Distribution Players Still Hazy On Outlook For Economic Recovery

"We take it a quarter at a time, and we have been wise do that," said Mike Grainger, president and COO of Ingram Micro, Santa Ana, Calif. "Almost 100 percent of the companies that have predicted an upturn have missed."

Ingram Micro projects fourth-quarter revenue to grow 3 percent to 5 percent sequentially, but fall 4 percent to 6 percent, to between $5.75 billion and $5.9 billion, compared with the fourth quarter last year. The distributor expects net income of between $26 million and $29 million, or 17 cents to 19 cents per share, but expects to take another charge related to a reorganization.

"[The economy will turn up when it turns up. To be able to predict it is very difficult," Grainger said.

Other distributors also were hesitant to provide long-range guidance. In its third-quarter results, Arrow Electronics, Melville, N.Y., did not project fourth-quarter numbers.

Meanwhile, Bell Microproducts did not offer fourth-quarter revenue or earnings projections in its third-quarter earnings release but is "cautiously optimistic about demand," said Don Bell, president and CEO of the San Jose, Calif.-based distributor. "While we have seen some improvement in demand, we will remain conservative in our expectations of overall market growth," he said.

The same holds true for direct marketers. Tempe, Ariz.-based Insight Enterprises "continues to be cautious about the economy and expects continued pressure on gross margins," according to its earnings release.

The company expects fourth-quarter earnings per share of 20 cents to 26 cents. Analysts had expected net income of 30 cents per share, according to Thomson Financial/First Call.

Insight's stock dropped to $9.25 per share, from $12.29, the day after the company's third-quarter results were announced. Because of a substantial decrease in the market price of its stock, Insight may take a noncash charge for impairment of goodwill in the fourth quarter, the company said.

Vernon Hills, Ill.-based CDW Computer Centers is also "cautious regarding the economy," said Chairman and CEO John Edwardson, even though the distributor expects fourth-quarter earnings of 50 cents to 52 cents per share, an increase of 6 percent to 10 percent compared with the previous year.

Solution providers such as Cnetics Technologies also are more conservative, said Craig Thornton, president of the Norcross, Ga.-based company.

"We're not trimming forecasts by 50 percent or anything, but cost containment is a definite consideration," he said. "It doesn't surprise me a bit [that companies are more cautious. The commercial market is still looking pretty flat. The state-government sector is seeing an increase in activity. It is cyclical, but an increase compared with last year."

IT spending is in line with normal seasonal patterns, said Brian Alexander, an analyst at Raymond James and Associates. "We're not seeing much more than that. As long as that is the case, you won't see [companies getting too optimistic."

One distributor bucking that trend is Avnet, which provided guidance not only for the quarter ending in December but also for the rest of its fiscal year, which ends in June 2003. The Phoenix-based distributor anticipates "continuously improved financial and operational results" for the next three quarters, said Chairman and CEO Roy Vallee. Avnet expects to meet analysts' estimates of 5 cents per share in its December quarter and expects its computer businesses to grow between 15 percent and 20 percent on a sequential basis. The company also projected earnings of 6 cents per share for its third fiscal quarter ending in March and 22 cents for the fiscal year.

"While we do expect to see some revenue growth in calendar 2003, we are not depending on that revenue growth for profitability," Vallee said.