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 user 2006-05-18 at 11:20:00 am Views: 108
  • #15490

    Ingram eliminating 1,400 jobs
    Distributor of personal computers faces competition, lack of demand
    ANA, Calif. – Ingram Micro Inc., one of the leading distributors of
    personal computers, plans to eliminate 1,400 jobs to combat tougher
    price competition and slack demand.Market experts Ingram Micro, like
    other middleman PC distributors, has recently been squeezed by
    manufacturers’ price-cutting and increasing direct sales to
    consumers.”I think this is a continuing trend,” said Matt Sargent, an
    analyst with ZD Market Intelligence in La Jolla, Calif. Distribution
    and support firms like Intex and Inacom have been facing similar
    problems, he said.”These companies are going to have to get away from
    selling boxes … and focus more on services and become a partner with
    manufacturers,” Sargent said. “They’re doing that already, but they
    need to focus more on it.”Investors apparently approved of Ingram’s
    plan, sending shares of Ingram up $1.13, or 6 percent, to $19.75 on the
    New York Stock Exchange.PC makers like Dell, the direct-distribution
    pioneer, and Compaq are selling more computers themselves, and they
    have been slashing prices.Ingram Micro officials played down the
    direct-sales trend, citing instead slow demand overseas, domestic price
    competition and concerns about potential Year 2000 bugs.
    Micro, with sales of $22 billion last year, expects to start seeing
    savings from the job cuts in the second quarter of 1999. Chairman Jerre
    L. Stead said most of the job cuts would come in U.S. operations.”Many
    near-term factors, including Year 2000 fears and continuing economic
    issues, are creating cautious buying trends in Europe, Latin America
    and Asia,” he said.”In addition, there is intense margin pressure,
    primarily in the United States, which is related directly to increased
    price competition and not related to changes in the way computers are
    brought to market,” Stead said.Last year, Ingram Micro began
    redeploying employees and eliminating positions overseas through
    attrition, said spokeswoman Kathleen Janson. Those positions are
    included in the 1,400 jobs being eliminated, she said.
    Ingram Micro
    is realigning its sales force and creating a merchandising operation
    that joins its purchasing, vendor sales and product marketing departments.Company officials said they expect net sales for the first
    quarter this year between $6.5 billion and $6.7 billion, an increase of
    26 percent to 30 percent over last year.Net income was expected to be
    between $40 million and $45 million, not including one-time costs
    involved in the reductions. That amounts to 27 cents to 30 cents a
    share, well below the average estimate of 42 cents predicted earlier in
    an analysts’ survey by First Call Corp.As of September 1998, Ingram
    Micro had more than 14,000 employees. The company and its subsidiaries
    operate in 31 countries and distribute more than 200,000 products.

    Ingram Micro Cuts Costs Despite Profits
    the first time, Ingram Micro Inc. is outsourcing some job functions
    overseas. The $25 billion distribution giant is also in the process of
    laying off 550 employees and has just reshuffled a handful of
    executives to consolidate its Canadian and U.S. operations. Ingram is
    continuing to shrink the campus of its once-sprawling Santa Ana,
    Calif., headquarters from three buildings to one, a process it started
    four years ago. Sales and technical support are being consolidated at
    Ingram Micro’s Buffalo, N.Y., location.Typically, these types of
    changes occur in response to a crisis. That is not the case, however,
    with Ingram Micro.In fact, Spierkel, who was previously co-president
    and once ran the company’s European operations, is taking over under
    far more pleasant circumstances than those faced by his
    predecessor.Kent Foster, who handed Spierkel the chief executive role
    but remains as chairman, took over the company on the eve of the
    dot-com implosion of 2001 and the sharp decline in the overall IT
    market that followed. Distributors were hit hard; Ingram Micro’s
    revenue eventually stabilized at its present $25 billion after peaking
    at more than $30 billion.

    In the lead and moving ahead
    goals are straightforward: be the best and most efficient source of IT
    solutions for our customers,” Spierkel said. “Our associates know this
    is job one, and as such, everyone [at Ingram Micro] is involved in
    driving change in the company. This is particularly important when the
    company is executing well. It ensures we stay ahead of our
    competition.”In the first quarter of this year, Ingram Micro reported
    revenue of $ 7 billion and net income of $42.4 million, the highest
    since 1999. For the second quarter, the company expects revenues to
    range from $6.7 to $6.9 billion, with net income ranging from $41
    million to $46 million.Credit Suisse First Boston even predicted at the
    end of May that the second-quarter results and outlook of Ingram
    Micro’s main competitor, Tech Data Corp., of Clearwater, Fla., will
    “pale in comparison to chief rival Ingram Micro.”A big factor in that
    prediction is the Asian IT market, where Ingram Micro does 17 percent
    of its business. While demand has dropped in Europe and remains modest
    in North America, Asia is growing at double-digit rates. Tech Data has
    no presence in Asia.

