Tech Data's CEO Presents at Bank of America Merrill Lynch Technology Conference (Transcript)

| About: Tech Data (TECD)

Tech Data Corp (NASDAQ:TECD)

Bank of America Merrill Lynch Technology Conference Call

May 8, 2012 1:15 pm ET


Robert M. Dutkowsky – Chief Executive Officer


Scott D. Craig – Bank of America/Merrill Lynch

Scott D. Craig – Bank of America/Merrill Lynch

All right great. Good morning everyone. Welcome for those who don’t know me. I'm Scott Craig here at Bank of America-Merrill Lynch, and I cover the IT hardware, storage, and the distributor industries here for the bank. We're happy to have Mr. Bob Dutkowsky here on the right, standing up at the podium, from Tech Data. And I think a lot of you also know Arlene down here Investor Relations, sitting in the front, as well. And Bob's going to go through a bit of a presentation here, and then we are going to get into some Q&A. Obviously I can probably start that off, and hopefully we'll get some participation from the audience, as well. So with the further ado. I am going to pushover to Bob.

Robert M. Dutkowsky

Thanks, Scott. Good morning everyone. Thank you for your interest in Tech Data. My goal this morning is to give you a quick overview of our company and strategies and a bit of the metrics of our performance. I would remind you that we're in our quiet period; we announce our Q1 results on May 21. And so between during this presentation, I may make some forward-looking statements, but I'd ask you to refer to our filings with the Securities and Exchange Commission, as well as our IR website for any details. Quickly, to give you a view of our company, Tech Data is one of the world's leading IT distributors. We have a footprint both in Europe and in the Americas. We are the number one distributor in Europe. We're the number two distributor in the Americas.

You can see last year we generated $26.5 billion in sales. And I think the number that stands out on this chart most prominently is the leverage that we get from our Americas business. It's a very robust, strong business that delivers great profitability for our business. And also, the growing strength of our European business. Over the last few years, the investments that we've made in our European business have [begin] to yield the results, and I'll show you more of those in a second. But both of those businesses combined represent about 75% of the IT spend worldwide. And so, it's a very large, robust market, and one that we have a very prominent position in.

To remind you of our position in the IT ecosystem, we sit between the vendor and the end user. The challenge that exists is there are about 25,000 IT vendors who are all searching for the most efficient route to market for their products. Over the years, three big market segments have evolved. Obviously the consumer segment and most vendors know how to get the consumer efficiently today, either through ecommerce technologies or big-box stores. The enterprise, say the world's largest 2,000 companies, by the way Tech Data was just named number 109 on the Fortune 500 list yesterday, so we are one of those companies, and the vendors sell to us with direct sales coverage. And the great unwashed in the middle is the small and medium business arena. Its fluid, it moves very rapidly it's hard to find. It's hard to sell to. But it consumes technology at levels and it is a pool of profitability that exists in the IT ecosystem.

Both 24,000 vendors looked companies like Tech Data to get after the SMB market. In fact, today SMB represents about 75% of our worldwide revenues. And the strength that we have, and to be able to attack the SMB space, are really specifically listed at the bottom of the chart. We've built a sales and marketing engine that's second to none in terms of its ability to get at the market and also do it in the most efficient fashion possible. We have built a degree of technical proficiency to help configure and build products that serve the needs of the market space. We have credit capacity that funds the growth and performance of our customers at any given point in time; we have about $3 billion in loans in the hands of small business resellers serving their customers. And then, we have superior logistics capabilities.

If you order a product from Tech Data the 4 or 5 o clock 99% of the time that product will shift that day. And so you can reliably count on Tech Data to deliver solutions into the market, that engine sales and marketing technical proficiency credit and logistics, serves the SMB market very effective. And so, consequently, the vendors think of us as the most efficient, effective route to get to the SMB space. And that's really where the fastest growing tech spending environment is. So, Tech Data is very well-positioned in a fast-growing, vibrant market space.

