Ingram Micro to Cut 1,400 Jobs as Price War, Foreign Markets Take Toll
Citing slow demand abroad and intense price wars domestically, Ingram Micro Inc., the country’s largest computer distributor, said Thursday it will slash 1,400 jobs to lower its costs.
The company’s decision to eliminate 10% of its work force comes at a time when investors are concerned that demand for personal computers has dropped off and emerging markets have weakened.
Santa Ana-based Ingram said 500 of the job cuts will occur in the U.S., including about 100 employees in the company’s Fremont, Calif., consolidation plant, which will be closed.
The company also said its earnings this quarter will fall far short of analysts’ expectations, even as revenue grows about 30% to nearly $6.7 billion, illustrating how price competition has cut into its profit.
Ingram had tried to stay somewhat above the fray of a price war that has plagued the computer distribution industry. But in a conference call with analysts Thursday, the company said it will join the fight.
“The current pricing skirmish will end quickly once people understand that we will take market share and that we have made the right moves to do a better job of customer service than ever before,” said Jerre Stead, Ingram Micro’s chairman and chief executive.
“We have competitors who have chosen to sell not based on value but on price only,” Stead said. “It’s time to put a stop to that nonsense.”
The company said it expects to earn between $40 million and $45 million, or 27 to 30 cents a share, in the first quarter before taking restructuring costs into account. Ingram said restructuring charges should run “no more than $10 million.”
Analysts had expected the company to earn about 42 cents a share in 1999’s first three months, according to First Call Corp.
With its healthy balance sheet, the company is well-positioned to withstand a short-lived price war, but it is unclear how long such a struggle would last, said William Cage, an analyst with Nashville-based J.C. Bradford.
“They’re financially one of the strongest companies, and certainly the biggest,” Cage said. “To pretty much guarantee that they come out a winner in this price war, they are reducing their cost structure.”
The stock market seemed to concur.
While prices of its competitors fell Thursday, Ingram Micro’s stock rose $1.13 to $19.75 a share, after sagging to an all-time low of $17.13 earlier in the session on the New York Stock Exchange. Volume surpassed 1.7 million shares, more than double the daily average over the last three months.
Some have expressed concerns that direct sales by manufacturers over the Internet will hurt distributors such as Ingram.
Earlier this year, Compaq Computer Corp., the world’s second-largest computer manufacturer, began selling its wares directly over the Internet, following the model of Dell Computer Corp. and Gateway Inc.
But Stead downplayed the impact of direct sales online by computer manufacturers, saying that the company’s restructuring “is not about the gossip and rumors going on about the Internet changing the market.”
The company cited a recent exclusive deal with Microsoft Corp. to distribute software as evidence that the business is changing, but not diminishing.
The distribution industry will not go away because of the Internet, but may look considerably different, said Kristi Thiese, an analyst with Raymond James.
“Until we understand exactly how it looks, there is some uncertainty of what that means for the distributors,” Thiese said.
On top of the changes in the computer distribution industry, Ingram Micro has had to deal with lower-than-expected computer demand.
Both Dell and Compaq recently issued statements about disappointing personal computer sales, leading many observers to believe that inventory has built up after heavy production in the previous quarter.
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Short Road Down
Ingram Micro’s stock has been battered amid declining PC prices and slow sales overseas. Monthly closes and latest on the NYSE:
Nov. 1996: $24.75
Sept. 1998: $53.56
Thursday: $19.75, up $1.13
Source: Bloomberg News
