Ingram Micro faces financial hurdles

Ingram Micro faces financial hurdles

Wholesale distributor Ingram Micro is sailing into some turbulent waters after it announced last week third-quarter earnings will be lower than expected.

It is also looking for a new chief executive officer after the company revealed Jerre Stead will step down as CEO when a successor is named.

Stead, who has served as CEO and chairman since 1996, will remain chairman of Ingram's board, the company said.

The company didn't explain exactly why Stead will be stepping down. A spokeswoman said the board felt a new CEO was needed for the company to better manage its resources and handle changes in the industry.

However, Ingram Micro Australia reports it is "business as usual", and claims it will avoid any fallout from the financial difficulties facing the North American market.

According to a company spokesperson, there is no potential for difficulties as it only began operating under the global Ingram Micro brand a few months ago and is growing after the acquisitions of Electronic Resources and ITG.

In the US, Ingram Micro blames the expected third-quarter earnings shortfall on "difficult market conditions primarily in the United States".

For the quarter that will end on October 2, the company expects earnings to be between $US15 million and $21 million, or 10 to 14 cents per diluted share. For the same quarter a year ago, the company reported earnings of $60 million, or 40 cents per diluted share.

Ingram Micro's difficulties follow those of CHS Electronics which revised its earnings in March this year.

At the time, CHS said it would reduce its workforce by 10 per cent, consolidate operations and possibly close warehouses and other operations. It also said it would seek to reduce operating expenses by $US40 million and increase cash flow by $US50 million in 1999. Computer Associates International later agreed to invest up to $US50 million in the company.

Ingram Micro is expected to announce its third-quarter results on October 27.

"Competitive pricing, coupled with increased reductions in vendor rebates and incentives, have placed additional pressure on the company's gross margins, especially in the US," Stead said.

In addition, efforts to raise prices in select market segments prompted customers to go to other sources for IT purchases, the company said.

Net sales for the third quarter are expected to increase about 15 per cent compared to the same period last year, while gross margins are expected to decline between 130 and 150 percentage points below the same quarter a year ago, the company said.

Ingram Micro's stock dropped $5.94 to $13.34 on the New York Stock Exchange last Thursday.

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