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PCM may become a takeover target

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PCM Inc., an El Segundo company that sells information technology products and services, has attracted little attention in more than a quarter-century of business.

But that soon may change.

The owner of a competing company has starting snapping up PCM's stock, raising speculation of a possible takeover.

Firoz Lalji, chairman of technology company Zones Inc. in Auburn, Wash., now owns about 5% of PCM, according to a regulatory filing. And he called PCM "one of the poorest-performing companies in its industry."

PCM's most visible brand is the MacMall retail stores it operates in Torrance, Santa Monica, Huntington Beach and Chicago, where it sells computers, tablets and other devices directly to the public.

But the majority of its revenue — more than 70% — comes from its commercial division, which sells computer products, networking, storage and services to businesses, the company said in its 2013 annual statement.

PCM is headed by Frank F. Khulusi, its co-founder, chief executive and chairman. He has run the company since it launched 27 years ago as PC Mall Inc. He owns more than 20% of the company's stock and is its largest shareholder. He declined to be interviewed for this story.

The company's revenue has been remarkably flat in recent years. It reported $1.421 billion in 2011, $1.421 billion in 2012 and $1.424 billion in 2013, according to its annual report.

The company's financial results are a major focus of criticism by Lalji, who is acquiring stock.

The company, he said, "has not done as much over the past several years to drive growth, profitability and stockholder value as other companies in its industry." He noted that PCM's combined profit of $16.4 million on $4.26 billion of revenue in the last three years "is a wholly unacceptable level of 0.4% of revenue."

Lalji also criticized Khulusi's compensation as "unreasonably higher" than top executives of similarly sized companies. In 2012, Khulusi was paid $1.4 million in cash, stock and other benefits, according to a PCM filing.

The latest

Last year, the company changed its name from PC Mall Inc. to PCM Inc. and changed its stock symbol from MALL to PCMI. The change was intended to reflect the company's increasing emphasis on providing technology support to businesses rather than simply selling computers.

"We are very excited about this evolution as we believe it will lead to an improved customer experience [while] leveraging a brand that better represents the technology solutions provider we have become," Khulusi said in a news release that explained the change.

In December 2012, the company bought nearly eight acres in New Albany, Ohio, where it intends to build a cloud data center that it expects to open this year. The facility will complement two existing data centers and an operations center in Atlanta that the company uses for cloud services, data center hosting and management, remote monitoring and disaster recovery.

Accomplishments

In a recent earnings call, Khulusi said he was proud of last year's results. The company made significant strides in sales of its networking services (up 21% from 2012) and storage (up 18%), he said. "2013 was on balance a good year for PCM."

There's also something to be said for the company's longevity and its access to the biggest brands in the technology and communications industry.

"Since our founding in 1987, we have served our customers by offering products and services from leading brands, such as Adobe, Apple, Cisco, Dell, HP, Lenovo, Microsoft and Oracle. We add additional value by incorporating products and services into comprehensive solutions," PCM said in its 2013 annual report issued in March.

Challenges

The retail division faces steep competition, both from other retailers and from some suppliers. The four MacMall stores compete with Apple stores, as well as retailers such as Best Buy and Target.

MacMall saw a 9% drop in sales in the fourth quarter last year, in part because the company had a difficult time receiving inventory from Apple to meet demand.

"We were unable to get enough product in Q4 to satisfy the demand that we generated," Khulusi said. We have seen some recovery and availability thus far in Q1 and we're working to try and create a more predictable business with Apple going forward."

Spending by federal agencies has also decreased. The company said it saw a 16% decrease in public sector net sales in the fourth quarter of 2013.

Analyst views

The one analyst who covers PCM rates it as a sell.

stuart.pfeifer@latimes.com

Twitter: @spfeifer22

Copyright © 2014, Los Angeles Times
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