TD Synnex’s record quarter and the SMB channel that is nowhere on AI

On 24 September TD Synnex reported the largest quarter in its history. Revenue for the three months to 31 August was $21.6bn (£16.3bn), up 37.7%, and non-GAAP gross billings reached $31.8bn, up 40%, according to the results release. Operating income rose 67.6% to $643m. Four days later, an interview with the man who runs its UK and Ireland business described businesses that have barely begun with the technology behind those numbers.

“Most people are nowhere with it,” David Watts, TD Synnex’s senior vice-president and regional managing director for the UK and Ireland, told IT Channel Oxygen in an interview published on 28 September. Watts told Oxygen that most businesses have ChatGPT and an AI search box and little more, and that partners will need considerably more support, and a wider set of alliances, to sell AI than they did to sell cloud or security. He was speaking after the distributor’s Explore event in London on 22 September.

Put the two statements together and the picture is a channel moving at two speeds. The record is being set in hyperscale and enterprise data centers. The small and medium-sized business (SMB) market that Watts calls the distributor’s key market has, on his account, barely left the starting line, and nothing in the release suggests the gap will close on its own.

Where the growth is coming from

The company’s supplemental financial information shows how lopsided the quarter was. Hyve Solutions, the unit that designs and builds compute and cloud infrastructure for the largest data center operators, posted non-GAAP gross billings of $7bn, up 117% on a year earlier. Distribution, the business every UK partner actually trades with, grew 27% to $24.8bn. Of the $9.1bn added to group billings year on year, $3.8bn came from Hyve, a unit that accounts for a little over a fifth of the total.

Europe was no laggard. The same document puts European distribution gross billings at $8.2bn, up 26%, and European distribution revenue at $6.4bn, up 30%. But the release frames the demand in enterprise terms. Chief executive Patrick Zammit said: “Enterprise AI adoption is progressing toward broader production deployments. Data center modernization remains a priority as organizations prepare for next-generation infrastructure requirements, while AI is driving new security, governance, and compliance requirements across technology environments.” The word enterprise carries that sentence. Small business does not appear in the release at all.

The growth has come with thinner margins. Gross margin fell from 7.22% to 6.61% year on year, according to the release, and gross profit rose 26.2% against revenue growth of 37.7%. The supplement puts the steepest slide in the Advanced Solutions category, where gross margin fell from 9.7% to 7.6%. Hyve’s slipped only from 7.5% to 7.3%. Volume is growing faster than profit.

What the UK arm is seeing

Watts’s account is not a contradiction of Zammit’s. It is the same company describing two different customers. Watts told Oxygen that TD Synnex’s job is to build partners’ capability: a dedicated team for those with a vendor-specific proposition, a more general conversation for those who only want to know where they stand. He also said the UK business has added five percentage points of SMB market share in four years and now holds more than a third of that market. That is TD Synnex’s own figure, and VETTDD has not been able to verify it independently. And he told Oxygen that AI is already pushing some orders straight through the distributor’s systems, that the staff this frees will be moved into customer-facing roles, and that its UK Microsoft and Nvidia teams have never been larger.

Why trickle-down will be slow

The comfortable reading is that hyperscale spend today becomes SMB spend tomorrow, as cloud did. Two things argue against the timetable. The products are different: an AI factory is a capital project sold to a data center operator, while the SMB version of AI is a Copilot license, an AI-capable laptop and a governance policy, none of which is scarce or sold at hyperscale volumes. And the constraint Watts described is capability rather than supply, in the partner as much as the customer, and capability does not arrive on a pallet.

That gap is where a UK partner’s margin sits. Between a customer with ChatGPT in its search bar and one with AI inside a business process lies assessment, data preparation, security and governance work, the very requirements Zammit’s statement names. That is services revenue, and it is the partner’s to win.

Two quarters, four moves

A UK SMB partner should treat the next two quarters as the window, and the moves are specific.

• Take up the offer Watts described. Ask the distributor for a named team and a readiness assessment format, then run it with 10 customers before Christmas. A distributor that says it will meet partners where they are should be held to a schedule.
• Choose one vendor proposition and build a repeatable offer around it. The Microsoft and Nvidia teams Watts says have never been larger are most useful to partners who have made that choice.
• Sell the governance layer now. The release says AI is creating new security, governance and compliance requirements. For a 200-seat customer that means a policy, an identity review and a data classification exercise, and all of it is billable this quarter.
• Ask what the automation buys partners. If AI is clearing orders without human hands, the redeployed staff should be turning up in partner accounts. Ask for them by name.

The record quarter shows where the AI money is, and the SMB channel is not yet on the map. A partner that waits for it to trickle down is planning the distributor’s next record quarter, not its own.