Ingram Exec: Distributors Fully Engaged In PC Price War

The three largest broadline distributors are battling for PC market share amid some intense price competition in North America, according to Kevin Murai, co-president of Ingram Micro.

"It is more and more competitive. Today, we see it as more so than a half year ago," Murai said after Ingram Micro's fourth-quarter earnings announcement Thursday evening.

For the past couple of years, Synnex has been known to be particularly aggressive on pricing, but now all three distributors are involved, Murai said.

"Everybody is more competitive. We've not seen a one-distributor action. There is a little maneuvering of share going on," Murai said.

Peripherals, especially printers, has also been a particularly cutthroat space the last few months, Murai said. The PC price competition came from other distributors and not from PC vendors' direct business, he noted.

For several quarters, Ingram Micro had maintained that it would not chase business opportunities below a certain margin, but that may have changed in the fourth quarter as it looked to stave off market-share losses to Synnex or Tech Data.

Ingram Micro does not break out sales by product category, but its North America sales increased 2 percent in the fourth quarter ended Jan. 1, 2005. Meanwhile, Synnex's global fourth-quarter sales increased 18 percent, compared with the year-ago quarter. The Fremont, Calif.-based distributor does not break out sales by region or by product category, but it appears as if its PC sales growth outpaced Ingram Micro. Tech Data has not released its financial results for its most recently completed quarter, which ended Jan. 31.

"What I would tell you, when you look at the 2 percent growth year over year. In 2003, our year-ago quarter, we had extra selling days, we had an extra week and we also had especially strong business licensing a year ago. So I don't think you can call it an apples-to-apples comparison," Murai said.

Ingram Micro maintains that price is still not the determining factor in its business model.

"The way we manage our business is to drive profitability, provide the right kind of services and provide for our customer needs. But we have to maintain an acceptable share of the pie for our manufacturers," Murai said. "You don't win or lose market share quarter by quarter. The trend is long-term, and we are doing pretty well in the long term in the marketplace."

It's not just a matter of helping solution providers move boxes, Murai added.

"As you know, VARs depend on distributors for more than price and availability. We continue to offer much more than that to help them grow. We want to be more strategic to them," he said. "That many have a quarter-by-quarter change in share, but we continue to drive services and have a more meaningful presence. Long term, that is a strong business model."

Ingram Micro executives did not say if the company's sales growth was impacted by its Choice Advantage program, in which solution providers choose a pricing structure and services from a menu of options. But Chairman and CEO Kent Foster said the distributor may not realize full benefits from the program for up to three years.

"We created a mechanism to test services, price those services and see what the [acceptance] rate is. It gives us the opportunity to incent our [work] force to develop and market services," Foster said. "It will take time to develop. We should see better margins that competitors will not be able to deliver. It will take a couple of years to give us the true analysis of whether this delivers what we thought it would."

In other news, Ingram Micro said it has implemented a salary freeze for North American executive management and corporate employees until the company achieves a 150 basis-point improvement in its operating margin. The distributor's internal goal is to reach that profitability target by the third quarter.

"That's a demonstration of the entire management team's commitment to profitability," Murai said. "We ended the fourth quarter with a 121 basis-point improvement."