CRN Interview: Greg Spierkel, Ingram Micro CEO

Ingram Micro posted better-than-expected earnings for its third quarter expects record sales for the fourth quarter. CEO Greg Spierkel talked with CRN Features Writer Jennifer Lawinski about the distribution giant's business outlook in the SMB space and with VARs, as well as the potential impact of Windows Vista.

CRN: In the conference call with analysts about Ingram Micro's third-quarter results, you said you didn't expect the wait for Microsoft Windows Vista to impact sales to small and midsize businesses. Why?

SPIERKEL: Most small businesses are not in a hurry to be the first out of the gate to try it. So they want to kind of wait for a number of months or quarters before they feel like they have to jump to Vista.

Businesses are going to be investing in IT infrastructure for a lot of other reasons beyond what Vista will represent. Whether it's around security or Internet solutions or what have you, our sales of systems -- from PCs, laptops to servers -- were just really robust in the current quarter that we just finished. There's really no holdback from what we're seeing that Vista will be the big line item.

I think everybody I've talked to most recently views [Vista's launch] as something that's going to be generally positive for us next year and the year after. There are some features and functionality that are going to help businesses, and it's the first big launch or the first big shipment of a new [operating system] load for a while. Understanding the implications of it, training our organizations, all of that has started with the view that we need to be talking and walking the talk in a matter of two to three months.

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CRN: Do you think the SMB market has moved away from just focusing on these "big bang" Microsoft releases and toward more services from VARs?

SPIERKEL: Oh, there's no question there's been a bias toward, I would say, solutions beyond just basic operating systems. So what does that mean? It means that where we've had real strength in the last year or year and a half has been people putting in security services, Internet protection services, regulations tracking for data around HIPAA or government requirements. Those things don't necessarily ride off the back of the operating system. They're all extra applications or tools that the small businesses are looking for to make them a more viable partner for their end customers. Those have been the drivers of our business for the last year and a half, and that continues to be the case right now. So as the reseller base deals with their customer base, they're saying, 'I need to understand these applications, but I need to understand the full network of attached products.' That's where services and managed services come into play.

We're very excited about this [managed services] space. There are a number of VAR partners that have already started developing tools or buying from two or three alternatives out there. But we've stepped into this feet first, and we've got great traction. We've had a number of sign-ups since VTN [VentureTech Network event] and since our launch of this [managed services offering] just three weeks ago. ... There were a few that might say, 'Gee, I wish I'd known earlier that you were doing this.' But we had to get to the paces of making comfortable with the partner we chose. From that point of view, we feel good.

CRN: How many VARs have you signed up?

SPIERKEL: We haven't thrown that number out publicly, but it's in the dozens already.

CRN: How quickly to you think this will ramp up and contribute to sales and earnings?

SPIERKEL: We would not pull it out as a specific number. ... It will have a revenue stream for us, and it will have a healthy margin stream for us, there's no question about that. We're looking at hundreds of signatures or adds next year to this program. So the numbers are significant for next year. Our team here can probably give you more clarity on that in the coming months.

It will have an impact in a couple of other ways that I think are very important. It makes us more relevant with the reseller base that we have. It takes costs out of their business, and it puts the burden on us to pay for that infrastructure so that they're going to be more successful with their customers. And if they're going to be more successful with their customers because of some tools that we're giving them at a lower price than they might otherwise buy, it engenders them more to buy from us. So there's going to be some rollover in the relationship, percentage of sales and shared wealth that we have with those [partner] companies.

CRN: Can you talk a bit about growth in business with VARs and in the SMB space?

SPIERKEL: We have a business in North America, and that grew at 9 percent. Our VAR business grew faster than that. Our core VAR business is still the bread and butter of the company, and it's still very healthy with very robust growth.

We also had a better than 9 percent growth rate in our retail-related businesses and our [consumer electronics]-related business. So both of those segments, if you may, are growing faster than our overall averages. But we don't try to break things out more than that, for good competitive reasons.

CRN: Is Ingram Micro gaining market share from the other big distributors, such as Tech Data and Synnex?

SPIERKEL: If you look at the most recent three quarters, what does this year look like? From that front, I would say we've grown faster than Tech Data. There's no doubt on that number if you've seen their recent numbers. They've been low single digits, where we've been year-to-date at about 10 percent. This was 9 percent last quarter. We were, I think in North America, at 12 percent or 13 percent in the prior quarter. So we've been tracking at a little over 10 percent growth year to date for the North American business. I know Tech Data has grown slower than that, and I believe Synnex has been just a little bit above us on the growth rate. There may be some share gains in all of that, but there are other competitors, too. And some of it has got to do with how are we are doing against companies like a ScanSource in point-of-sale and auto ID.

CRN: Do you foresee any significant shifts in the business mix among SMB, resellers, direct marketers and retail?

SPIERKEL: I can't give you an exact number because I don't have them at hand. But I'll give you some broad brush thoughts on this. One, back to my diversity comment before, we're seeing real growth and real positive growth in the CE [consumer electronics] space. That means small retailers right through the bigger retailers are some that we support, and e-tailers. We're successful there. That group of customers, at least for the near term, probably will continue to grow faster for us.

With SMB and VARs, there's been a conscious focus here really over the last two years, and the momentum with all of the programs and initiatives remains positive there, too. The interesting piece, though, is where we're seeing some lesser growth rates in the corporate sector. It used to be one of our largest pieces of business, but over the last four or five years it has constantly come back down. There are sectors where some of our competitors may be more heavily weighted or where some of the DMRs [direct market resellers] are putting a lot of their emphasis and are struggling with their top-line opportunity.

CRN: What do you see businesswise as the year winds down, including the strength of the SMB space?

SPIERKEL: I would say the SMB sector is solid. That's why we're giving solid guidance on the outlook for Q4 with record sales and initiatives that we have going on several fronts, including the focus on SMB. I wouldn't put it all on SMB, because SMB as you rightfully pointed out is in the 40 percent ot 50 percent range of our overall business, so it's important. There are a lot of other things going on that we have to be executing on to see that success across the board.

CRN: Is Ingram Micro working with a rising number of VARs?

SPIERKEL: I would say they are climbing, not hugely. There was a huge drop three, four or five years ago with the meltdown of the markets. So a lot of the financially weaker players fell by the side. So our numbers went down in that period. They've been edging up over the last two or three years. There's a huge focus on our part to constantly develop and find new relationships, and we're also working extensively to try to get greater share.

CRN: In terms of the VAR base, are you seeing any impact from the spate of mergers and acquisitions in that arena?

SPIERKEL: While there are a couple of acquisitions that have been significant, I think it's a function of some degree of consolidation and some degree of repositioning by one or two of these companies to get some capabilities they feel they need and possibly for growth. I think that's a dynamic we're always going to be dealing with. I don't know that it's much more accentuated or accelerated. It just happens that two or three of them happened in the last quarter. There's usually half a dozen interesting acquisitions a year that take place that obviously a lot of us think might change the environment