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Analyst: Ingram Could See Market Share, Profit Gains

It’s good to be king in your industry. Just ask Ingram Micro Inc.

As the biggest technology products distributor, Santa Ana-based Ingram Micro could see even more market share gains and better profits down the road, according to William Fearnley, an analyst with FTN Midwest Securities Corp. in Cleveland.

“Overall, we believe IM is positioned for additional growth because of its worldwide reach and relationships with (original equipment manufacturers),” Fearnley wrote earlier this month.

Fearnley gave Ingram Micro’s stock an upgrade from “neutral” to “buy.”

The analyst raised his earnings projection by 5% to $262 million for the year. He nudged up his sales outlook by about 1% to $32.2 billion for 2006. That would put earnings growth at 21% compared to 2005 and revenue growth at 12%.

Fearnley said his research indicates manufacturers are sending more sales through Ingram Micro to tap its unmatched worldwide operations. That way, the manufacturer works with just one distributor to streamline its shipping.

“IM will continue to gain momentum with its worldwide coverage model, which is deeper than some of its largest competitors,” he wrote.

That includes archrival Tech Data Corp. of Clearwater, Fla., which has been struggling through its own issues in Europe.

A key region is Asia, where Ingram Micro doubled down in late 2004 with the $530 million purchase of Australia’s TechPacific.

The buy about doubled Ingram Micro’s business in Asia, home to some of the fastest-growing economies.

Revenue growth should continue there, Fearnley said. The acquisition should increase Ingram Micro’s operating profit margin in Asia to 1.09% this year, up from 0.36% in 2004 and 1.08% last year, Fearnley said.

Economies of scale have helped Ingram Micro control costs. The company also has outsourced some operations in the past few years. Ingram Micro recently said it would send some technology work done in Buffalo, N.Y., and Santa Ana to an outside provider.

But there are concerns. Some companies are trying to cut Ingram Micro out of the loop by going with direct sales.

Companies such as Apple Computer Inc. and Hewlett-Packard Co. already are expanding their own sales operations.

The move can cut costs and help companies better compete with direct sales king Dell Inc.

But HP could send more of its distribution work to Ingram after it finishes a review in Europe, Fearnley said.

Ingram Micro’s stock rose 7% on the day of the upgrade, June 15, reversing a months-long trend of declines. As of last week, Ingram Micro’s shares were down about 10% for the year with a market value of $2.9 billion.


Finally: MSC

MSC.Software Corp. finally released its 2005 financials. They weren’t too shabby.

The Santa Ana-based maker of computer-aided engineering software said it posted earnings of $12.5 million, up 26% from 2004. Much of that growth came at the end of the year.

Revenue shot up 11% from 2004 to about $296 million. That would put MSC at No. 5 on the Business Journal’s recent list of the largest software makers operating here.

Not too bad for a company still trying to emerge from some of its darkest days.

In the past few years, MSC has delayed filing reports with the Securities and Exchange Commission as it grappled with accounting difficulties. The company switched accounting firms and restated some results.

Along the way, MSC lost its listing on the New York Stock Exchange.

Earlier this year, MSC filed restated financial statements for 2002 and most of 2003. It also finally issued income statements for all of 2003 and 2004. The 2005 numbers get it closer to being caught up with its filings.

Bill Weyand, who took over last year as chief executive, gets some of the credit for the progress.

“We are pleased that the next major step in becoming current in our SEC filings has been completed,” Weyand said during the recent analysts’ call. “In 2005 we grew revenue, delivered solid results, and generated cash in spite of the major ongoing challenges of the accounting restatement as well as the new management team’s implementing major transition initiatives to improve MSC’s performance for the long term.”

One of the key efforts has been upgrading the company’s software offerings.

Manufacturers use MSC’s software to simulate tests of their products.

The company shrank its product line from more than 500 offerings to 28 bundled “suites.” In 2005, the company boosted its development employee numbers by 50%.

Weyand also touted MSC’s biggest customers for 2005, including Airbus SAS, Honda Motor Co. and Boeing Co.

MSC lost market share from 2002 to 2004, Weyand said. But the company found “traction” again in 2005, he said.

“The company regained confidence in the eyes of our customers,” he said.


Going Wider

The group behind the annual VentureNet event in Newport Beach is getting a bigger tent.

The Software Council of Southern California has changed its name to the Technology Council of Southern California, reflecting a focus beyond software.

Some of the newest members to join the Technology Council are IBM Corp. and Napster Inc.

VentureNet, which brings together scads of venture capitalists and young companies, is slated for this October.

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