thing I would call out to you though as you model this is as we've shared in the past, the Jack of All Games revenue is primarily affecting the October, November and December quarter, and of course a month that is October, November, December months and the December month falls into our first quarter.

So that will slightly offset that seasonal impact, at least pushing it out from Q1 to Q2.

Thanks for all the color and congrats again.

I just want to insert a comment.

A note was passed along to me that in my prepared remarks, it sounded like I said Hewlett-Packard was 30% of our revenue.

Hewlett-Packard revenue was actually 37% of our total sales.

I just wanted to be sure that's clear.

Rich Kugele, Needham & Co.

Thank you and I'll add my congratulations as well.

Two questions.

One, how has your -- obviously your comments on consumer probably are surprising to people.

How have your checks, your own checks on the business trajectory changed post Jack?

Is it a different group of customer base that you're gaining inputs now from on that side of the business?

And is the strength in the consumer or at least the expectation of a seasonal Q4, is that on the other side of the business, the organic side as well?

So just as overall comments, Rich, in terms of what we are hearing on the overall consumer market, I would kind of describe it as guarded optimism.

I think that the market in general believes that this year's buying season is probably going to be better than last year.

What we're seeing though with the product set that we have with the customers that we have and the business that we're pretty confident in being able to write in the coming months, that is a growth area for us.

So as I said before, we have done a good job on our homework and we happen to be in the right places and partnering with the right vendors.

Just lastly on the inventory side, your inventory days were down.

Does that still protect you on having enough for this type of growth?

Is this more an example of the SYNNEX business model getting its hands on the Jack inventory?

How should we interpret that?

This is Denis, I'll answer that one.

As far as having enough inventory for the upcoming season here, yes, we do believe we have an adequate supply for the busy season.

We are putting the SYNNEX metrics and ways of doing business on the Jack division, so that does help improve the metrics.

But that being said, the overall Jack business is a relatively small percentage of our total inventory.

So the overall answer is we did a very good job managing our inventory throughout the quarter and we have a good supply of inventory going forward and we expect to continue to manage it well throughout the fourth quarter and into the first quarter.

Louis Miscioscia, Collins Stewart.

HP, which you just mentioned, 37% of revenues, had a pretty upbeat analyst meeting and actually sort of lifted IT numbers or their expectation for both the end of the year and actually looking out to the future.

Just wondering if you could give some more color.

What do you think would possibly from a devil's advocate perspective derail things in IT going through the end of this year?

Is it mainly just macro if there's another big macro crisis?

And then also if you could give us some thoughts on 2011.

I know CIOs are still in the process of trying to put budgets in place.

I'm not looking for your Company guidance, just your view on IT.

Do you expect another pretty decent year since we are still way below '08 levels?

So the first part of your question, I think that the comments that we've already talked through both in prepared and questions, I guess our positive view on what we have seen through the quarter, how we're looking at our current quarter, our fourth quarter is very consistent with the tone that we have understood from coming out of HP's analyst day as well.

I think we're on the same page there.

I think we're in line there.

Honestly, when we take a look at our pipeline, when we look at some of the key things that are driving growth today, I don't see anything that can derail the stability that we're seeing right now at least in the short term.

Obviously anything that is more macroeconomic, world economic, certainly could have some impact which is outside of our control.

And again, 2011, it's hard to call because there I would factor in macroeconomic issues probably to a greater extent in terms of the impact that they could have.

But again, the trends are the same.

The trends in mobility, Android-based tablets and other devices, continued deployment of more technology and different verticals' drive for productivity, I think that there's enough going on right now that IT is going to continue to be a pretty stable market for the foreseeable future.

That's helpful and good luck on the new year.

Ananda Baruah, Brean Murray.

I apologize if this one has been asked already.

But how much of the margin expansion was purely from kind of mix of -- not within the business, but kind of the mix of the broader businesses?

And then how much was sort of just margin expansion and size of the business segments themselves?

Thanks.

This is Thomas, hello.

The biggest driver of our margin expansion is the distribution business.

The GBS business also saw nice margin expansion which was led by the revenue growth.

But I would tell you that the distribution business, the gross margin did very well driven by the mix of business within the distribution, good marketing and good volume.

And as I said before from an operating margin perspective, the SG&A that we incurred this quarter was really without event, not a lot of extra costs associated with that.

I shared some of my observations with Brian.

The deferred comp piece of our SG&A also was down slightly, offset in other income, so no real bottom-line impact to speak of.

But, GBS as you'll see when we issue our 10-Q, GBS is doing very well but the distribution business is also doing very well.

And I think the second part of your question was then mix within the distribution business itself.

So just in summarizing what Thomas said, really nothing that sticks out from a puts and takes standpoint.

It was just great execution and performance.

On the distribution side, we are actually managing these mix changes in our business.

And again as we invest in different areas of the business, continuing to optimize our broad line base of business but growing our solutions business more and more, that offers much higher profitability to us because it's a much higher value add business that we're taking to market.

So we are going continue to manage that mix and that's one of the reasons why we continue to believe that we are going to be able to expand our margins going forward.

And I guess, you said optimizing mix.

Are you guys shedding more line cards than you would sort of typically do?

Is that part of it?

And then I guess the other thing is, I guess we can sort of -- mix you can kind of get down to excruciating detail when talking about mix.

But I guess are you talking about sort of inside -- talking about mix and distribution, sounds like Jack is doing good, sounds like TVs are doing good.

But even within TVs, are you seeing the mix within the TVs help and things like that?

Thanks.

That's getting very granular but (multiple speakers) I guess taking it a half a level up, taking it a half a level up anyway, and what I mean by optimizing is kind of all-inclusive of excellent price discipline -- we said in the past that were there is bad business, we will walk away.

But because we're not as dependent on some of that high-volume, low-margin business, we take it selectively where it makes sense for us.

But we do have a significant SG&A advantage that we're able to leverage in the market as well.

But really what it comes down to is really managing the mix because we're on this path of evolution to drive more and more value add into what we do beyond just pick, pack and ship and that's really starting to gain traction and that's really the direction that we are heading, Ananda.

That's really helpful.

And I guess just last one if I could.

Kevin, you mentioned enterprise as a -- I guess as a -- sort of as a driver to some degree this quarter.

I know in the past, I think the last couple of quarters, the comments were sort of still too early for some of the new stuff you guys had put into place in enterprise to make a real difference.

Is this just -- are you now starting to see some of those things make a meaningful impact?

Or was it just kind of in the second half of the year, so enterprise generally is just getting better?

I would tell you that over the past few quarters, our enterprise business has experienced good growth.

I made comments in the past around the overall enterprise market.

Enterprise no question was affected by the recession through 2009.

But that did start to recover earlier this year.

So that's probably the comment you're referring to, Ananda.

But throughout that entire time though, our own enterprise server and storage business has grown.

I would now like to turn the conference back over to Ms.

Barker for any closing remarks.

Thank you.

This concludes our third-quarter earnings conference call.

Thanks for joining us today.

We will have a replay of this call available for two weeks beginning today around dinner time, five o'clock.

As always, should you have any follow-up questions, both Thomas and I are available to take your calls.

Thank you for your participation today.

Ladies and gentlemen, this does conclude today's SYNNEX Corporation's fiscal 2010 third-quarter earnings call.

You may now all disconnect.