Q & A With Ingram CEO Kent Foster

Ingram Micro CEO Kent Foster spoke with CRN after the distributor warned Wall Street analysts it has seen a "significant slowdown in demand in the U.S. technology market" in the current quarter. Below are excerpts from the interview.

CRN: Where have you seen the greatest impact in terms of the slowdown?

KENT FOSTER

Foster: The slowdown is really across all the segments. Some are affected a little more than others. The dot-coms have had a more sharp drop-off than the other segments. But all segments have been affected by the slowdown.

CRN: It sounds like bread-and-butter solution provider business has held up in the slowdown better than some of the other segments. Can you talk about that?

Foster: It has been less affected. It is on the lesser affected side, while the dot-coms are on the more affected side. But across the board we are seeing the impact of this downturn in the economy.

CRN: How dramatic is this downturn?

Foster: This certainly is the sharpest downturn in the economy I have ever seen. It was almost as if in the latter part of November something happened and no one can put their finger on it, but it appears that at that time the economy took a sudden drop and it has stayed down or even deteriorated a bit further in the first month and a half of 2001. Whether this is a sharp "V" drop and we are going to see an equally sharp upturn, or whether this is more of a "U" shape where it could drag on for a while, is beyond my ability to call. We'll just have to see how the economy responds to [Federal Reserve] Chairman [Alan] Greenspan and other factors. But it certainly is the sharpest downturn that I have ever seen.

CRN: What areas of the market are you looking to be profitable considering the downturn?

Foster: I think all of the areas are going to be profitable for us. We use our segmented accounting to ensure that the business we do with both vendors and customers is profitable for our company. Obviously, we are focused on the VARs. The VARs are the most attractive market segment for us. We are intensely focused on growing our business in the VAR segment during 2001. In terms of products, we are looking at the emerging technology areas such as wireless and imaging.

CRN: Talk about your VAR market share and how you stacked up against Tech Data and the rest of the market.

Foster: We are seeing improvement in our market position in the VAR segment and that improvement is continuing in terms of market share and as a portion of our total business. So the work that our U.S. team has done--this is particularly a U.S. story--over the past year to grow the VAR business, to provide value to our VAR customers, is paying off.

CRN: Do you have a hiring freeze on at this point?

Foster: We have a hiring freeze in effect now. What we are doing is using attrition to reduce our costs. We are also obviously looking at costs in other areas. Since we started this in the fall of last year we have had a good opportunity to bring our overall cost structure down more in line with the top line. We don't know how the market is going to unfold during the year, and we will have to adjust to whatever market conditions are available to us. We want to be ready for the rebound. We also want to ensure during this downturn that we improve customer service, that we don't damage customer service. So we are going to be very careful in terms of the reductions we make to ensure that we don't disrupt customer service.

CRN: How much cost have you taken out of the business thus far?

Foster: I don't want to specify what we have done there. But if you can imagine with your normal turnover, when you start freezing the backfill of those openings you start having an impact and the impact grows fairly significantly. We also started an effort last year that we haven't talked about that much, called business process improvement. That is where we bring experts in to help us look at every phase of our business. We are looking at the most significant of those business processes in terms of improving the efficiency and at the same time providing more value to our customers. We started that in early fall. We launched the effort in the summer and I got it going in the early fall. Now these things take investments, as you know, if you do it right and the payoff occurs later. So at the same time we are reducing our costs. We are also investing for the future in terms of realigning, redefining our processes, making them better and improving the mechanization of our processes. So it is a multi-variable equation that we are trying to manage here. It is just not trying to take all the costs out. We are also trying to position the business to be even more effective coming out of this than we would have been had we enjoyed a continued growing economy.

CRN: Talk about some of the improvements you are making for Ingram Micro solution providers and what they can expect over the next three to six months.

Foster: One of the things that we focused on for the VARs is technical support. What we found is that the relationship really seems to center around how good the technical support is, so we are pouring a lot of resources into improving the technical support we provide to all VARs regardless of their size. So that is a major area of upgrade. We are also developing credit tailored to their needs. Credit has become much more significant in this market. We are working very closely with each of our VARs to tailor credit packages that fit their go-to-market strategies to help them be more successful in this environment. And, of course, we are developing solutions around the emerging technologies. The applications in the ASP market is one we are working on now--we are developing consulting services on ASP so that VARs can have this in their arsenal of products and services that they can sell to their customers to make them more effective in the marketplace. We are building and developing solutions in a number of areas and piloting those so that we can make our VARs more effective. What we are going to do is every day here we are going to think: What can we do to make our VARs more effective in the marketplace? What role can we play to make them more effective? We have an intense laserlike focus on that. And, as you know, when we have a focus on something, like we did on gross margin improvement last year, things tend to happen pretty quickly and effectively.