Ingram Micro toughs out downturn

IT distribution is a stressful business at the best of times. In bad times, it's a pretty horrible place to be, with reseller customers going titsup all over the place, inventory going off more quickly than pears, suppliers squeezing co-operative marketing funds, the constant grind to shave operating expenses.

And what for? A measly seven or eight per cent gross margin, if you're lucky, or niche. And more like three or four per cent, if you're big.

But someone's got to do it. And Ingram Micro, the world's biggest distie, does it better than most. The company's sales and profits fell in Q1, but it reckons its done a pretty good job, considering soft market conditions, especially in the US.

Net sales were $7.2bn (Q1 200O: $7.8bn) and operating income was $70.5m. This is the same as Q1 last year , buy Ingram notes the profit margin is better by "eight basis points". This kind of calculation matters when you're dealing with such razor-thin margins.

Ingram reports that its gross margin wass 5.34 per cent of sales, up from 4.7 per cent in Q1 last year.

Net income was $26.4m, seven per cent up on $24.7 million in Q1, 2000 Oone you take away last year's gains from the sale of shares).

Group sales were down 8 per cent, with sales tumbling 15 per cent in the US ($3.92 bn), and sales up one per cent in Europe ($2.05bn - but 15 per cent up in local currencies) and five pre cent for the rest of the world ($1.22bn).

In its statement accompanying its results, Ingram stresses again and again its financial disciplines - operating expenses down, inventory turnaround up, debt reduced by $120m etc. The distie also says that it has the lowest debt-to-capitalisation ratio in the industry.

In other words, it's fighting fit, while others flounder. Disties with weak balance sheets tend to go bust, or get sold for peanuts in a downturn, as they have no margin (literally) for error.

Ingram has seen off the competition time and time again. Worldwide, only Tech Data is a credible rival. And it is inevitable that these two will pick up market share this year.

Their big struggle will be if and when the major logistics companies decide to take IT product distribution seriously.

Broadline distribution is logistics plus finance, a bit of tech advice, and sometimes, some new product or technology promotion. Decouple the sales and tech push from the logistics, and the likes of UPS could outgun the tech-only players. Even the huge ones. ®

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