For those who don't follow thm, here is an article giving a rough overview of the leading distributors (from the CHS thread).
Companies To Watch
By Peter Jordan
9:39 AM EST Mon., May 17, 1999
Fighting back from a hostile stock market that saw its share prices drop more than 50 percent last year, Jeff Rodek, president of industry leader Ingram Micro Inc., Santa Ana, Calif., says he's hoping to not only consolidate his first place position, but also increase his lead.
Perched on the edge of North America in Miami, international distributor CHS Electronics Inc. is still waiting for the right moment to dive into the U.S. and Canadian markets, held back, in part, because of shareholder lawsuits alleging false financial statements and earnings.
varbusiness.com./main/dist.asp?ArticleID=5118
Positioned in the right place at the right time in midrange and enterprise level computing, Scott Munro, chairman and CEO of Savoir Technology Group Inc., Campbell, Calif., sees no end to his company's expansion possibilities.
Always a bridesmaid, never a bride, Pinacor, Tempe, Ariz.--the distribution company owned by MicroAge Inc.--is waiting either for a corporate suitor to make an offer it can't refuse, or for distribution stocks to bounce back and make the distributor worth an IPO.
Even though its fourth quarter earnings of .03 cents per share failed to meet expectations, El Segundo, Calif.-based Merisel Inc. is continuing to fight back against the losses which sent it into the red in fiscal '97.
After a recent history that includes shareholder lawsuits, layoffs and plummeting stock prices, distribution businesses should be ready for a period of calm and regrouping. But don't unbuckle your seatbelts yet, according to distribution executives, who predict continued turbulence for the industry.
Perhaps the most dramatic (and ominous for almost everyone else) vision of the channel's future is that of Ingram's Rodek, whose crystal ball portends a channel with as few as two global distributors.
"You can get plenty of warehouse coverage in North America with two distributors, and you can manage channel inventory much easier with two as opposed to 12 distributors," says Rodek. "The best way to optimize the demand chain is to do it with fewer distributor partners, not more. And on top of that, you should do assembly at the right place, whether at the distributor or manufacturer. To coordinate that, it takes a lot of investment in systems and processes, and it's not practical to do that with 10 or 20 or 30 different partners."
Those two global distributors of Rodek's vision, of course, would be Ingram Micro and Tech Data, which has played Avis to Ingram's Hertz for several years. When asked to comment on Rodek's two-distributor prediction, Merisel president and COO Jim Illson fired back, "I didn't realize Ingram was going out of business." Illson has his own plans for continued growth, saying a strategy based on long-term VAR relationships will help Merisel continue its fight back into the black.
"Our strategy is very much focused on differentiating ourselves and segmenting our business to line up with our customers," says Illson. "We may not be the overall revenue size of some of our competitors, but we are engaged at very deep levels with our customers in some very important segments, including the Merisel Open Computing Alliance (MOCA) and our Enterprise computing division." Illson says the company focuses on having strong account relationships beyond a simple pick, pack and ship relationship.
But Illson has yet to decide how to face what most insiders predict is a necessary future step: going
global in an age when geography has all but disappeared for many IT businesses. Merisel fought its
way back from the brink of financial disaster in part by selling off its European and Latin American
operations to CHS, but Illson realizes "at some point in the future, it will be more important to have
global ties. There are a couple of ways to get there--acquisitions or strategic relationships."
Beyond First Place
Meanwhile, Rodek says Ingram Micro is not only hoping to stay No. 1, but to widen its lead. "Our
goal is to be twice the size of No. 2," says Rodek. The company is trying to fight back from two
quarters of disappointing earnings, which saw its stock drop from the $50s to a low of $16. It had
already rebounded to above $26 recently, perhaps buoyed by belt-tightening measures that saw
workforce reductions of 1,400 employees.
Ingram's fourth quarter '98 and first quarter '99 earnings led the distributor to accelerate its
cost-reduction efforts. "We hope the pricing environment improves, but we're not planning on it, so
we're accelerating our cost focus, advancing by a year our goals of cost as a percentage of sales,"
Rodek says. "If gross margins improve, that's great, but we want to plan for flat margins and work
toward improving margins."
