Computer distributor Ingram Micro
reported a 35-percent boost in income and revenue of close to $6 billion
for the third quarter, a sales surge that reflects a massive consolidation
in the middle tier of the high-tech buying chain.
The company earned $59.8 million, or 40 cents a share, a substantial increase over the $45.8 million earned in the same quarter the year before. Revenue, meanwhile, came to $5.7 billion, an increase of 40 percent over the $4.09 billion for the year-ago third quarter.
Ingram's performance is all the more impressive for the changes which have
beset its business.
In recent years, direct computer vendors like Dell have been putting the squeeze on
computer distributors and dealers, which have historically earned their
living from managing the logistics of delivering hardware and software to
Meanwhile, the pace of mergers and acquisitions has accelerated, creating
mammoth distribution consortiums which concentrate more market share in a
fewer companies. Earlier this month, for instance, Inacom became a $7 billion
distributor-integrator after it purchased Vanstar.
Much of the growth is coming from consolidation rather than expanding
markets, said Charles Smulders, an analyst with Dataquest. PC sales figures seem to
bear out his point. The worldwide PC industry overall grew around 14
percent for the third quarter, lower than Ingram's 40-percent growth. Top
traditional PC vendors, such as IBM, grew at around the same rate. Direct
sellers, however, saw sales increase more than 50 percent.
"Overall, we haven't seen a significant upturn," he said. "We are seeing
consolidation in the U.S. market and the European market. There is some
going on in Latin America as well."
Despite the company's economic girth, Ingram still faces a difficult
marketplace, Smulders added. Distributors are working on margins of around
two percent, which is much smaller than even strapped hardware vendors
In the future, these companies, as well as the computer vendors, will
finally have to come up with a solution to meet the direct sales challenge. For
a number of years, IBM and others have touted "channel assembly" as a way
to blunt Dell's advances. Under this solution, computer vendors ship
bare-bones systems and components to distributors and resellers, which then
assemble PCs upon customer orders.
Unfortunately, its promise is fading, even though channel assembly programs
are barely under way. "I'm skeptical that channel assembly makes sense,"
said Smulders. "It is potentially more efficient than traditional
manufacturing but it is not as efficient as the direct model."
Ian Morton, an analyst with Hambrecht & Quist, agreed that the industry is
experiencing a wave of consolidation, but said that Ingram is feeling less
overall effects of the direct phenomenon because of the variety of products
the company handles. PCs are only 20 percent of the product mix.