Ingram CEO: It's Going To Get Worse

"The economy has dealt us a tough hand, and 2009 will be an even more challenging year," Spierkel said Wednesday. "All regions have experienced economic sluggishness. Business confidence is at its lowest point in decades. We don't expect growth for at least the next three to five quarters. If that becomes the case, it would be the longest period [of negative growth] in our industry."

In the fourth fiscal quarter ended Jan. 3, 2009, Ingram Micro posted a $564.3 million loss compared with a year-ago profit of $114.1 million. Sales in the quarter fell to $8.68 billion, down from $10 billion in the fourth quarter of 2007. Analysts were expecting $8.87 billion in sales.

For the year, the company posted a $394.9 million loss on sales of $34.36 billion. In the previous year, Ingram Micro earned $275.9 million on sales of $35.05 billion.

The company announced a 13 percent decline in revenue for the fourth fiscal quarter, and expect an even worse decline in the current quarter, between 20 percent and 25 percent.

That forecast, combined with Ingram's layoff of 300 employees in North America Tuesday, shows that Spierkel doesn't think the economic storm will soon end. Companies simply don't cut employees if they see the clouds dissipating.

"We expect market conditions to remain soft for the next few quarters. We felt it prudent and necessary to follow on with additional cost and head count reductions," Spierkel said. "We are in a recession, and we're reading this market as well as anybody and adjusting as quickly as we can to protect profitability."

Spierkel said Ingram Micro saw a slight increase in bad debt related to credit to solution providers, but he feels the distributor is still strong in that regard.

"We have a very good situation there considering the market condition," he said. "We've got the lowest failure rate in the industry by the data points we hear back. We manage that risk very well. The team visits with customers on a regular basis. We adjust credit up if customers are strong. We've been intelligent to step away from risky customers. CompUSA and Circuit City were big customers of ours, but we stepped away from them."

On the vendor side, Spierkel said Ingram Micro continues to adjust to market conditions, but he does not expect to dramatically cut the number of vendors that the company carries.

"There's no mad rush through the door to do that. We have close to 1,000 vendor relationships," he said. "We're adding 30 to 50 a year and 30 to 50 disappearing. It's a normal rotation in that large space. Those that have got low volume characteristics and lesser profitability, we've been paying attention in the last quarter for those. But I wouldn't call that a wholescale pullback. If the economy stayed just ugly for the next year-and-a-half, then maybe there would be more rationalization for deeper cuts, but not now."

Historically, vendors have turned more toward the channel during an economic downturn, because it lowers their own costs to market and that is the case now, too, Spierkel said.

"It's a desire from the vendors to get greater access to SMB, and they're seeing that they can take costs out of their supply chain by giving fulfillment services to a third-party partner. That's what our IM Logistics is all about. We've seen a real solid uptick in that opportunity," he said.

Spierkel cited EMC as a vendor that has turned more toward the channel, though that started before the downturn.

"They've lowered their product pricing and pushed more products into this market than they used to," he said. "Others, POS and data capture [vendors], once had products that were fairly complex and a large percentage of direct sales. Now those vendors are embracing the channel. The product fits well into a solution and we can bring other vendors together to help move product through the SMB channel."