Anixter Security Business Struggling

Just a week after their key partner Axis turned in disappointing results, mega distributor Anixter's financials reveal significant struggles in their IP security business.

Over the past decade, Anixter has emerged as a major distributor in this industry, move ~$800 million of security products annually. However, now they have hit a wall.

In this note, we dig into the financials, management's explanation and the impact of this situation.

Anixter Financial Details

Anixter overall generates ~$6 billion annual revenue. However, security is only one portion of one group of Anixter (ECS - Enterprise Cabling and Security).

Security Q1 2014 revenue was ~$200 million USD, 'increased slightly' year over year. In other words, basically Anixter security's business overall is flat.

This continues a downward trend for Anixter's security business. Back in 2011, growth was close to 20% and in 2012, it decelerated to ~10%. Now, there is essentially no growth.

Anixter Management Concerns About Security

Anixter is taking this quite seriously, as they frankly and repeatedly explained in their Q1 2014 earnings call [link no longer available], noting:

• "We've got new leadership stepping in fairly immediately." Evidently, they are disappointed enough to can / cut / change their security business management.
• "We have an execution problem."
• "We're missing the mid-market. .... And we've been adding salespeople to target that mid-market."
• "Spending slowed in the enterprise, and we saw the spend sort of shift into the small and mid-tier kind of integrator, security integrator."
• "We run 2 brands in the U.S., Accu-Tech and Anixter. And Accu-Tech focuses much more on the contractor market and the small and mid-tier integrator market. And their security sales are actually doing reasonably well in that sector."

Market Significance

Anixter appears to be facing a number of structural issues:

• The enterprise market is no longer as attractive as it used to be. The upside was that enterprise was first to transition to IP but now that it is largely done, it is harder to get the easy growth of years past (i.e., what do they move to / buy now?)
• Axis was a significant part of their expansion within IP security and now, Axis is cooling (see Axis Misses, Profits Sink). Equally challenging, Axis is strongest in the enterprise market, the area where growth is more challenging.
• Anixter can focus more on the small and mid-tier integrator but a lot of those are more 'traditional' low voltage / analog types. Is Anixter really setup / built to deal with them? And if they really want to serve those types, do they need to become more of an ADI with counter tops in each market? (see ADI To Open Mini Stores)

Anixter still certainly has strengths. For instance, its large size, gives it the power to offer attractive financing terms and extensive inventory stocking, both of which benefit many integrators greatly.

And, given Anixter's focus to improving here, we expect the results will improve. However, the structural forces indicate that regular 10 - 20% growth will increasingly be a stretch for Anixter to achieve in security.