Ingram Micro Inc., the world's largest distributor of computer products and Orange County's largest company, said Thursday it slowed its profit slide, reporting net income that matched Wall Street's expectations.
The Santa Ana-based company said second-quarter earnings fell 9.5%, to $50.3 million, or 34 cents a share, from $55.6 million, or 37 cents a share, in the same year-earlier period.
Sales for the quarter ended July 3 grew 37%, to $6.8 billion from $5 billion.
The company's earnings had been growing consistently until three months ago, when the effects of cutthroat pricing in the computer industry led to a 25% drop in first-quarter profits.
"We continue to see the vendors recognize the economic advantages of aligning themselves with the ever-smaller set of strategic distributors," said Jerre Stead, Ingram's chairman and chief executive. "It was easy for people focused on selling almost at any cost to drive down margins. It's much more difficult to bring those margins back."
The quarter's results included a $2.1-million charge for restructuring the company's European operations. Without the charge, Ingram earned 35 cents a share, compared to 34 cents a share expected by financial analysts, according to First Call Corp.
Analysts are predicting a drop in Ingram's third-quarter profits as well, but expect improved results by the end of the year.
"They're bringing their costs down each quarter and winning a lot of incremental outsourcing business," said Tom Cal, an analyst with SoundView Technology Group Inc. "They're doing well."
Cal pointed out that while the revenue from personal computer sales in general are increasing at roughly 15%, Ingram Micro is growing at nearly twice that rate.
Company officials said that the productivity of its sales representatives has increased 40% over the last two years largely because of Ingram's efforts to use electronic networks to automate sales.
During a conference call with financial analysts, Ingram officials said that the $50-million investment it made in Japanese investment giant Softbank Corp. last year has resulted in an unrealized gain of $171 million, a 342% return in less than 10 months.
The deal, announced in October, also called for Softbank to buy $50 million in Ingram stock, which hasn't fared nearly as well. Since the deal was announced, Ingram shares have fallen 26%.
Also on Thursday, Ingram said it appointed Gerhard Schulmeyer, president and chief executive of Siemens Corp., the holding company for the U.S. businesses of Siemens AG, to be the eighth member of the board of directors.
Ingram shares fell $2.56, or 7.9%, Thursday, to $29.75 in New York Stock Exchange trading.
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Lower PC prices and reorganization costs helped drop second-quarter profits at Ingram Micro Inc. The 9.5% decline came despite a 37% increase in sales. Second-quarter sales and earnings in millions:
Sales Earnings 1998 $4,956.1 $55.6 1999 6,804.8 50.3
Source: Bloomberg News
Lower PC prices and reorganization costs combined to drop second-quarter profits at Ingram Micro Inc. The 9.5% decline came despite a 37% increase in sales. Second-quarter sales and earnings in millions: