Ingram Micro, an O.C. Tech Giant, to Cut Jobs
In another sign that the weak global economy is taking its toll locally, computer distribution giant Ingram Micro Inc. said Thursday that it will cut 1,400 jobs, or 10% of its work force, because of slowing sales abroad and intense price cutting in the U.S.
Santa Ana-based Ingram, the world’s largest distributor of personal computers, is the second major Orange County company this week to announce sizable job cuts tied in part to lower global sales. On Tuesday, Irvine construction and engineering services giant Fluor Corp. announced a major restructuring that includes the elimination of 5,000 jobs worldwide.
Another local company, Irvine software maker Rainbow Technology, warned Thursday that its quarterly results will fall below expectations because of weak sales overseas.
The layoffs are part of a troubling national trend, said John A. Challenger, chief executive of Challenger, Gray & Christmas Inc., a Chicago firm that tracks job cuts in the United States and Canada.
“The last six months have been the heaviest period we’ve seen for downsizing since we began tracking it in 1993,” Challenger said.
About 3,500 of Ingram’s 8,500 U.S. workers are in Orange County. Company officials declined to say how many of those might be affected.
A variety of factors, from economic woes in Asia and Latin America to last year’s unprecedented wave of mergers and acquisitions, which led ultimately to consolidation and job cuts, have been responsible for the layoffs, Challenger said.
Wall Street is contributing to the trend by demanding that companies hit quarterly earnings expectations and hammering their stocks when they don’t. To boost their numbers, companies must either build business or cut costs, Challenger said, noting that it is very difficult to raise prices in an era of low inflation and high competition.
Economists have been expecting the county’s robust, job-creating economy to cool this year because of general belt-tightening and a slowdown in exports. Chapman University expects county employment to rise about 2% this year, less than half of last year’s 5% growth rate.
The downturn “is significant, but it’s not a negative number,” said Chapman economist Esmael Adibi. “We don’t anticipate a recession.” The layoffs at larger companies are being offset partly by hiring at small businesses, he said.
Ingram, which also warned that first-quarter earnings will fall below estimates, said 500 of the 1,400 job cuts will occur in the U.S., including about 100 employees in the company’s Fremont consolidation plant in the Bay Area, which will be closed.
Ingram’s announcement comes at a time when investors are nervous about the drop-off in demand for personal computers. Ingram executives 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 financial analysts Thursday, they said they now would 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’s chairman and chief executive. “We have competitors who have chosen to sell not based on value but on price only. It’s time to put a stop to that nonsense.”
The company said its earnings this quarter will fall far short of analysts’ expectations, even as revenue grows about 30%, to nearly $6.7 billion for the January-March period.
The company said it expected to earn $40 million to $45 million, or 27 cents to 30 cents a share, in the first quarter before restructuring costs, which the company said would be “no more than $10 million.” Analysts had expected the company to earn about $58 million, or 42 cents a share.
Ingram is well-positioned to withstand a short-lived price war, but it is unclear how long such a struggle will 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.”
Investors seemed to agree.
While share prices of its competitors fell Thursday, Ingram’s stock rose $1.13, to $19.75, on the New York Stock Exchange, rebounding from its all-time low of $18.63 on Wednesday.
Stead downplayed the effect that some computer manufacturers are having on distributors by selling directly to consumers via the Internet. He said the restructuring “is not about the gossip and rumors going on about the Internet changing the market.”
Earlier this year, Compaq Computer Corp., the world’s second-largest computer manufacturer, began selling its computers directly over the Internet, following the model of Dell Computer Corp. and Gateway 2000 Inc.
The distribution industry will not become extinct 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 finds itself dealing with lower-than-forecasted computer demand. Dell and Compaq have recently issued disappointing statements about PC sales, leading many to believe that inventory has been piling up.
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Outside Creeps In
Ingram Micro’s decision to trim 1,400 jobs is but another indication the slumping global economy is finally making a mark in Orange County. Although total payroll employment has continued to grow here, pace will slow conspicuously this year. And the quarterly value of exports has already been declining year to year.
Employment, % Increase
1994
Employed (in thousands): 1,126
% Increase: 1.0%
1995
% Increase: 2.2%
1996
% Increase: 2.8%
1997
% Increase: 3.8%
1998
Employed (in thousands): 1,276
% Increase: 3.8%
1999
Employed (in thousands): 1,301
% Increase: 1.9%
2000
% Increase: 2.7%
2001
Employed (in thousands): 1,376
% Increase: 3.0%
2002
% Increase: 2.1%
2003
Employed (in thousands): 1,441
% Increase: 2.6%
Percentage change in value of Orange County exports:
1997
3rd qtr. 16.3%
4th qtr. 9.6%
1998
4th qtr. -4.0%
1999
2nd qtr. -0.3%
4th qtr. -3.7%
Note: 1999 figures are forecasts, years thereafter forecasts
Taking the Hit
Here are some of the job actions involving Orange County firms so far this year:
Jan. 5: Platinum Software Corp. announces it’s cutting about 300 jobs, 25% of them in Orange County and San Diego.
Jan. 7: Avco Financial Services says it will close Costa Mesa headquarters and cut most of 200 jobs there.
Jan. 19: Irvine-based Day Runner Inc. says it has eliminated 350 workers from worldwide operations.
Feb. 4: Chevron Corp. says it will sell its La Habra technology center, cutting 330 jobs.
March 9: Medtronic Inc. announces plans to close Anaheim plant within two years, erasing most of 560 jobs.
March 9: Fluor Corp. reveals plan to drop 5,000 jobs worldwide--about 8% of its salaried work force--during the next few months.
Sources: Chapman University, Times reports
Shake-up at Ingram
Ingram Micro Inc.’s stock slumped to a record low of $17.13 Thursday, then rallied to close at $19.75, up 6%. The company said it plans to eliminate 1,400 jobs in response to stiffer competition and slack demand. Monthly closing prices and sales and earnings totals, in millions
Sales Earnings
Sales 1994: $5,830.2
Sales 1998: $22,034.0
Monthly Closing Prices
1996
Nov. $23.75
1998
Thursday close $19.75
Source: Bloomberg News