We have a clear strategy. This strategy has been in place now for about a half a dozen years at Tech Data. And we’ve really focused on three big areas. The first is execution. As I said earlier, we have to sell $100 million of products today and our average orders is between 1 and $2000, what your mind do the math for a second of the velocity in the number of transactions that happened every single day at Tech Data. And they all have to be done flawlessly to satisfy our customers. 75% of our orders come to us via e-commerce.

We’re one of the largest e-commerce companies in the world. And so, our customers can order from us either face to face over the phone via e-commerce, and all of those channels are efficient and effective ways for the customer to place orders and get access to Tech Data's broad array of products and the services that I talked about. We serviced that large geography with 29 logistics centers that are all managed via SAP warehouse management technology, which makes us one of the most efficient and effective logistics engines on the planet, we believe.

We maniacally measure our execution, every function in the Company is measured and it's the way that we can ensure and guarantee the kind of performance that our customers demand. We also year after year on improving our execution and invest heavily in technologies and techniques and processes that make us a more attractive supplier into the marketplace.

The second component of our strategy is innovation. And for us, innovation means the use of IT systems to competitive advantage, to gain productivity, and to make us what we like to call stickier with our customers and vendors. While most companies in the IT space spend their R&D dollars on creating products, we spend our, quote-unquote, R&D dollars and IT systems internally. And deployments of IT systems both broad ERP systems around the globe, as well as very pinpointed productivity tools to help our salespeople and our salespeople and our internal people be more productive, we believe differentiate us in the market.

We've invested millions of dollars to develop tool sets that make our customers' connection to Tech Data more efficient, as well, so areas like the rapidly evolving mobility market in the channel. We've built a set of tools called TD Mobility that allow our customers to order and provision and bill for mobile products in a way that no one else in the industry can do today We've developed an industry-leading offering called Stream One, which enables customers to order software more efficiently, as well as creating one of the industry’s very first app stores for the channel.

And it allows us access to have a broad array of products posted by Tech Data technology and really brings the channel into the cloud in an efficient and effective way. So innovation is a key component of our strategy. The last component of our strategy is diversification, and that's to take all of these strengths that I just described to you, our sales and marketing, our logistics, our credit, and our technical support, and to move that into both new geographies and new segments with new vendors and new customers.

We focused on and we came from a very strong foundation that was built around the desktop. Our company is approaching 40 years old, and it grew up as a desktop provider, PCs, printers and the peripheral market that sat around the desktop created an exceptionally strong market and taught us the disciplines that I talked about earlier, those strength in sales and marketing and credit and logistics.

So, when we looked at the industry, the industry is rapidly changing, and there are forces that are causing the industry to change, forces like industry standardization of technologies, cloud computing, the always-on, always-connected world mobility, and the convergence of business and consumer of business and consumer technology, the prosumer convergence. And we felt that our strength and those forces caused us to diversify, or caused us to look to diversify into four key areas. First is the data center, secondly is software, thirdly is mobile products and fourth is consumer electronics.

By diversifying into those areas and addressing the needs of those specific market segments, different customers, different vendors, different terms and conditions, and we also believe better profitability pools than the ones we realized in our broad line business. We have become one of the world’s largest end-to-end distributors. We like to say we can support from the data center to the living room and all points in between. And that allows our customers to make one phone call and order one of the world’s largest servers all the way down to a cell phone or a printer cartridge. One-stop shopping across a broad array of tech offerings, and that’s a very unique and differentiating value proposition for Tech Data.

When I talk about these four areas of focus, these are not just interesting strategies or PowerPoints that sit on somebody’s shelf. In fact, these are real live businesses at Tech Data today. Last year our data centre business was $7.5 billion in sales. Servers, storage, networking, and all of the technologies that create private clouds are all built around and are resident in our data center practice.

