Ingram Micro Inc announced yesterday that its chief executive officer, Jerre Stead would step down after the number one computer product distributor warned that third-quarter profit would come in far below analysts’ forecasts. Santa Ana, California-based Ingram said that net income would be between $15m and $21m, or 10 cents to 14 cents a share in the third quarter to October 2 compared to analysts’ consensus expectations of 41 cents. The company’s shares fell 6 points, or 31%, to close Wednesday at $13.31 – below its initial public offering price of $18 in November 1998.
The profit warning also rocked the shares of number two computer wholesaler Tech Data Corp, which temporarily nose-dived yesterday as investors took it as a sign of general malaise in the market. Wholesalers like Ingram and Tech Data Corp buy products from hardware manufacturers to sell to dealers and retailers or directly to businesses. They operate on ultra slim margins leaving them vulnerable to product price falls. The need to maintain inventories to fulfill customer orders quickly means that slumps in demand saddle them with aging and expensive stockpiles.
This year they have suffered a double whammy – hit by tumbling PC prices and price undercutting from smaller indirect-selling rivals such as CHS Electronics Inc and direct sellers like Dell Computer Corp. Ingram’s shares have tumbled 62% this year while Tech Data shares have lost a third of their value.
Stead’s resignation follows hard on the heels of Phil Ellett, president of Ingram’s business in the Americas who walked last week, and Doug Antone, executive vice president and head of the firm’s assembbly unit who resigned in June. Ingram’s woes have been compounded by a management decision in March to slash 1,400 jobs or 10% of the workforce, a move it yesterday admitted left it unable to respond quickly to important industry changes.
Stead, the recent co-author of a business renewal manual, entitled Soaring with the Phoenix also admitted that a strategy of selectively raising some product prices had driven customers into the hands of rivals. Stead presided over Ingram’s thrust into European and Asian markets and masterminded a $10bn deal with retailer, CompUSA Inc in July to part-assemble PCs for Compaq and other manufacturers. He also led a bid to turn Ingram into a behind-the-scenes retailer for leading online retail stores. Stead will stay on during the search for his successor and after an appointment will serve as chairman. รก
