Ingram CEO Quits Top Post as Firm Stumbles
Orange County’s highest-paid executive, who runs technology giant Ingram Micro Inc., said Wednesday that he is giving up the day-to-day reins of the world’s largest computer distributor.
The surprise announcement from Jerre Stead, who since 1996 has built the Santa Ana-based company into a global technology powerhouse, comes as Ingram has stumbled amid an industrywide slump that has seen vicious price-cutting erode profits.
Stead’s announcement, accompanied by another weak profit forecast, sent Ingram shares tumbling 31% Wednesday, to an all-time low, underscoring the volatile nature of Wall Street’s love-hate relationship with technology companies.
He becomes the second executive at an Orange County Fortune 500 technology company to vacate a high-level post in the past three months.
In July, Irvine disk-drive maker Western Digital Corp. said that Chairman and Chief Executive Charles A. Haggerty will retire by next June. Like Ingram, Western Digital operates in an industry plagued by plunging prices and ferocious competition. Unlike Ingram, which is expected to post a $238-million profit this year, Western has lost nearly $1 billion over the past two years.
Stead, 56, will continue as chief executive while Ingram Micro searches for a successor, and then continue as chairman.
“I’ve been very consistent from the time I joined that it was a three- to five-year assignment at the most,” said Stead, who previously headed software developer Legent Corp. and the NCR computer manufacturing unit of AT&T; Corp. “I’ll stay here and be just as active as needed, both as an active chairman and chief executive while we do the search and as active as needed as chairman when we get the new CEO in.”
His successor will have much to contend with. While still solidly profitable, Ingram has struggled this year with shrinking profit margins and sagging morale in the wake of layoffs, a corporate reorganization and the departure of more than a dozen executives in recent months.
When Stead took the helm in August 1996 just as the company was going public, he made a splash by accepting a pay package that did not include a salary or a bonus. Instead, Stead’s pay relied solely on stock options, tying his compensation entirely to the performance of Ingram stock.
For the first two years, Ingram shares soared from the $18 they fetched in the initial public stock offering to $54 last September, an all-time high. Most of the nearly 4 million options Stead has earned allow him to buy Ingram stock at the company’s initial offering price.
Last year, he exercised options on 1 million shares of Ingram stock, giving him a gain of $15.9 million and making him by far Orange County’s highest-paid executive. In a move meant to underscore his belief in the company’s future, Stead bought the shares shortly after Ingram’s stock was pummeled by investors the first time the company missed a profit forecast.
Stead still holds those shares, which Wednesday were worth $13.3 million, giving him a paper loss of more than $4.7 million. The nearly 3 million options he still holds are currently worthless, because the company’s stock closed at $13.31 Wednesday, far below his $18 exercise price.
On Stead’s watch, Ingram Micro--Orange County’s largest company--doubled its revenues to $22 billion a year, becoming the world’s dominant distributor of computer hardware and software.
Along the way, Ingram has had to contend with the Internet forcing an evolution of the distribution industry, with companies such as Dell Computer Corp. selling directly to consumers, cutting out distributors such as Ingram.
The company under Stead has responded by expanding the role of the distributor from simply acting as a warehouse middleman to include customer service, Web site development and management, and computer system configuration.
Ingram also expanded its operations in Europe and this year acquired Electronics Resources Ltd., a Singapore company, to give itself a presence in Asia. Ingram last year entered into a partnership with Softbank Corp., Japan’s largest distributor of computer software.
Last month, Ingram began building its own line of computers, which it sells to retailers and other computer sellers whose clients, generally businesses, want unbranded computers called “white boxes.”
While Ingram has experienced significant turmoil this year that has hurt its financial performance, most outsiders agree that the company is solid, its dominant position secure and its problems fixable.
The move surprised most people who watch the company, including former executives of Ingram, who saw the move as voluntary on Stead’s part.
“It certainly sounds like he’ll still be there in terms of setting the overall direction, and what he’s really saying is let’s bring in someone for the day-to-day management,” said Joel Pitt, an analyst with Credit Suisse First Boston, pointing out that Stead will remain as chairman of the company.
The computer distribution industry, with its slim profit margins and high volumes, traditionally takes a toll on those who work in it.
“It’s the definition of a grind,” said Robert Anastasi, a financial analyst with Raymond James. “There is little room for mistakes, and it’s something you’re doing thousands of times a day.”
Stead joined Ingram in the wake of the abrupt departure of Linwood “Chip” Lacy, who left after a power struggle with the founding Ingram family of Tennessee, which still controls the company.
The company looked at succession-planning in February, but Stead said he brought it up again with the executive committee two weeks ago. After holding two meetings by telephone with the board of directors, including one over the Labor Day weekend, and another meeting with the executive committee, the transition was underway.
Ingram already has hired an executive search firm to find a replacement, but company officials declined to name the firm. Stead said he will stay on as chief executive for two years at the most, if necessary.