Our software business was $4.6 billion last year and software is very important to a company like Tech Data because it utilizes our cash very efficiently and drives our return on invested capital metric to new highs. Our consumer electronics business was about $3.5 billion in sales last year. And finally, our mobility business was approaching $2 billion in sales. So we took the strength of our broad line business and over the last handful of years, have diversified into these other high growth, better profit pools and have created a very different distributors and the one that you followed for the first 30 years that you looked at our company.

Today more than half of revenues come from specialty businesses. And the thing that we’re most enthused about, about these areas that obviously that brings us different vendors and different customers, but the most important part is as we look out over five to ten years, we believe the major sea changes that will happen in IT spending will happen in one of these four areas or in these four areas. And so Tech Data is very well positioned for the next, let’s say the next decade of tech spending to take advantage of it and to be there early as these sea changes happen.

And then all of this has led to very, very strong financial performance over the last handful of years. You can see on the chart that the over the last five years, our sales grew on a compounded rate of 3%. But as you drop down the P&L, you can see the kind of leverage we realized. Overall sale were up 3%, operating income was up 12%, net income was up 14%, and that led to EPS of 21%. We got tremendous leverage out of our business, sort of the efficiency, sort of the efficiency is productivity of our investments and IT tools and focus on the right areas and the right product and the right geographies with the right customers. At the same time we’ve been able to use our cash very efficiently and have generated nearly $2 billion in cash flow over that timeframe.

So not only as the company perform very well, but it has generated (inaudible) of returns for cash and for our investors. We've used our cash extremely efficiently. You can see back about five years ago, we were barely covering our weighted average cost of capital. Today we have, we believe, the industry's best return on invested capital metric. And our software business has been a big contributor to this success that I described earlier. From a capital allocation perspective, we have a very disciplined approach to the way we use cash over the last five years, we acquired 14 companies at the same time we bought back $915 million of our stock representing about 36% of the outstanding shares. The average cost of their shares was under $40 a share.

And this morning, our stock is trading at about $52 a share. So it was a very efficient use of cash. And as we look forward into the future uses of cash we see the same strategy in place. We'll both fund organic growth with our cash. We’ll do selective M&As where they fit in the strategy of diversifying our portfolio businesses. And will continue to share repurchases where they make sense. There is about $85 million remaining on the buyback that our Board approved in Q4. The $100 million buyback cash is $85 million.

Our financial goals have been in place now also for a handful of years. Our goal is to grow at or above rates of the industry generating gross margins of around 5.2%, we believe that a sweet spot. We target double-digit income growth, leading us to an operating margin of 1.5% approximately by the end of this year. (Inaudible) you can see the cash base and cash flow generation in return on invested capital. How we'll get there from the point we are in is the last mile that we're involved in today. You can see that we’ve been on a very nice journey of improving the operating income of the company.

In fiscal year 10 we achieved our first goal which was to have our European business generate one point of operating income and our Americas business generate 1.5 point at that point we set a three-year objective to drive the Company to approximately 1.5 points of operating income by the end of this year And you can see, we got off to a good start on that journey, and so now we have one year left, now three quarters left to close that plan down. And there are really three big steps that we'll take to finish off this journey that then on the first was, and we announced in Q4 that we were we’re going to do some very specific cost management and restructuring of the company.

We excited Brazil in Columbia in Q4 those were two businesses that we simply couldn’t get a good return on our investment for the businesses we were running in those countries, and so we shut this down in Q4. And then, we announced that we would realign some of our cost structure specifically reducing our costs in Southern Europe and redeploying some resources into Northern Europe in the specialty businesses I talked about earlier to accelerate our growth. Both of those steps are down they were completed in Q4, and it gives us an opportunity to enter into this fiscal year with a cleaner business.

We have opportunities to continue to leverage the acquisitions that we made. These are the acquisitions we made in the last two fiscal years, and you can see all of them have been EBITDA accretive already, but there is more leverage to add in all these businesses and so we upsize here as unfold and then lastly we’ll continue efforts around diversification. Whether it would be new products, new vendors, new markets, new customers and new geographies they continues to be upside for Tech Data.

