One On One With Jerre Steed, Chairman Of Ingram Micro
Nightly Business Report, Thursday, May 20, 1999 at 20:55
SUSIE GHARIB: It was a good day for investors who own the stock of Ingram
Micro (NYSE:IM). It rose more than a point or 5 percent today. This California
company is the world's largest distributor of technology products. It serves
as a middleman between manufacturers like Compaq and IBM and customers such
as retail chains. But it has been struggling recently because of the price
competition and slowing market for computers. Ingram's Chairman Jerry Stead
is in New York because he'll be meeting with analysts tomorrow morning to
talk about the outlook for his company. And we're lucky to get a preview
tonight. Welcome to New York.
JERRA STEAD, CHAIRMAN, INGRAM MICRO: Thank you, Susie. It's great to be
here.
GHARIB: Why don't you start off by first just giving a very quick
explanation of what does it mean for your company when the price competition,
prices come down for computers?
STEAD: Great. If you think about us as beautifully described as middlemen
our job is to earn a margin for providing services because we are really an
outsourcer. So if the volume goes up in units and the price comings down, we
maintain our margins as a percent. However it is a percent of a lower
number. So we have to offset that with volume of moving more...
GHARIB: You can't charge your customers as much and your margins get
squeezed.
STEAD: And absolutely and particular if there is an excess capacity like in
our industry there was with some of the other distributors.
GHARIB: Well, a few months ago and in March your stock really got hit because
of these price wars going on with computers. Give us a little bit of an
update on PC demand. Is it slowing or is it growing?
STEAD: Actually, its growing. Around the world, it looks like about 18, 19
percent unit wise in Q1. My guess is it will be single digit growth in
dollars and I expect we'll see pretty a good second quarter, same magnitude.
GHARIB: Now there's been a lot of consolidation going on in your business.
Compaq Computer saying it's cutting down the number of distributors it uses
from 39 to 4. GE Capital today saying it's kind of getting out of this
business and your competitor Tech Data (NASDAQ:TECD) is getting some of that
business. So it's pretty much coming down to Ingram Micro and Tech Data as
the two big names. What opportunities do you see out there for your company?
STEAD: Actually we're getting warmed up with the example of GE Cap giving
their room to Tech Data. Were doing many of those deals today, where we
become truly the back room of the industry. That's one side. The other side
of the coin however is we're now doing more and more service providing of
outsouring the logistics and fulfillment for the manufacturers. An example
would be Seagate (NYSE:SEG) who also went from 25 to five. Another good example
would be Microsoft. We now are doing all their fulfillment for all their
retail business. So we're seeing both sides of that and the last thing
that's really great for us is being part of a fast-growing industry which
more and more vendors are coming to us because of our coast effectiveness.
GHARIB: Your company obviously has grown very very well. But in this day and
age of electronic commerce, is the model, the business model of a distributor
a little out of date?
STEAD: Well, actually, the e-commerce and Internet lets the distributor be
ever more efficient. In the last two years, using e commerce we've been able
to reduce, all operating expenses by over 30 percent. Because what used to
be person to person is now done through our Web site.
GHARIB: I was thinking there is less need for bricks and mortar. I mean is
the Internet a threat?
STEAD: Actually, the Internet is the opposite because it allows front end
companies to be virtual companies where we're their backroom entirely, and
that is what is driving the consolidation we talked about earlier with Compaq
(NYSE:CPQ) and others coming down to fewer and fewer.
GHARIB: Real quickly, what is going to be the message to analysts tomorrow?
STEAD: Three things, one the consolidation we just talked about, back-room,
front room and continued consolidation of total distribution. Our e-commerce
success and what has gone on. And then finally, a very positive outlook as
we continue to drive costs down.
GHARIB: Hope you have a good meeting, thank you very much for giving us a
preview.
STEAD: Thank you very much. Thank you, my pleasure.
GHARIB: And we have been speaking with Jerry Stead, chairman of Ingram Micro.
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