Merisel to Exit Computer Distribution Business, Cut 25% of Global Work Force
In an effort to stem continuing losses, El Segundo-based Merisel said Friday that it will exit the computer hardware distribution business and lay off 200 employees across the country, or 25% of its global work force.
Instead, Merisel will aim for profitability by focusing on selling software licenses and electronic commerce services.
Merisel executives said they expect to wind down their U.S. distribution business in the next three months. The 20-year-old company will continue to distribute personal computers and other hardware in Canada, where the company says business remains strong.
But in the U.S., a series of strategic blunders prevented Merisel from competing effectively against Santa Ana-based Ingram Micro and Tech Data of Clearwater, Fla., in the computer hardware distribution business.
“They’re truly waving the white flag,” said Bear Stearns analyst John E. Ford in New York. “They’ve bowed to the inevitable.”
Investors greeted the news by sending Merisel stock down 14% to a 52-week low Friday. The shares closed at 19 cents, down 3 cents in Nasdaq trading. The stock had traded as high as $3.69 in March.
After the restructuring is complete, Merisel’s U.S. distribution operation will concentrate on selling software to its corporate customers. Instead of buying dozens of copies of a program packaged individually in shrink-wrapped boxes, companies often rely on middlemen to provide a small number of physical copies and supply licenses for each person who will actually use the software.
Although profit margins from software licensing are high, Merisel’s restructuring will alter the company so dramatically that it’s hard to say whether the change will lead to profits, Ford said.
Merisel has been a distributor for software makers such as Computer Associates, Symantec and Network Associates. But Chief Financial Officer Timothy Jenson said it’s too soon to say how many Merisel vendors will stick with the company.
Merisel was forced to retreat from hardware distribution because the stiffer terms demanded by manufacturers left the company with little room to make a profit, Jenson said. Instead, Merisel fell further and further behind its larger rivals, Ingram Micro and Tech Data.
“This is an economies of scale game,” he said. “We couldn’t get to the economies that allowed us to be profitable.”
Ford also faulted the company for making “some bad acquisitions, in Europe in particular” and for pursuing “a distribution strategy that never worked quite right with some of the facilities they had built.”
With nearly $5.2 billion in sales last year, Merisel ranks 317th on the current Fortune 500 list despite a loss of $61.2 million. In the first nine months of this year, Merisel lost $74 million on revenue of$1.9 billion.
Last month, Merisel acquired the assets of defunct e-tailer Value America for nearly $2.4 million. Merisel plans to use Value America’s infrastructure to offer e-commerce services, such as Web hosting and product shipping, to its customers, Jenson said.
