Tech Data Corporation - Company Profile, Information, Business Description, History, Background Information on Tech Data Corporation

5350 Tech Data Drive
Clearwater, Florida 34620

History of Tech Data Corporation

Tech Data Corporation is one of the largest distributors of personal computer products in the United States. With an 11 percent market share, Tech Data is third largest among the nation's microcomputer wholesalers, behind Ingram Micro and Merisel. The company's customer base consists of over 50,000 value-added resellers and retail dealers located in the United States, Canada, Europe, Latin America, and the Caribbean. Its product line contains more than 18,000 different items, including computers, printers, monitors, disk drives, networking equipment, and software. Apple, Compaq, IBM, AST Research, and Toshiba are among the over 600 manufacturers and publishers whose products are distributed by Tech Data. The company also provides technical training and support to computer resellers through authorized classes and other support programs. Products are shipped from the company's ten distribution centers in Chicago, Atlanta, Dallas, Miami and other cities. No single customer accounts for more than three percent of Tech Data's sales, and no single supplier accounts for greater than a ten percent share. Steven Raymund, CEO and son of company founder Edward Raymund, owned 12.7 percent of Tech Data's stock in 1994.

When Tech Data was founded in 1974, it bore little resemblance to the industry giant the company has grown to become. The company was started by Edward Raymund to market computer supplies to large institutions in central Florida. Its customers at that time were end-users rather than resellers, primarily hospitals and government agencies. From Tech Data, these end-users purchased disk packs, tape, and other data-processing paraphernalia for use with their mainframe and mini computers.

By the early 1980s, the company had annual sales of about $2 million. Around that time, several developments both inside the company and in the computer industry as a whole led to profound changes in the way Tech Data was to do business. The emergence of personal computers (pcs) in 1980 created an exciting new market niche that was wide open for exploitation. When Raymund decided to pursue a share of the market for pc supplies, however, he met with resistance on the part of his field sales force. Raymund's plan involved the expansion of the company's telemarketing operation, and the field sales staff, which relied on large institutional customers, perceived this as a threat to their dominant position in the company.

Also during this time, Steven Raymund, Edward's 25-year-old son, came to work for the company. Put to work on the upcoming Tech Data catalog, Steve initially had no intention of making the situation permanent. Gradually, however, his interest in the company's operations increased. As the elder Raymund began spending less time at Tech Data to concentrate on his other company, Tech Rep Associates, Steven Raymund took on more responsibilities, eventually becoming operations manager at Tech Data. This development did not sit at all well with the sales force, which had hoped to buy the company out from Raymund in the near future; Steven Raymund's sudden rise to prominence meant that a buyout was unlikely.

About a month after Steven Raymund received his new title, a group consisting of Tech Data's key salespeople staged a coup of sorts. The group of five gathered at the office on a Saturday and proceeded to photocopy all of the company's customer records and vendor information. The following Monday, Raymund found letters of resignation on his desk from the five, who then went to work for a nearby competitor. The impact of this mass desertion at Tech Data was immediate and brutal. It quickly became apparent that the salespeople had taken many of the company's best customers with them. Monthly sales figures dropped by more than 50 percent, and the company began losing money. In fact, the situation became so bad that the elder Raymund considered shuttering Tech Data so that he could devote more resources to his other company, which was thriving.

Instead, the Raymunds undertook a radical shift in strategy. Rather than replace the departed field sales force, they beefed up their telemarketing staff, which was much less expensive to support. They then began to aggressively court computer dealers in addition to end-users. The company also began to pay more attention to direct mail, purchasing mailing lists and sending out catalogs in greater numbers. By the middle of 1983, Tech Data was once again making money. About that time the company began dealing in pc products such as disk drives, printers, and keyboards. Selling to dealers rather than users proved so successful that by the end of fiscal 1984 the company had withdrawn from the end-user market entirely, and its transformation into a wholesale distributor was complete. That year, Steve Raymund was named chief operating officer, and the following year he became chief executive officer.

In 1986, Tech Data offered its stock to the public for the first time, entering the market at $9.75 a share. Annual sales had reached $37 million by this time. Marketing primarily to value-added resellers, which sold computer equipment and supplies to small and medium-sized businesses, Tech Data grew at a remarkable rate through the rest of the 1980s. Sales nearly doubled in 1987, reaching $72 million. The company doubled its sales again, to $149 million, the following year.

In 1989 Tech Data made its move northward with the acquisition of ParityPlus, a modest Canadian microcomputer distributor. The Canadian operation, purchased for just over $1 million in cash, was subsequently renamed Tech Data Canada, Inc. By the end of fiscal 1989, the company's coast-to-coast network of ten distribution centers was in place, and its work force had grown to 430. Sales for the year were $247 million.

