Ingram Micro Relieved Over HP’s Not Spinning Off PC Business
IT wholesale distributor Ingram Micro executives voiced relief during the company’s Q2 earnings call Thursday over HP’s change of heart toward spinning off its PC business. When asked what HP’s decision meant to Ingram Micro, CEO Gregory Spierkel said, “I see it as a positive.” HP’s decision not to divide the business is going to be “a good thing for them internally” because of so many intertwined systems, programs and initiatives that would have caused “some issues” had they split the company up, Spierkel said: “We knew it would probably be a challenge for a few quarters out when changes did take place."
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For the quarter ended July 2, Ingram Micro’s profit dropped 11 percent from a year ago to $59.7 million, the company said. Sales were up seven percent to $8.75 billion, the company said, citing a positive impact from the translation effect of foreign currencies. Ingram’s stock closed down Friday more than two percent to $18.02.
The net income decline was attributed to business disruptions associated with transitioning to a new system in Australia, which has proved to be an “unusually complicated enterprise system implementation that’s progressing more slowly than anticipated,” Spierkel said. The issues were “largely resolved” in Q2, but the company will suspend additional conversions in other countries until it’s “comfortable with the service we're providing to customers,” he said. Lessons the company is learning in Australia will be applied to future implementations of the enterprise system and additional conversions “critical to future growth,” he said. The company has had to adopt “more active marketing and pricing strategies” to respond to competitors fighting for share position, he said. The strategies to “win customers back have taken a bite out of margins,” he said.
The European market remained challenging for the company, Spierkel said, especially Spain and Italy. Despite uncertainties over sovereign debt issues, there were several bright spots in the European market, including France and Germany, which posted “solid growth,” he said. Aside from Australia, the rest of Asia had double-digit revenue growth for the quarter, he said, with lower-margin regions including China and India performing well. North America sales improved six percent to $3.76 billion, or 43 percent of total sales, the highest Q2 sales level in more than a decade, he said.
The biggest positive for the company this year is that the tablet form factor made its way into the business environment in a “meaningful manner,” Spierkel said. Initially, most of the tablets were slated for the consumer market, through direct sales and Internet-based sales structures, but over the last two or three quarters “we've seen significant interest” in the VAR and corporate markets to bring tablets into the business environment, he said. The initial emphasis in tablets was mostly “a hardware play” by the company “to grab that opportunity,” but it came at the expense of profit in the low-margin space, Spierkel said: “We're anticipating there are a lot of accessories and software that we can build business around as hardware pull-through is happening.” He said the VAR community and retailers are starting to bundle other parts of the portfolio with tablets for “better margin profiles."
Ingram’s AVAD home theater distribution business “continues to make good progress,” posting year-over-year growth for the third consecutive quarter, which Spierkel called a positive sign amid “weak housing markets.” The company is gaining traction in the cloud, adding security and remote management businesses, he said.