Two Giants Battle Over PC Distribution Market : Technology: When Ingram Industries and Micro D joined forces last year, it rocked the industry. The recent Softsel/Microamerica merger promises to shake things up even further.
In April, 1989, the merger of two industry giants was supposed to make Ingram Micro D the great white shark of the $4.8-billion personal computer distribution industry.
But it’s taken awhile for Orange County’s biggest high-tech company to make its way through rough waters. Since combining forces, Ingram Industries of Nashville, Tenn., and Micro D of Santa Ana have endured earnings setbacks and the loss of several top executives and some highly visible customers to rival Microamerica.
The leak of customers, including Lotus Development, Toshiba America and Intel Corp., was plugged quickly. But it was months before calm seas returned to the renamed Ingram Micro D, said David Dukes, who joined the firm as president and chief operating officer in September.
Now, another big merger is making waves in the distribution industry, and Ingram Micro D is being challenged by an even bigger competitor.
Softsel, of El Segundo, and Microamerica, of Marlborough, Mass.--the nation’s No. 2 and 3 personal computer distributors--completed their merger this month and supplanted Ingram Micro D as the industry’s largest distributor. The combined company, Softsel/Microamerica, has an estimated 23% of the market and combined sales of about $1.1 billion. Ingram Micro D has an estimated 21% of the market.
Like Ingram Micro D last year, Softsel/Microamerica is in a vulnerable state: It must lay off about 15% of its staff in an attempt to eliminate overlap, and it must adjust to working with two incompatible computerized distribution systems.
“We’re the only company in the industry right now that has smooth sailing as a result of greater buying power,” Ingram Micro D Chairman Linwood (Chip) Lacy said in an interview Monday. “There were a couple of quarters with write-offs, but our fourth and first quarters showed strong profits.”
Dukes said the merger’s success shows in first-quarter sales of $323.4 million, a 34% increase from the combined, year-ago revenue of Ingram Industries and Micro D. The privately held company does not release earnings.
“Our competitors are in for a tough year,” Dukes said. “We see an opportunity here, not by doing things differently, but by expanding according to plan and being better in the execution. (Softsel/Microamerica is) basically going to maintain two separate companies, and that’s expensive and not very efficient.”
But Robert Leff, co-chairman at Softsel/Microamerica, downplayed the impact of the merger on the company’s customers or financial results.
“Our merger will be completed by September, and our objective is not to lose a single customer,” he said. “To date, that is absolutely true. It’s easy to paint a picture of gloom and doom for us, and if I were in David Dukes’ position, I’d do the same. Unfortunately for him, it’s not a reality. They did a fairly good job at their merger, but to say we will have trouble is talking out of both sides of their mouths.”
Ingram Micro D will announce today that it has regained Intel Corp. as a client. Intel, a semiconductor manufacturer, stopped doing business with Ingram Micro D last year out of fear that the merger would hurt sales and support of its line of microchips. Intel’s return, though not significant to overall sales, is a vote of confidence for the merger, Dukes said.
The Santa Ana firm will also announce within a week that it plans to move into a larger headquarters and distribution facility within five miles of its current headquarters on South Yale Street. The reason: The company needs to consolidate four buildings into a single location, and sales growth is so good that the warehouse is bursting.
Ingram Micro D has historically dominated the U.S. market with low prices through volume discounts. It expects international sales to account for 10% of an anticipated $1.4 billion in total sales for 1990.
The PC distribution industry is growing about 30% a year, more than double the rate of the overall PC market.
A key reason for the industry’s growth is that many manufacturers--faced with increasing sales costs and falling product prices--are opting to sell through distributors who can move large volumes of product more efficiently, said Robert Anastasi, an analyst for Robinson Humphrey Co. in Atlanta. Distributors, whose efficiency is similar to that of supermarkets offering one-stop shopping, sell about 20% of all personal computers.
“Ingram Micro D has done a great job of merging,” Anastasi said. “They have a little bit of a window of opportunity” while Softsel and Microamerica iron out their merger. “But both are very much equal,” he said.
Anastasi said customers aren’t likely to defect to Ingram Micro D en masse in a reversal of last year’s events. But Ingram Micro D officials like to think that they will gain new business with a well-executed approach to the same market.
In the past three weeks, Ingram Micro D has made a couple of moves to get a leg up on its competitor by adding two new marketing divisions that focus on specific product lines.
On Monday, the company announced the formation of a new division to handle mass storage products such as tape backup systems. The division is expected to show sales of $150 million in 1990 and exceed $250 million in 1991.
And three weeks ago, Ingram Micro D created a separate division in anticipation of strong sales for new versions of Microsoft’s Windows and Presentation Manager software packages.
Jim Novy, a Softsel/Microamerica spokesman, said that while Ingram Micro D built its name on volume discounts, Softsel/Microamerica generally provides better technical support and is well ahead of Ingram Micro D in the international market, which generates 30% of company sales.
Distributors like Ingram Micro D and Softsel/Microamerica serve as computer industry middlemen, supplying retailers with a variety of personal computer hardware, software and accessories.
With almost 45% of the market between them, Ingram Micro D and Softsel/Microamerica will put the squeeze on small distributors more than they will on each other. Those smaller players will have to concentrate on small, specialized markets instead of discount pricing in order to keep their place in the market, Anastasi said.
