Entex Information Services Inc, the giant, privately owned PC network integrator from Rye Brook, New York, has suffered a huge drop in product revenues for its first quarter, forcing the company to announce a $27m restructuring and cost cutting initiative. Entex has announced first quarter net losses of $13.8m compared to profits last time of $4.7m while total revenues fell 9% to $555.1m. The company has historically been growing revenues at 22% for the last five years and this is the first overall loss incurred in eight quarters. Entex’s product distribution revenues contribute 80% of the company’s total sales, the remainder coming from services. But while service revenues remained strong, up 10.4% to $117m, the company said poor product availability from suppliers like IBM Corp and Compaq Computer Corp combined with falling average selling prices (ASPs) per unit had hampered its distribution revenues, which fell by 12.5% to $438m. Entex also said it had experienced slowing orders from a number of its more significant customers, although a spokesperson declined to reveal which ones. Falling revenues were combined with a sharp 11% increase in selling, general and administrative expenses to produce the sudden losses. Consequently, Entex said it would immediately streamline its operational structure to cut annual expenditure by $40m. A provision of $10-$12m will be made for the costs of severance packages as the company consolidates many of its branch offices. However, a spokesperson said he could not reveal how many of the current 8,500 employees would be laid off in what would be the first ever compulsory severances at Entex. The company also said it will make an additional, non-cash charge of $10-$15m for the write down of software assets affected by the reorganization. Both charges will be recorded in the second quarter. Entex will also split its company into two separate organizations, said Ken Ghazey, chief financial officer. The idea is to better address Entex’s two distinct markets of distribution and services/outsourcing. The reorganization follows a similar announcement from Entex’s rival in the distribution space, Compucom Systems Inc, which last week announced a $25m reorganization charge and a 10% workforce reduction following a similar slow down in product sales. Entex is unusual in this market, however, because it has no public listing for its stock. Trading figures are made public due to the company’s wide employee share ownership which requires that it files financial statements with the Securities and Exchange Commission. But as a privately owned entity, Entex is still one of the largest distributors of desktop hardware and software in the US with total 1998 revenues of $2.5bn. á
