After Crash, Ingram Hunts for Growth
For most of its 25 years, Ingram Micro Inc. has bumped along with the technology industry’s wild ride.
The Santa Ana-based company grew to become the world’s largest distributor of technology products during the boom, but crashed in 2001.
Now, Ingram is trying to take the wheel and navigate its way along the road to recovery.
Although low-margin distribution of a wide variety of products, including flat-panel displays and digital cameras, still drives Ingram’s $22 billion in annual revenue, the company is beefing up its sales and market research staffs to make itself more useful to the hundreds of thousands of independent technology resellers that assemble corporate computer and software systems.
“The world of distribution is changing a lot,” said Michael Haines, vice president at Gartner, a technology research firm. “Like every other distributor, they’re looking for ways to increase the percent of higher margin services they can perform.”
To that end, Ingram is selling more consumer electronics and offering services to its resellers such as technology training boot camp, market research and business literacy courses including finance and human resources. The company is also seeking growth in far corners of the globe, particularly in the rapidly expanding but risky markets of Asia.
“In the heydays, growth came to us,” said Ingram’s Co-President Kevin Murai. “Today, you have to go looking for growth.”
It’s been hard to find, particularly in recent weeks as major technology companies like Hewlett-Packard Co. and Cisco Systems Inc. forecast weaker sales. Ingram, when it reported second-quarter results last month, offered a similarly tepid prediction for the current quarter.
Wall Street views Ingram as a barometer of the overall tech industry, but employees often joke that they work for the largest technology company no one’s ever heard of. Ingram posts higher revenue than Oracle Corp., Amazon.com Inc. or EBay Inc., but enjoys none of their name recognition.
Nonetheless, said Ingram Chief Executive Kent B. Foster, “I believe the role we play in the economy is very significant. That role is increasing, not decreasing, because technology remains a powerful driver of productivity. It will continue to grow faster than the economy.”
Ingram does play a key role in ferrying new technology from manufacturers to customers.
It does that through its relationships with hundreds of thousands of resellers that market, design and install custom technology -- say a corporate e-mail system or a customer database -- for companies and organizations. Because resellers can’t stock every piece of technology, most order from Ingram, which gets goods from manufacturers. Ingram also fills customer orders for retailers such as Amazon, Circuit City Stores Inc.’s online orders and Wal-Mart Stores Inc.
Over the years, Ingram wiped out rivals who couldn’t keep up with its relentless consolidation and cost-cutting.
“The number of distributors has dramatically declined over the years, from as many as 400 in the early 1980s to a couple of dozen or fewer today,” said Bob Anastasi, analyst at Raymond James & Associates. “Distribution is largely about size, and Ingram Micro has done an awful lot to keep its cost structure very, very competitive.”
Just about everything at its 48 warehouses is automated to trim labor expenses, from the ordering systems that spew out address labels to the conveyor belts that ferry packages along.
Workers like Fernando Rincon, who fills orders in Ingram Micro’s cavernous Mira Loma warehouse, have bar-code readers to help them swiftly and accurately do their work. Rincon averages 60 packages an hour and once filled 200 orders in 90 minutes.
“You’re moving fast so customers can get their products on time,” he said.
Ingram flourished as companies spent heavily to prepare for the so-called Y2K transition and as the dot-com bubble fueled a spending spree. In 2000, it realized $226 million in profit from $30.7 billion in sales.
The wave receded in 2001 as corporate spending dried up. Ingram’s profit that year plunged to just $6.8 million on $25.2 billion in sales. Ingram laid off thousands of workers and consolidated warehouses. The company now employs 11,300 worldwide, down from 16,500 in 2000. Meanwhile, its stock has tumbled 82% from its September 1998 high.
To boost sales, Ingram started to process the paperwork for service warranties, offer technical training and marketing assistance, and conduct research to help resellers find new markets.
It’s also investing in Asia, where demand for technology is booming. Sales from Asia now contribute 10% of Ingram’s overall revenue.
After taking on numerous money-losing contracts to increase its market share in China and India, Ingram pruned its business there. Asian sales fell 11% in the second quarter compared with the first, but profit rose to $1.3 million from from breakeven in the first quarter.
“Growth in Asia is easy to come by. It’s the profit that’s hard,” said Gregory M. Spierkel, Ingram’s co-president in charge of European and Asian operations.
Overall for the second quarter, Ingram Micro posted profit of $25.9 million, or 16 cents a share, on $5.7 billion in sales. In the same quarter last year, the company made $11.5 million, or 8 cents, on $5.2 billion in sales.
Its shares, like most large technology companies, have had a bumpy year so far, falling 14.4%. They rose 2 cents Friday to $13.59 on the New York Stock Exchange.
Despite Ingram’s stock slide, Anastasi said Wall Street largely remained patient with Ingram’s foray into Asia, noting that its entry into Europe in 1989 was similarly bumpy, with little consistent profit until the late 1990s.
“Look at Europe,” Anastasi said. “They started there decades ago, and it was really only in the last couple of years that Europe paid off in a big way.”
But the challenge is to grow in a way that doesn’t sacrifice profit, a hard lesson it learned from the recent tech bust.
“Growth can be deadly if it outstrips your ability to manage it,” Ingram CEO Foster said. “In the future, we have to be able to grow profitably.”
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A Quiet Giant
Ingram Micro is one of the largest tech companies, but few computer users even know it exists.
2003 revenue (in billions) Hewlett-Packard: $73.1 Dell: $41.4 Microsoft: $32.2 Intel: $30.1 Ingram Micro: $22.6 Cisco Systems: $18.9 Sun Microsystems: $11.4 Oracle: $9.5 Amazon.com: $5.3 EBay: $2.2 Yahoo: $1.6
Source: Factiva
