ARN

At the helm of Ingram Micro

Ingram Micro CEO, Greg Spierkel, took timeout from a visit down under to chat with ARN about the global economic slump, cloud computing and his instructions to incoming managing director, Jay Miley.

What is the reason for your visit and what has changed since the last time you were here?

Greg Spierkel (GS): The business continues to move forward for us here in this country. It is an opportunity for me to catch up on the business and meet the management team, follow up on how some of the initiatives are that we have underway. From an Australian point of view, while we don’t split up the revenues and the profitability for competitive reasons, the business is doing reasonably well here. We have had a good year and touch wood, we have another two months left to close the year; we are very happy with how things are performing so it is nothing but good news for us in this region.

In the region overall, our revenues are down slightly throughout Asia for the quarter we just finished, Q3, which we announced two weeks ago. The good news is that we have managed to hold on to profitability, we have been cautious with costs, and where there has been revenue decline we have been seeing through attrition and ability to take the cost down a little bit. You have to do that.

Guy Freeland is leaving at the end of the year and Jay Miley is taking up the role – what are your instructions to Jay?

GS: Take it to the next level; simple enough. There has been a great track record here over the last three years, Guy has done a good job and we have moved the profitability up, developed the business along a few new facets, and I think it is build on those so we can continue to differentiate the company from our competition.

I think our size and our reach already speaks to that but we can’t be complacent. So it is taking what we have got and taking it higher, better, faster and more efficiently. Jay will be doing that. He had a lot of success with this in New Zealand and, hopefully, he will continue on a similar path.

Guy has had good momentum here and it is time to continue to develop the business in another dimension. I see nothing but positive things in front of us with the market question mark hanging over us.

Speaking of the market question, how do you see it playing out over the next six months?

GS: We are not immune to the market dynamics as much as we would like to be. We probably have more diversity as a distributor than anybody because of our sheer size and footprint. There has been a conscious decision over the last few years to be in a broader base of geographies so the diversity would hopefully buffet us from negative dynamics in one region.

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It is helping us – this year we have had pockets of the business that have grown handsomely and then we have had other countries and regions where we have seen negative growth. In the next 12 months there will be a lot of concern and overhang out there from small to large businesses because of the banking environment, the financial market and the housing markets. But commodity prices, which were unreasonably high, are now collapsing, which is probably going to help the inflation situation globally – that is probably the one silver lining in the picture right now.

Generally, it will be more positive than not on that side but I think we are in a situation right now where most economies are staring at some degree of recession in the short term. Maybe in the back half of next year, things will turn around in a positive way, but there are a lot of question marks hanging out there; how long does this thing last?

As I said in releasing our earnings results, what shape is the recovery and what degree is the recovery are big question marks. I think everybody feels we are going to be in a soft market for two to four quarters, and then what shape does it take to come out and how quickly does it come out is a question no one can really answer at this stage.

At Ingram, we have the second highest cash position we have ever had as a company. We are at our lowest debt to equity ever as a company and in the market place versus our peers, whether it is Australia, New Zealand, Europe, Asia, or North America, we are in a better shape financially than almost any company we compete against. This gives us lots of flexibility to acquire if opportunities present themselves, and weather further downturns in the market if there are any, which could hurt our competitors more than us – not that I wish that on anybody, I’d rather have the market be stronger. But from a financial point of view, we are in a really healthy position.

You mentioned commodity prices coming down. A month ago you had to increase your freight prices – how is this situation going to play out? Is it an opportunity to reduce those charges?

GS: Most of the companies in our sector generally don’t, and haven’t thus far in the past, recover the cost of freight. So the initiative we took on-board in different parts of the world, including here, when we announced very clearly and signalled very clearly [we would put freight charges up], was driven by the cost of fuel going up astronomically in the first half of this year and the latter half of last year. Now that things have checked back, are we going to be as aggressive as we were? Probably not, because there is some air cover now that wasn’t in play three or four months ago. But there is still an opportunity to say let’s just get cost recovery to cover our costs where we can. As a company, we can’t be too specific about that but we are going to do what we can and be reasonable with it in the market place we operate in. If there are situations where we can scale back, we will. If there are situations where we can hold the ground where we have made some progress we will as well.

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In terms of acquisitions, are you looking to pick up in this market climate?

GS: We never telegraph what we are going to buy and no public company would because it just makes the acquisition targets more expensive potentially. But, and it relates to the points I made before, we’re cash flush and have the ability to acquire if the opportunities look interesting. If you follow us, this year in the past 11 months we have made four acquisitions all in the point-of-sale data capture space: Three of them in Europe and one in China. So we are still acquiring, some of these companies have not been large; they branch anywhere from basically $20 million to $100 million [Australian dollars]. They are not small but not large. Four in the last 11 months means we are still looking and two of those in Europe are closing as we speak.

We are active, but it has to be things that complement the strategy and where we are trying to take things and we are not going to say too much about that. What we do say is there are three or four major areas that are interesting to us. Whether we are going to pick up companies is a function of what’s available in the market and what the seller wants to part with the company for. We look at a lot – there is probably a company a week approaching us in one shape or form globally. We’ll do three, four or five deals a year. A lot of people are hurting right now so a lot of people are interested in selling. Whether it is interesting or not or whether the price is right or not, we make determinations on what makes sense for us.

One of the big trends at the moment is software-as-a-service. How do you view this trend and the way it influences your relationship with resellers?

GS: It is presenting opportunities but every time there is a degree of confusion, it is presenting challenges. I think on the opportunity front we do a very good job with software licensing solutions; we provide services that help customers. We have been looking at software-as-a-service for a while and reselling it to some extent for some partners throughout the world. In other instances, we have tracked it carefully and in North America where it is probably a little more advanced, we haven’t seen a lot of change in the market place.

At least in the SMB market we haven’t seen a lot of change. Some large corporates may be taking out these longer-term contracts and lease structures but we put pieces of that puzzle in place already in North America. We do have networking solutions or operating solutions on a leased structure for software, and network operating centres under a program called Seismic Managed Services, and we are adding software-as-a-service offerings to that portfolio.

Ideally we will try and roll that capability out into other geographies over the next year or two. It is something we are paying attention to but I would say it is not touching the market in a major way yet. But you have to pay attention to these trends and there is a lot going on with cloud computing; you could spend a lot of time just talking about it and what it means to different players. People have been doing that for a long time, it is just getting a different spin right now.