     Why change now?
    So why all the changes at the world’s largest IT distributor? The short answer is profit.
    Micro’s management says for the company to boost profitability and
    remain competitive in a world of airtight margins and reduced vendor
    incentives and rebates, it has to cut costs and increase productivity.
    company wants to be able to invest in new business areas, as it has
    done with forays into point-of-sale and digital home markets, and, more
    recently, with an ISV initiative. By investing in new business areas,
    the distributor gives its customers, mostly VARs and integrators,
    opportunities to expand into new markets and boost their own profits,
    according to Ingram Micro executives.Without the consolidation and
    cost-cutting, the company’s management believes its ability to make
    such investments will be inhibited.For one thing, the margin pressure
    that keeps IT distributors constantly on their toes will not go away.
    Vendors, under their own pressures, will likely continue to get
    stingier on incentives and rebates for partners. And the 6 percent
    growth estimated for distributors in the foreseeable future, while not
    bad, is considered very modest in historic IT market terms.”All these
    guys are under pressure,” said longtime channel analyst Benny Lorenzo,
    general partner with Aspira Capital LLC in Fort Lee, N.J., and
    occasional columnist for The Channel Insider.
    The only way to remain
    competitive in a tight-margin, slow-growth market, Lorenzo said, is to
    cut operating expenses, which is what Ingram Micro is doing.Ingram
    Micro expects its various cost-cutting efforts will save about $10
    million this year. By the first quarter of 2006, the company estimates
    its cost savings will have reached a rate at which it will save $25
    million per year in operating expenses compared with the 12 months
    prior to the measures. The moves will cost the company $26 million ($18
    million net of tax).Tech Data Chairman and CEO Steve Raymund said his
    competitor’s cost-cutting moves are designed to increase shareholder
    value and operating profit.
    “Apparently the only way left for them
    to cut costs was outsourcing,” said Raymund, who added Tech Data has no
    current plans to outsource. “We prefer to pursue automation first and
    outsourcing second.”
    Tech Data is doing some restructuring of its
    own. The company is spending $40 million to $50 million in its
    underperforming Europe, Middle East and Africa region with an eye to
    improving profitability. The company has embarked on an IT system
    upgrade and “harmonization” project, which, combined with the
    restructuring, is expected to save $55 million to $65 million.Ingram
    Micro’s outsourcing plan entails moving some job functions that require
    telephone contact with VARs, such as basic tech support and inquiries
    on e-commerce transactions, to the Philippines; it will move some
    backroom transactional jobs that don’t require customer contact to
    India. The distributor is retaining Progeon, a subsidiary of
    outsourcing and consulting firm Infosys Technologies, to handle the
    Ingram Micro executives promise not to allow any
    degradation of service. Customers by and large have reacted positively,
    or, at worst, with a shrug.But Ingram Micro customer Darren McBride,
    president of Sierra Computers, of Reno, Nev., has some misgivings.”I
    personally think the changes are a mistake, but I seem to be in the
    minority,” he said. “I am not confident they can implement these
    changes without impacting service. However, I think it will be six
    months to a year before we even begin to get a clue.”Raymund and some
    other channel insiders speculate that the overall positive VAR reaction
    may embolden Ingram Micro to eventually outsource more jobs.”I think
    they’ll expand it to Europe,” Raymund said. “I’m not sure how far
    they’ll go.”However, Brian Alexander, senior vice president at Raymond
    James & Associates, said he doesn’t think further outsourcing will
    happen. Alexander added that customers have reacted positively to
    Ingram Micro’s outsourcing plan because most of the functions affected
    are not customer-facing.
    Customers, channel observers and Ingram
    Micro executives all agree on one thing: The company will have to
    execute well on the outsourcing and consolidation moves or customers
    will balk. Or, even worse for Ingram Micro, they’ll go shop
    elsewhere.To avoid the pitfalls experienced by other companies that
    have tried outsourcing, Ingram Micro is taking its time with the
    transition, which will take up to nine months. Parallel operations will
    run at Ingram Micro and the outsourcer before the distributor finally
    pulls the switch.Channel observers and customers say they understand
    the distributor’s need to manage its cost structure and seek higher
    profits.And that means despite market challenges and profit margin
    pressures, at least Ingram Micro can count on the support of its
    customers. And that’s not a bad thing if you’re just taking over as CEO
    of the company.”I feel good about where we are,” Spierkel said shortly
    after Ingram Micro announced his promotion to CEO. “The company is in a
    good situation.”