The best example of this diversification I could give you would be the growth of tablet market, two years ago we sold $300 million of tablets last year we sold a $1 billion worth of tablets, prior to that when this event was in New York 36 months ago we didn’t even sell tablets. And so with market unfold are focus in those segments, our relationship with the proper vendors allows us to quickly move into that market space and take advantage of an emerging trend like tablets. We see other opportunities over the next, over the rest of this year and over the next few years, but exact same kinds of opportunities to arise, and we're ready for that.

So when you think of us, think of a company with a very clear strategy. We fit in an important way into the IT ecosystem. We have become a vibrant collection of specialty businesses; we are not your Tech Data anymore. We’re a very different company than the company you’ve know in the past, and that company is been able to deliver superior financial performances, we have the capital structure to continue to move and make investments that differentiate us in the market. And we have a management team that's prepared to take advantage of our experience and our understanding of the market to give our shareholders the best return possible.

With that, we'll be glad to take any questions that you might have. And we'll start with Scott.


Scott D. Craig – Bank of America/Merrill Lynch

Great. Thanks, Bob. That was a great overview. Maybe start at a high level from a revenue side, again recognizing that you're in your quiet period, so I'll stay away from some of the near term stuff. How fast do you think the overall distribution market grows in the areas that you're mostly exposed to, which is predominantly in, right now, North America and Europe.

Robert M. Dutkowsky

Well, if you look at tech spending historically, tech spending has grown 4% to 6% over the last, historically over the last 35 years or so. So, the one good benchmark to look at would just be assume that, in an average kind of environment, you can realize 4% to 6% top spending, and then Tech Data's job is to pick our spot inside of that space and invest more in the areas that might grow faster and less in the areas that would grow less. Our view is that this is going to be slightly less than an average year, so we think that 4% to 6% is probably more like 2% to 4% growth opportunity. And then as we mix our product and we mix our geography, our look out over the course of this year is we think this year will be flat to slightly up in terms of top-line opportunity for us.

Now, keep in mind, underneath that there's tremendous amount of churning that takes place. As an example, I would predict, or I would say that the cell phone market and the smartphone market will grow faster than 4% to 6%, and that the peripheral market might grow slower than 4% to 6%. And so, we have the challenge to shed ourselves of the less fast-growing peripheral market and to inject ourselves aggressively into the faster growing cell phone market, just as two dynamics that happen. And remember, each of those markets are hundreds of millions of dollars, or billions for us in a year. So there's lots of moving parts for us to look at. That's where we come up with the view of the year for us to have revenues be flat to slightly up.

Scott D. Craig – Bank of America/Merrill Lynch

And then maybe let's delve into some of those product areas that you find more exciting. We just talked about a couple, and I was on a panel with you last week where we discussed a lot of data center type of stuff, and that appears to be one area. But maybe take us through the top three, maybe that you think are the best opportunities for Tech Data over the course of the next few years?

Robert M. Dutkowsky

Well clearly, we believe the data center continues to be a very strong opportunity for us, the world has become a built on industry standard technologies. I mean, if you think about it for a second, the world today, the world of the data center is driven by Intel-like products and Tech Data’s cost structure and our whole go-to-market view of the world was built around Intel PCs. So we have a cost structure that can make money selling Intel PCs. So we have a cost structure that can make money selling Intel based industry-standard platforms.

And there is tremendous opportunities for us to add value in that world and not cross into the line of adding value that our customers typically added to the end user market. So we’re obviously excited about the data center, we have very strong relationships with the world’s leading data center providers. And whether you look at the server world or the storage world or the networking world or the software world, the virtualization world, the security world in that space, we think there is tremendous upside here.

The other reason we’re enthused about our data center practice is, if you think the cloud represents a strong opportunity going forward, private clouds are made up of industry-standard server technologies that are highly scalable, rapidly deployable, highly secure. And if you think about the products I just talked about, industry-standard service network attached storage, networking infrastructure, middleware virtualization, security software, in other words we’re selling the products that are creating private clouds around the world. And it’s a big component of why our data center business is growing as rapidly as it is, is because 74% of the cloud opportunity today is deploying private clouds, and that’s the strength of our technology.

