Ingram CEO Discusses Market Trends, Q2 Results

Following that announcement, Ingram CEO Greg Spierkel talked with CMP ChannelWeb about the company's performance and predicted where the market is heading.

The company earned $52.4 million, or 30 cents per diluted share, down from the same period last year when it earned $53.8 million, or 32 cents per diluted share. Sales for the quarter, on the other hand, were up 11 percent from $7.4 billion a year ago to $8.19 billion, a record for the Santa Ana, Calif.-based distributor. Ingram took a $15 million hit, decreasing income by 5 cents per share, to cover potential losses related to a SED investigation of the company's transactions with security software vendor McAfee.

Were you pleased with this quarter's results?

Spierkel: Yes. We're happy with what happened. We came in within the range of guidance that we provided. I think it could have been better though, so as much as I'm pleased I think it could have been better.

The reasons it could have been better are that we probably could have probably gotten a little bit more momentum out of Europe. Frankly, it's good that the momentum started happening at the very end of the quarter, but it was very positive and it seems to be moving into the month of July or at least the first part of the third quarter that we're entering into.

We had the SEC charge issue come up in this quarter so clearly this had an impact. It's a one-time impact thankfully and we can put that behind us. We had a couple of things that we weren't anticipating and those things were significant.

The flip side though is that we had a lot of other things that were working very well and surprised us from a positive point of view. The performance of Asia in particular was just stellar in the quarter, so we're very happy that what we're seeing for our operations there and our capability, and the extent and nature of what we've got there is working very well for us.

In North America your growth was essentially flat. Can you talk about what caused that?

Spierkel: There were probably three or four factors here. First you have to keep in mind that the revenue was flat, you're absolutely right, but we changed the reporting of warranty sales and we're not including them as a gross revenue but on a net basis, and that took and will continue to take as it did in the first quarter and will for the full year, approximately 5 percent of our revenue off of the table. Realistically if we put that back in and if we were recording things the same way we were last year we would have had 5 percent growth. As we get through this year, that will after four quarters no longer be a factor.

The second factor is that we saw a couple of sectors that we serve pretty extensively " the government sector, which is schools through federal and state level, as well as the corporate sector " both of those broad customer groups were down for us in the quarter compared to last year so that had a dampening effect on the revenue picture. I think the other thing that we were cautious to be focused on is that we'd been working pretty diligently at keeping the margins up and our profitability up, so we didn't go chase some deals or opportunities that might have been in our case profit levels that we weren't comfortable with. All three factors were important in the quarter.

Which technology areas are performing best in North America?

Spierkel: We had three broad categories that were running better than over overall sales, and our overall sales worldwide were up 11 percent. We don't split the product sales out by country or region specifically but I would say, and this is consistent for North America as it is for our worldwide results, we saw continual healthy growth for networking. Networking was strong with our major networking partners and there are three or four big ones that we work with and we had very healthy growth there. We were doing very well in the laptop space which continues to be an engine of growth for us both on a North American and a worldwide level. The ongoing shift away from desktops to laptops was a positive factor, and it's been a positive factor for a year and a half now as more and more of those devices get put through distribution. We saw pretty strong growth across the full software spectrum as well. That includes Microsoft and other vendors.

Has Vista adoption been as expected?

Spierkel: I think people probably anticipated, at least in the SMB market, that it would have a little bit bigger impact by now. It's only been in play for six or seven months. As we said last quarter, and I would echo the same comment here, most of our small and medium VARS, which are the preponderance of our customer base, would say that the end customers that they're dealing with didn't necessarily feel that there was a compelling reason to upgrade their software and infrastructure because Vista came out although most of them are pleased with what Vista can do. As a result of that I would see more Vista product sold in our customer base starting in 2008.

It's been positive but not a step-function positive. It's just additional opportunity of sales for Microsoft but not a catalyst to really go buy in a hurry because it's going to make an absolute difference to business. It's got a lot of good things in it, but there's not enough to compel people to go buy it earlier than they really need to.

Tech Data has been targeting in on the SMB market in the past several months. Does this pose a threat to Ingram's dominance in this area?

Spierkel: as you know we're by far the largest player in the country and I think we've done a good job putting in [programs and services] over the last five or six years ourselves. We usually are more of an innovator in taking risks and challenges into our organization before our peers. Quite often the smaller players that we compete against do what we do, maybe a few quarters later.

They've been obviously contemplating what they want to do with managed services and they've been putting in pieces around point of sale and data capture, which they stepped away from. They started that after us. There are instances where I think Tech Data might point their organization a bit differently based on where they think there is an opportunity with their customer base and we might do things a little bit differently which I think is healthy for our customers, providing them more choices. I wouldn't say that anything we've seen or heard from Tech Data on a North American level is something we don't have a comparable capability or an ability to manage.

From that perspective, there's nothing that jumps out at me that has us concerned.

Do you have an iPhone?

Spierkel: No, I do not. But I was at Apple [on Wednesday], and I saw a lot of executives with iPhones. They're hard to get, and with the amount of travel that I do and the amount of email traffic I need to see, and with what I've been used to I have to admit I'm a Blackberry aficionado.

At some point I might change but in terms of infrastructure support and what we already have as a base product in our business, it's primarily Blackberry at Ingram Micro. For people who have a lot of travel to many countries and need to do a combination of email and phone pretty rigorously, Blackberry has by far been the best device.

That may change, of course, in time, with the iPhone.