Why Tech Data Dropped $2.6 Billion to Buy Avnet's Technology Services Unit - Fortune

News on Monday that Tech Data is buying the technology services business of Avnet reveals how the world of technology distribution is rapidly consolidating.

Tech Data chief executive Bob Dutkoswky said simply in a statement that the addition of Avnet Technology Solutions avt will give his company a stronger presence in Asia.

But the real story here is that consolidation is hitting tech distributors just as it has hit legacy technology vendors, as evidenced by Dell’s recently-closed $67 billion roll-up of EMC, VMware, and affiliated companies. Tech Data’s largest rival, Ingram Micro, is being acquired by HNA Group, the Chinese aviation and shipping conglomerate, for $6 billion. That deal was announced in February and has yet to close.

The Tech Data-Avnet deal is worth $2.6 billion, consisting of $2.4 billion in cash and 2.785 million shares of Tech Data stock.

Both Tech Data tecd and the business unit it is acquiring sell tech gear to resellers who, in turn, sell it to end-user customers. Tech Data stocks everything from Apple aapl iPhones, iPads, and MacBook Pros to other PCs and laptops, and it also has a data center equipment business. Avnet’s technology services unit focuses more on higher-end data center hardware.

Alex Smith, director of channels for research company Canalys, says the deal makes sense because Avnet and Tech Data have different geographic, vendor, and technology strengths.

“Tech Data is very strong in Europe, but not in Asia. Avnet is strong in the Americas and in Asia,” Smith explains, reiterating Tech Data also has a huge “volume” business in consumer gear, while Avnet is strong in data center equipment.

The remaining portion of Avnet’s business, which is not part of this deal, will keep selling electronic and mechanical components including chips, circuit boards, and enclosures to manufacturers.

With Avnet Technology Solutions getting taken out, there’s one less tech distributor, notes Sam Haffar, chief executive of Computex Technology Services, a Houston-based technology reseller and service provider who has long worked with Tech Data.

Get Data Sheet, Fortune’s technology newsletter.

The remaining players—aside from Tech Data—are Arrow arw , Synnex snx , and Ingram Micro im —albeit under new ownership when the HNA deal closes.

One factor contributing to the consolidation craze is that many corporate computing jobs are moving to public cloud providers like Amazon Web Services amzn , Microsoft Azure msft , and Google Compute Cloud goog . As that happens, there is less need for these customers to add to their existing data centers or to update their hardware as they have in the past.

For more on cloud computing, watch:

That trend impacts not only traditional hardware vendors but the third parties who sell and install that equipment. The big cloud providers typically provide their own hardware design specifications to contract manufacturers, such as Wistron and Quanta, and it is not at all clear that those sales go through a distributor. The cloud companies themselves are mute on the topic.

Distributors are trying to deal with that shift by adding cloud services of their own.

http://ift.tt/2d3aREZ