The distributor's determination to widen its lead is visible in its continued expansion, including its
acquisition of Singapore-based Electronic Resources Ltd. Rodek says Ingram's strategy of tightly
integrating its corporate operations, including its enterprise Impulse information system, gives it an
edge over competitors that allow subsidiaries to continue operations as quasi-independent entities.
In contrast, Scott Munro runs Savoir as a holding company, allowing Business Partner Solutions, its
IBM midrange distribution arm, to operate as a virtually independent company. "We don't really buy
anyone," he says. "The other company makes an investment in our overall strategy. With the key
companies we have bought, the managers form a predominant part of our management vs. my
competitors with their rape-and-pillage strategy."
Like every other significant presence in the distribution marketplace, Munro, who recently returned
from exploring acquisition opportunities in Europe, has his eyes on the world. "We're clearly in a
business of mass consolidation," he says. "We have been one of the consolidators, and we're
continuing. The guy who wins the IBM [midrange] business on a global basis will have a $2 to $3
billion business opportunity, and we want to be that guy. There's an old saying that it's not bragging if
you can execute."
While companies with a heavy U.S. presence are casting their eyes overseas, CHS Electronics, the
largest wholesale distributor of computer products outside the United States, has been looking over
the U.S. market for possible acquisitions. Pinacor would seem to be a perfect fit. "That fit has been
rumored frequently," says Pinacor CEO Bob O'Malley. Another logical target is Merisel; CHS has
already bought its overseas operations. And Savoir would not only give CHS a U.S. base, but an
entr%E9 into the lucrative midrange marketplace.
But CHS has its own issues to address internally first. It faces a class-action stockholder lawsuit that
alleges it submitted false financial statements and earnings.
"We deny vehemently all of the allegations in the lawsuits, and we will aggressively defend
ourselves," insists Claudio Osorio, the distributor's chairman, CEO and president. Meanwhile,
Osorio's leading an effort to cut fat out of CHS' operations with an extensive worldwide
reorganization that he says will eliminate $40 million in operating costs. "This reorganization, when
finished, will make CHS the most competitive distribution company in the markets we serve," he
promises.
Asked whether it was due diligence over a possible Pinacor acquisition that led to the irregularities
alleged in the lawsuit, Osorio says CHS has no links with Pinacor and "they have never made due
diligence on us." As far as Merisel and Savoir are concerned, Osorio would only say, CHS has "no
acquisition plans for the U.S. at this moment."
Evolving Model
In addition to global expansion strategies, distributors face a continuing need to evolve partnership
arrangements with vendors that continue to insist on near-zero inventories and near-instantaneous
response time. The latest buzzword, "integrated distribution," is a term invented to describe the
intimate interrelationship that must exist between vendor, distributor, reseller and end-user customer
to successfully combat the direct sales efforts of vendors like Dell Computer Corp. and Gateway 2000
Inc.
Channel assembly--the first manifestation of integrated distribution--has never lived up to its promise,
but several distributors see co-location as a more profitable means of integrated distribution in the
present.
Co-location can eliminate five days of in-transit time, says O'Malley. Pinacor opened a co-location site
with IBM in March, allowing the distributor to take PC delivery right on-site and then configure it to
customer specs.
Merisel, which never took the channel assembly plunge, is an enthusiastic co-locator with IBM and
Compaq. "Co-location allows us to take a system from IBM or Compaq from the end of their
production line to our discrete Merisel location within their facilities, do a customization for one of our
partners, add components or do a software install, then drop ship to our customer's customer,"
explains Illson. "In that process, we take touch and time out because it doesn't have to move through
our warehouse or our customer's warehouse."
The problem is, distributors today are fighting two negative trends, says O'Malley. "One is that
nobody appreciates middlemen anymore, but I think that's cyclical. People are starting to realize that
middlemen do provide a lot of benefit and value," he says. "The second thing we're fighting is
uncertainty about the PC itself. I don't think the PC era is over, but it will become an important node in
a whole range of information appliances. This industry will change, but what it will do is just grow
some more. Every time we think it will stop or shrink, it goes into another quantum growth phase." |
