Posted on: Sunday, August 22, 2004
Tech titan Ingram re-emerging
| • | Chart: Quiet Giant |
By Alex Pham
Los Angeles Times
For most of its 25 years, Ingram Micro Inc. has bumped along with the technology industry's wild ride.
The Santa Ana, Calif.-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 everything from flat-panel displays to digital cameras still drives Ingram's $22.6 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 such as finance and human resources. It's also seeking growth in far corners of the globe, particularly in the rapidly growing, 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 such as 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 revenues 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 receives goods from the manufacturer. 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."
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 and corporate spending dried up. In 2001, Ingram's profit 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 percent from its September 1998 high.
To boost sales, Ingram started processing the paperwork for service warranties, offering technical training and marketing assistance, and doing market 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 percent of Ingram's overall revenue.
After taking on numerous money-losing contracts to gain market share in China and India, Ingram pruned its business there. Asian sales fell 11 percent in the second quarter compared with the first, but profit rose to $1.3 million 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.
