Ingram Micro in Major Deal With CompUSA
In a deal that could be worth up to $10 billion in revenue over five years, Santa Ana-based Ingram Micro Inc. will take over CompUSA Inc.’s sales operations that involve large corporate, government and education customers, the companies said Monday.
Under the agreement, Ingram Micro will distribute, service and handle returns for all of CompUSA’s computers and peripherals destined for large accounts, although customers will continue to deal with CompUSA salespeople. In addition, Ingram Micro will assemble a range of brand-name computers and peripherals sold by CompUSA.
Ingram Micro has focused on offering its customers--retailers and those who sell directly to large clients--services beyond the low-profit function of delivering hardware and software.
“More than half the orders we ship today are on a fulfillment model, delivering computers directly on behalf of a reseller,” said Philip Ellett, executive vice president of Ingram Micro, the world’s largest computer distributor.
The proposed deal is the largest ever for the technology-distribution industry and would almost double Ingram’s revenue from Dallas-based CompUSA, Ellett said. CompUSA already is Ingram Micro’s largest customer. Ingram Micro has said in regulatory filings that no customer accounted for more than 4% of its $22 billion in sales last year.
Ingram Micro is benefiting from a decision in May by Compaq Computer Corp., the world’s biggest personal computer maker, to winnow the number of companies who distribute its products from 39 to just four: Ingram Micro and three others. At the time, Ingram Micro said the move could mean as much as an additional $4 billion in sales.
“It prompts the companies that didn’t get a direct relationship with Compaq to look for other partners,” said Shelby Fleck, a Morgan Stanley Dean Witter analyst who rates Ingram Micro “outperform.” “CompUSA could no longer buy PCs direct from Compaq.”
CompUSA’s move to farm out the servicing of its corporate customers is part of its overall shift in focus from revenue growth to profits. The company has struggled since the beginning of last year with falling margins in computers and increased competition from customized computer manufacturers such as Dell Computer and Gateway. Sales at stores open at least a year--a key measure of growth--and gross margins have fallen, and CompUSA has reported five consecutive quarters of weaker results.
The deal with Ingram Micro will result in the closure of CompUSA’s Grapevine, Texas, distribution center, which has 130 employees. The company last month said it would eliminate as many as 1,500 of its 21,000 jobs, and earlier this month said it would close four stores.
Ingram Micro officials said it is hiring additional workers as a result of the CompUSA deal for its distribution centers, including one in Santa Ana, but did not say how many.
By having Ingram Micro handle direct sales, CompUSA diminishes its risks in holding inventory, which has been increasing in the fast-paced personal computer industry.
“It used to be that manufacturers would guarantee the price of a computer for a certain number of weeks, but now it’s down to a period of days,” said Suzanne Shelton, spokeswoman for CompUSA. “We won’t ever own the inventory now, and we see that as a big advantage.”
In part because of its size, Ingram Micro feels it can better manage the inventory risk.
About 40% of CompUSA’s $6 billion in revenues come from commercial customers. The Ingram Micro deal will not affect the retail side of CompUSA, which is the country’s largest personal computer retailer.
In New York Stock Exchange trading, Ingram Micro shares rose $1.25, to $27.75. CompUSA fell 6 cents, to $7.31. The two companies said they hope to reach a definitive agreement by Aug. 29.