After reporting impressive earnings for several years in a row, Tech Data stumbled slightly in 1990. Although its sales grew to $348 million for the year, the company's net income was cut in half. This off year was attributed in part on the bankruptcy of a major customer, Bulldog Computer Products of Atlanta, which cost Tech Data $1 million. Mismanagement and theft of inventory, including accounting errors and reported thievery at the company's Los Angeles warehouse, resulted in another $4 million in red ink. Raymund reacted to these problems with a combination of tightened inventory controls and cost-cutting measures. The company's executive rank was thinned out, and the frequency of inventory checks was switched from yearly to quarterly.

By 1991, Tech Data had turned things back around. That year, Steve Raymund succeeded his father as chairman of the company's board of directors. Tech Data had settled in among the top five computer distributors in the United States and was an acknowledged leader in the distribution of local area network (LAN) and network products. For the year, Tech Data reported earnings of $6.7 million on sales of $442 million. The company began stocking the products of several well known manufacturers around this time. Among the companies whose wares Tech Data began selling in the early 1990s were Compaq, Conner Peripherals (a leading maker of disk drives), Toshiba, and Lexmark (a typewriter and printer spin-off of IBM).

By 1992, the company had about 25,000 customers, 70 percent of which were value-added resellers. The rest consisted of large national retailers. In March 1992, Tech Data added software to its line for the first time, helping to close the gap between Tech Data and its largest competitors, Ingram Micro and Merisel, where software was already generating about 40 percent of those companies' revenues. Forty software companies were quickly added to Tech Data's list of suppliers.

Tech Data also benefited increasingly from the desire on the part of pc manufacturers to cut distribution costs. Since selling to a distributor required less effort than selling directly to dealers, more and more producers of computer equipment were drawn to companies like Tech Data as the most efficient channel for selling their goods. Eventually, even the largest companies in the computer industry began to feel that selling through wholesale distributors was necessary if they were to remain competitive with such up-and-coming concerns as AST Research and Dell.

For fiscal 1992, revenues at Tech Data rose to $647 million. In January 1993, Tech Data made an important breakthrough when it received authorization to begin selling certain Microsoft system and application software products to value-added resellers. IBM and Apple were also added to the list of companies whose products were available through Tech Data. With these major producers in the fold, Tech Data's numbers jumped impressively once again. The company reported earnings of $19.8 million on sales of $979 million for 1993. During that year, Tech Data also sought to expand internationally, and toward that end, an export division was established early in the year. Based in Miami, the division was designed to serve the Latin American market.

For fiscal 1993, Tech Data's sales increased 57 percent to $1.53 billion. Record earnings of $30.2 million were reported as well. In a flurry of activity, the company announced the addition of several major software companies to its line of offerings. In January 1994, Tech Data completed the acquisition of Software Resource Inc., a software distributor based in Novato, California. This acquisition enabled the company to begin offering several well known software lines, most importantly those of Borland International and WordPerfect Corporation. In March, Tech Data beefed up its international operations with the acquisition of Softmart International, S.A., a privately-held French distributor of pc products. The list of software companies represented in Tech Data warehouses again during the first half of 1994, with the inclusion of Lotus, Aldus, and Computer Associates.

In the mid-1990s, Tech Data appeared to be narrowing the margin by which it trailed its larger competitors, Merisel and Ingram. By devoting a greater share of its work force to customer support and shoring up its software business and international operations, Tech Data stood to increase its overall market share, further solidifying its position as a leader among distributors of computer products.

Principal Subsidiaries: Tech Data Canada, Inc.

Additional Details

Further Reference

Doyle, T. C., and Longwell, John, "Tech Data to Expand Reach via Software-Signing Spree," Computer Reseller News, February 14, 1994.Dubashi, Jagannath, "Tech Data: There's Gold in Them VAR Hills," Financial World, May 12, 1992, p. 14.Finegan, Jay, "Turning Point," Inc., April 1989, pp. 106-07."Inside Tech Data," Tampa Tribune, June 28, 1993.Quickel, Stephen W., "Tech Data Muscles onto Others' Turf," Electronic Business Buyer, September 1993, p. 32.Rooney, Paul A., "Tech Data Mastering Growth," Tampa Bay Business Journal, April 12, 1991, p. 1.Scholl, Jaye, "Cool Cat with a Hot Hand," Barron's, January 6, 1992, pp. 16-7.

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