SEC Filing Summary: SYNNEX Corporation (Form 10-K)
Business Context and Reporting Period
Company: SYNNEX Corporation (formerly Synnex Corporation)
Reporting Period: Fiscal year ended November 30, 2009
Business Overview: SYNNEX is a Fortune 500 business process services company operating in two primary segments: Distribution Services and Global Business Services (GBS). The company distributes IT products, provides contract assembly, and offers business process outsourcing (BPO) services to resellers, retailers, and OEMs. Approximately 98% of revenue is generated in North America.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 | Fiscal 2007 |
|---|---|---|---|
| Revenue | $7,719.2 million | $7,736.7 million | $6,986.7 million |
| Gross Profit | $423.0 million | $413.9 million | $346.4 million |
| Gross Margin | 5.48% | 5.35% | 4.96% |
| Net Income | $92.1 million | $83.8 million | $63.1 million |
| Diluted EPS | $2.70 | $2.52 | $1.93 |
| Operating Cash Flow | $262.0 million | $52.6 million | ($152.5 million) |
| Total Debt (Short & Long Term) | $160.2 million | $349.0 million | N/A |
| Working Capital | $762.7 million | $590.6 million | $419.7 million |
Material Changes vs. Prior Period
- Revenue Stability: Total revenue remained relatively flat (-0.2%) compared to 2008, despite a 10-15% decline in overall channel volumes due to the economic recession. This stability was driven by market share gains and the full-year impact of the New Age Electronics acquisition, offset by foreign exchange headwinds in Canada.
- Profitability Improvement: Net income increased 10% to $92.1 million. Gross margin expanded to 5.48% (up 13 basis points) due to product mix changes, expansion of higher-margin GBS services, and improved freight management.
- Debt Reduction: Total borrowings decreased significantly from $349.0 million in 2008 to $160.2 million in 2009, primarily due to the repayment of the Mexico term loan and reduced utilization of credit facilities.
- Discontinued Operations: The company sold its controlling interest in HiChina Web Solutions (a GBS segment asset) to Alibaba.com for approximately $60 million in December 2009. Results for this unit are reported as discontinued operations.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted the resilience of the business model during the recession, citing the ability to maintain margins through cost control and the strategic shift toward higher-margin GBS services. The company expects continued seasonality with higher sales in the fourth fiscal quarter.
Key Risks and Contingencies:
- Supplier Concentration: Hewlett-Packard (HP) accounted for 36% of total revenue in 2009. The distribution agreement with HP is short-term and terminable with notice.
- Related Party Dependence: MiTAC International Corporation owns approximately 34% of SYNNEX stock and is a critical partner for contract assembly services (specifically for Sun Microsystems). Pricing and terms are negotiated on a case-by-case basis without long-term commitments.
- Inventory Risk: The IT industry faces rapid technological changes and price declines, creating risks of inventory obsolescence. The company relies on limited price protection from OEMs.
- Liquidity: The business is capital-intensive, relying heavily on accounts receivable securitization and floor plan financing. A downgrade of credit ratings could increase borrowing costs or restrict capacity.
Investor Verification Checklist
- HP Agreement Status: Verify the current status and renewal terms of the U.S. Business Development Partner Agreement with HP, which governs 36% of revenue.
- MiTAC Relationship: Assess the stability of the informal supply chain relationship with MiTAC International and the potential impact of MiTAC's decreasing ownership stake on future cooperation.
- HiChina Sale Proceeds: Confirm the receipt of the $60 million sale proceeds from HiChina Web Solutions and the status of the 10% holdback.
- Debt Covenants: Review compliance with financial covenants (minimum net worth, fixed charge coverage) under the U.S. securitization and revolving credit facilities.
- Inventory Valuation: Examine inventory reserves and write-downs given the economic downturn and rapid product life cycles in the IT sector.