Marshall Is Latest Tech Distributor to Warn on Profit
High-technology companies may be booming, but the computer and electronics distribution industry that does the behind-the-scenes heavy lifting that makes it all work is mired in a slump.
On Monday, El Monte-based Marshall Industries Inc. became the latest to announce that its results won’t meet expectations. Marshall said it will earn between 14 and 17 cents per share this quarter, about half what Wall Street had expected.
The company’s shares fell $3.81, or 20%, on Monday on the New York Stock Exchange, to $15.50, its lowest in more than six years. Trading volume was heavy, as 569,500 shares changed hands, 14 times Marshall’s average daily trading volume.
Since mid-December, a string of companies, ranging from Santa Ana-based Ingram Micro Inc., the world’s largest wholesale distributor of technology products, to Merisel Inc. in El Segundo, have announced or warned of poor earnings, and their stocks have taken a corresponding beating.
Marshall’s news further dragged down the shares of its peers. Ingram, for example, saw its stock hit a 52-week low Monday at $25.06. Nine weeks ago it was trading at $46.
Other distributors on both ends of the business--parts and the assembled hardware--have been clobbered since the beginning of the year. Parts distributors Avnet Inc. and Arrow Electronics Inc. are off 29% and 39%, respectively, while computer distributors such as Tech Data Corp., MicroAge Inc. and Merisel have seen their stock prices fall at least 20% this year.
“We have seen for some time now an oversupply of product in the semiconductor area, and this has led to declining average selling prices and a great pressure on the gross profit margins,” said Robert Rodin, chief executive of Marshall Industries.
“These are challenging times for electronics distributors as we go into the future, but every corporation in every industry is trying to remake itself.”
Marshall, through attrition and job cuts, has trimmed 200 people from its work force in the last two years, and “we have room to reduce expenses if necessary,” Rodin said. The company employs about 2,100 workers.
Meanwhile, it has spent $5 million to beef up its sales force automation system to prepare for an upturn in the notoriously cyclical industry, Rodin said.
But electronic parts distributors are being squeezed by electronic parts manufacturers, who have taken on larger roles in managing the inventories for computer makers, and by computer wholesalers, who are distributing more and more components.
“They’re getting their market share attacked by two sectors,” said William Cage, an investment analyst with J.C. Bradford & Company in Nashville.
The separate-but-related computer-distribution field, which Ingram Micro dominates, has had a “black cloud” over it since a price war erupted in mid-1998, Cage said.
“With the dramatic decline of the average selling price of computers and a more competitive marketplace, there is uncertainty about how long and how deep the price war will go,” Cage said. “How long it goes depends on how long the capital is going to continue to flow. It’s not like they are making any money on it.”
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Bit of a Hit
Following much of the electronics distribution industry, Ingram Micro Inc.’s stock dropped Monday to $24.58, a 52-week low. It gained some ground to close just above $25, but that’s more than a 50% decline from the 52-week high of $54.63 five months ago. Weekly closing prices: 1999:
Monday close: $25.06
Source: Bloomberg News