Second area we are obviously enthused about is software. We think software represents a tremendous opportunity and a game changer for Tech Data. Software is a complex piece of technology to distribute. When we say software distribution, we don’t distribute shrink wrap packages of software, we distribute license keys, and electronic licenses. And so it’s error-prone. It's hard to pick the right SKUs. It’s very labor intensive. And so, by developing a series of technologies under that product area called Stream One. We’ve been able to simplify the distribution of software and consequently we are rapidly becoming the software distributor of choice in the market, and that’s driven our software growth and it’s driven our improved return on invested capital metric. So software is fundamental to us.

The last place, although it’s not as hot and sexy as you might like to think, is consumer electronics. And we think consumer electronics represents a very important opportunity because the consumer is now setting the agenda for tech spending. No longer is the corporation and IT setting the agenda, the ease of use and connectivity and always-availability of consumer electronics is what's really setting the agenda. And so Tech Data’s foray into consumer electronics is much broader than just selling boxes. We want to be the company that helps the channel automate the home and brings technology into home and make it seamlessly move into the enterprise. And we think that, over the long haul, there's going to be a great opportunity there, and we're staking a position of leadership in that space.

Scott D. Craig – Bank of America/Merrill Lynch

Okay, and maybe just building upon that a little bit, obviously the mobility space in general has done well for you, particularly over in Europe where you made an acquisition a while ago and now transforming some of the aspects of that business into North America. So maybe describe both of those businesses from a mobility standpoint?

Robert M. Dutkowsky

First, our efforts to grow the mobility business in Europe through our joint venture with Bright Star has been a real positive for us. Back about 4.5 years ago or so, we decided we wanted to get into the mobility business in Europe, yet, pragmatically, we knew nothing about it, we didn’t know the vendors, we didn’t know the customers, yeah we had, we had tremendously underutilized logistics capability and sales and marketing capability in our European business. Bright Star one of the world’s largest distributors of cell phones, had no presence in Europe.

They knew the market. They knew the vendors, and they wanted to get a footprint into the European market. It was a perfect opportunity for a joint venture. We had the presence. They had the industry knowledge. We put the two together, and I guess the results speak for themselves in terms of one of the fastest growing cell phone distributors on the continent of Europe.

The market in the Americas is very different than the market in Europe. Whereas in the Americas people acquire cell phones predominantly, predominantly to carrier stores, and manufacturers distribute products directly into the carrier stores, and so there is not as big of a distribution opportunity. There's, we believe, a large untapped opportunity to enable the VAR channel to sell cell phones and smartphones into their customer base. And so again with the joint venture with Bright Star, we’ve created what’s called TD Mobility. And TD Mobility allows the VAR to select multiple handsets, multiple carriers, figure out to optimum plan for each individual in their end-user customer accounts, order the phone activate the phone, deliver the phone to the end user and consolidate all of the billing so that the VAR can hand his or her customer, one piece of paper that say’s your phone bill for the month is X.

When a principal leaves the company, the VAR can go in and deactivate the cell phone quickly and kill the plan quickly so that the charges don't continue to roll up. In other words, the VAR becomes not only the virtual CIO for the business, but he or she can also become the virtual mobility expert for the business. And without tools and techniques, VARs found that they could not make money selling so called with TD mobility they can.

And so, the VAR channel is now rapidly becoming very interested in selling mobile products and will use the TD Mobility engine as a tool that will enable all that. Two very different markets two very different approaches, and I think it speaks to the flexibility and adaptability of the Tech Data model so look at these two markets which very similar and go out of with different approaches in terms of tools technology techniques and processes, that lot exceeding both markets.

