Last week’s layoff of 30-40 people by Tech Data Canada (NASDAQ: TECD) is intended to position the company for an anticipated slowdown in business now that the busy government buying season is over, says the distributor’s president, Rick Reid.
While Reid declined to give a specific number of jobs cut, except to say it was between 30 and 40 positions, he did indicate they were largely across the board and centred in the Mississauga, Ont. headquarters, with some cuts also coming in Tech Data’s Vancouver and Montreal sales offices.
While the cuts were across the board, Reid said areas that are more volume dependant – such as logistics – were hit harder. He added a number of the positions cut were also part-time.
“We do a lot of our business in the December to March timeframe and over the balance of the year we do less volume, so for the folks in logistics there’s less work for them to do quite frankly,” said Reid. “There’s very much a pattern to out busy period.”
While it is natural for the company to ramp-down staffing to a certain degree with this annual cyclical decline in volumes, Reid acknowledges the cuts are more driven by the economic outlook for the IT industry.
“If you pick up the paper, there’s a slowdown in spend and we’re adjusting accordingly,” said Reid. It’s not so much what we’ve felt to date as what we anticipate.”The first quarter of the year is traditionally the strongest for Tech Data, and this year Reid said they were buoyed by a stronger than usual spend from the federal government. The government spend helped make-up for declining commercial spend, which Reid anticipated to drop by 10 per cent in 2009, year over year.
However, with the government buying season now over, Reid said Tech Data needs to adjust for the reality of that declining commercial business.
“We can’t wait forever for it to happen. We have to anticipate and react,” said Reid. “We’re a razor-thin margin business, and we can’t afford to make decisions to carry incremental costs when we don’t have the dollars to offset them.”
While Reid said his crystal ball isn’t working anymore and he’s unable to offer a window out of this softening market, he did say there are a number of positive areas of the business for the distributor.
Software and networking are two areas where Tech Data has been enjoying strong growth, he said, particularly around security, storage and blade servers. “No one is storing less than before, that’s continuing to grow,” he said.
The company’s recently inked distribution deal with Dell could also lead to growth, but Reid said he’s not anticipating results there until May at the earliest.
“It will take time to ramp-up, to get Dell comfortable working with distribution and the resellers comfortable working with Dell (NASDAQ: DELL),” said Reid. “It will take time.”