Ingram Micro Posts Winning Numbers

By John Makulowich

With quarterly numbers hitting the streets, an eye-opener among federal suppliers was Santa Ana, Calif.-based Ingram Micro Inc.'s 35 percent increase in net income over the previous year's same period figure.

For the third quarter, net income came in at $59.8 million, or 40 cents per share. Ingram Micro showed record net sales of $5.71 billion in the quarter, a 40 percent surge over the $4.09 billion in the same quarter last year.

For the first three quarters of this fiscal year, net income totaled $172 million, or $1.15 per share. That figure exceeded net income for the same period in 1997 by 38 percent. Through the third quarter of 1998, net sales grew to $15.8 billion.

The company touts itself as the world's largest wholesale distributor of computer-based technology products and services, as well as a leading provider of assembly and integration services.

Jerre Stead, the firm's chairman and CEO, said in a published interview in August that his company is one of the world's largest customers of Microsoft Corp., having paid the Redmond, Wash., software giant the amazing sum of more than $1.7 billion in cash last year.

Marketing its products to resellers rather than directly to end user customers, Ingram Micro operates along with its affiliates in 31 countries and distributes more than 190,000 products from more than 1,400 suppliers to over 115,000 resellers in 120 countries.

It is the Ingram Micro version of offering turnkey or one-stop shopping to its resellers. The base of suppliers includes most of the industry's leading hardware manufacturers, networking equipment suppliers and software publishers.

One way Ingram Micro has penetrated the market more deeply than its competitors is by offering a range of outsourcing and value-added programs. These programs include order fulfillment, tailored financing programs, channel assembly, systems configuration and marketing.

As noted in the company's filings with the Securities and Exchange Commission, its master reseller business is designed to offer resellers access to the industry's leading hardware manufacturers at competitive prices by using a lower cost business model that relies on a higher average order size, lower product returns percentage and supplier-paid financing.

Furthermore, a majority of Ingram Micro's master reseller sales are funded by floor plan financing companies, whose fees are subsidized by the company's suppliers.

Typically, Ingram Micro gets paid from these financing institutions within three business days of the date of the sale.

This allows Ingram Micro's master reseller business to operate at much lower relative working capital levels than its wholesale distribution business.

One component of the company that provides a competitive advantage is IMpulse, an online information system that allows real-time worldwide information access and processing.

A single, standardized, real-time information system and operating environment, IMpulse is used basically across all the company's worldwide operations.

The company went public in November 1996 with the sale of 23.2 million shares at an offering price of $18 per share. The shares closed recently at $45.50, a two-year increase of nearly 153 percent.

The company continues to grow, as it has in the past, by acquisition. In 1998, it bought a controlling share in Macrotron, the German distributor, for $100 million from its competitor, Tech Data Corp. It also bought an assembly plant in the Netherlands to expand into build-to-order PC production.

Last month, it signed a deal with Softbank, Japan's largest distributor of software, peripherals and networking products. The agreement calls for the companies to sell products in each other's markets and take a $50 million stake in each other's business.

According to a company announcement, the goal of the alliance is to provide global account services to value-added resellers, including establishing joint purchasing programs, and leverage each partner's business knowledge and expertise in the markets they serve.

At the end of last month, Ingram Micro announced it had purchased the 30 percent minority interest in its Mexico subsidiary Ingram Dicom S.A. de C.V.


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