Scott D. Craig – Bank of America/Merrill Lynch

Hey bob a couple of questions that are on investors' minds, I'm sure you've been asked this over the course of last couple weeks we’ve seen each others as well Romley, is that something that you think spurs an incremental spend cycle on servers or is it just sort of the status quo? And I'd ask kind of the same question on Windows 8. I know it's too early but what are your thoughts around that? You obviously sell a lot of PCs, and a lot of industry standard service so we will hear your opinion?

Robert M. Dutkowsky

Yes, so Romley is back to that industry-standard technology that I was describing before. Romley is just an Intel industry-standard chip that brings a different return on investment metrics than the generation before it. It runs cooler and it uses less power. And so, if you have a room full of industry-standard servers with older technology, you can literally do a return on investment metric to take those out and replace them with Romley-based set of technologies and pay for itself. In other words, it's those kind of see changes in the data center that create opportunities for companies like Tech Data. Now, will that metric work in every case? No, it doesn’t.

It's unique to certain sales situation and its our job working with Intel and with the manufacturers of the server products that we sell, to educate our VARs on how to make that sales pitch, on how to make the return on investment sales pitch of changing from the old technology to the new technology, that's our value proposition to the VAR in a Romley sea change.

So we think its’ a good opportunity, but pragmatically Scott if the world doesn’t run Romley we don’t care because we’ll have Romley on the shelf and we'll have the old generation on the shelf, if they want to buy the old generation, we have both, we don't care either way, I thing I want to do with the transitioned to window they, it’s going to be later this year, it’s going to really have an impact next year, but we’ll have both products on the shelf if the customer is, if our customers, customer wants Windows 8 we’ll have it Windows 7 we’ll have it, if they want put in Windows 7 and upgraded Window 8 later we can help them with that, and if they don't want Windows and they want Apple, we have that, too.

And so, my point is, whereas a Microsoft or an Intel or a server manufacturer has to make a call and they have to decide on what inventory to buy, what investments to make in technology, we don’t make those calls. We fight for the relationship and have those products on our shelves and we let the market decide and we fulfill the demand in the market. And it's why our margins are radically different than the manufacturer, as well. They have to make the call so they get the higher margin. We have to fulfill the demand and make sure that we're able to supply the demand in a seamless, easy way into the marketplace.

Scott D. Craig – Bank of America/Merrill Lynch

We open it up and see if there's questions in the audience. Up here in the front.

Unidentified Analyst

Going back to Romley and the servers, it seems like ISS, industry-standard server sales have been slowing recently. Do you think there was a pause ahead of Romley? And if that’s the case, do you see it burning, a growth [free] acceleration now that it's launched?

Robert M. Dutkowsky

That’s a good question, I don’t know whether the perceived slowdown that we saw was Romley-based or it was a just pause and the world was consuming all of the servers that they bought over the prior handful of quarters, which are actually good server quarters. So it could be a combination of both things. I don't know, but our view is that second half of the year could be a stronger server environment and we’re prepared to take advantage of that.

Unidentified Analyst

And Bob, can you talk a little bit around your cash flow expectations as you look out over the longer term, not near term and also the usage in sort of how you rank the priorities there?

Robert M. Dutkowsky

Yes, I showed a chart in the prepared comments of our cash generation over the last handful of years and you could see that somewhere between, say 150 million in a year and then high of about 500 million in a year. Our view is the company will generate around the average there, a couple of $100 million a year, you can expect for us to generate from a cash generation perspective. And then our uses of cash were as I described, the first is to fund organic growth and to fund the creation of tools and technologies that allow us to go into these unique and different markets more aggressively.

Secondly would be very selective M&A, M&A transactions that either diversify us into different geographies, different platforms, different customers, different vendor relationship or help us to get the human capital that’s necessary to be able to move into those markets. As a distributor, one of the most difficult challenges we have is recruiting technical skills to come work at a distributor versus to work at a vendor. If we buy a company that already has those skills, we jump start ourselves in that market.

