IT Distributor Ingram Micro Quarter Sales Down 25%

The worst seems to be over, but that doesn’t mean good times are here again, Ingram Micro (NYSE:IM) CEO Greg Spierkel tells Channel Insider.

The world’s largest IT distributor, Ingram Micro this week reported a sales decline of 25 percent for its Q2 year over year, a steeper decline than the 22 percent decline in sales IT and electronics distributor Arrow reported earlier this week for its Q2. 

However, Spierkel points out that Ingram Micro’s sequential decline was just 2 percent down from Q1 sales, following a normal seasonal pattern, and one that he expects to continue into Q3.

“It was a very small decline quarter to quarter, which is what we told the Street to expect from us,” Spierkel tells Channel Insider. “We are following a seasonal pattern. Things are not getting worse.”

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Ingram Micro reported Q2 sales of $6.58 billion, compared with $8.82 billion during the same period a year ago. Net income came in at $25.3 million, or 15 cents per diluted share, including special items such as expense-reduction programs and a goodwill impairment charge. That compares with $58.9 million, or 35 cents per diluted share, in the same period a year ago, also including special items related to expense reduction programs.

Like many other technology executives, Spierkel believes a recovery is more likely to begin sometime in 2010 than anytime this year.

“I wouldn’t say things are going to jump up in a hurry,” he says. “It’s such a relief that we are seeing a pattern of sales that are not going down anymore. There are signals here that the market is not going to collapse, and that’s an important psychological thing for the consumer and for businesses.”

Spierkel says that recent stock market gains may be adding to confidence so that businesses and consumers may start to spend again, even though he believes unemployment will continue to increase over the next few months. Other positives may come from the release of Microsoft Windows 7 and the funds that will eventually be coming from the America Recovery and Reinvestment Act—also known as the economic stimulus package.

Spierkel noted during a conference call with analysts that Ingram Micro’s largest vendor, Hewlett-Packard, had switched from back-end rebates to front end starting on May 1, which was midway through Ingram Micro’s Q2.

“We worked pretty closely with HP on those changes,” Spierkel says. “We had some visibility a few weeks in advance of them coming forward.”

The HP changes put more emphasis on front-end margins.

“Essentially, HP has decided to take some of the variability of back-end margin dynamics out of the marketplace, putting a greater emphasis on the front-end margins that need to go out to the market,” he says.

Spierkel says Ingram Micro increased prices throughout Europe as a result of the HP changes, and so far those are sticking pretty well with no deterioration in margins.
“We are getting the profitability right,” Spierkel tells Channel Insider. “We’ve been focused a lot on expense reductions and getting the right kind of business.”