So M&A can help us in a lot of different ways not just top-line growth. And then the third is stock buybacks and as I said, we brought back about 36% of the company over the last five or six years. Our board believes that at the right price points, there’s not a better buy of a distributor than to buy Tech Data stock. And so we’ve been aggressive on that front and I think you’ll see the company continue to invest in those three areas.

Unidentified Analyst

And just from an acquisition standpoint to continue along that line, you obviously get asked this question all the time Asia and the thought process behind entering a market like that through M&A.

Robert M. Dutkowsky

Yeah, as I showed you in the prepared comments, our footprint is North America and Europe. As I said that that represents about 75% of the IT spend in a year. So it’s like huge market of which we have a small percentage of the opportunity. There’s tremendous opportunities for us to gain additional leverage from our fixed costs infrastructure in the geographies that we’re already in. But as we look out over the long haul, we believe that Asia represents an important market and one that that when the time is right we’ll expand into Asia.

The way we’ll move into Asia will be through an acquisition. A Greenfield start up in Asia would be a failure as a distributor. So we would acquire an existing distributor. You’d be smart to think that we would acquire distributor on one of those four specialty areas that I talked about, versus as a broad line arbitrary. So think about this moving into the data center, moving into mobility, moving into software distribution or consumer electronics, one of those four footprints.

And we would start out in a given geography and use that as our Asian base and then expand. And I’ve told this story before, when I joined the company six years ago, I believed that reason that the board recruited me is because I had lived in Asia-Pacific. I ran channels for IVM in Asia-Pacific back in the late 90s. And I thought the board really wanted to go to Asia aggressively and I though that was the reason why I stood out as the candidate that they selected. Once they got inside the company, and I joined the company with that mindset, this will be easy, we’ll go into Asia, we’ll expand and that will be Nirvana. Once I got into the company, I realized where we could really give the shareholders the greatest return on their investment once they get additional leverage from our fixed cost infrastructure.

The places we already have logistics capabilities, sales offices, technical support, credit capacity on the ground if we could put more products through that engine, we could get a much greater return than to go into a small satellite environment, like a foray into Asia would represent in the beginning. We’d give very little return on the investment and we would spend tremendous amounts of management energy making it work. And so, as opposed to leaping into Asia back in 2006 instead we embarked on this mission of leveraging our fixed cost infrastructure. We brought 14 companies across our footprint. We invested organically in the tools and techniques that make that infrastructure work even more efficiently.

And you can see the march of improvement on operating income, that we’ve been on for last handful of years. There will be a point in time where will peak out in our ability to get that kind of leverage. And then Asia represents a whole another step for our company. And then the last point I would make on the Asian expansion, unlike a typical tech company, there's very little first mover advantage for an IT distributor. Think about our business that comes up for bit literally everyday, every week, every month, every quarter, every year.

And so, if we're on the ground in a country, we can compete. If we're not on the ground in a country today, tomorrow, if we (inaudible) we can compete then. And so I use this analogy, we run Tech Data with SAP or companies ERP system is SAP, companies like Oracle, don’t even call on our IT staff anymore, they know we are committed to SAP. We're not going to change for a long time. Our world is exact opposite from that. Our world, our business comes up a bit, all the time and we can fight, get a footprint and fight for that business anytime we decide that’s right to go. So Asia is there, Asia will be open for Tech Data tomorrow. It'll be open the next day. When the economics are correct, that's when Tech Data will go to Asia.

And again I'm enthused because we have a whole other element of our diversification strategy called Asia that we can deploy our engine to with the time as right. Some of our competitors are there already. There's no more upside for them. We have this tremendous upside that sits on front of us called Asia Pacific. And we are excited about.

Scott D. Craig – Bank of America/Merrill Lynch

All right. I think with that we are right out of time. So, thanks a lot for…

Robert M. Dutkowsky

Good, thank you. Thanks for your interest, Scott thanks a lot.

Scott D. Craig – Bank of America/Merrill Lynch

I appreciate it.

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