Santa Ana-based Ingram Micro Inc. is in transition, seeking a path to new lines of business that will take it beyond the razor-thin margins it has consistently earned with its old-line distribution model.
That’s no small maneuver for a company that made its reputation and earned a steady living the last 30 years by moving technology products from one location to another.
Now an increasing number of products are sold via the cloud, cutting down its reliance on dock workers, big-rig trucks and warehouses.
An ongoing shift to specialty lines of business is intended to maintain Ingram’s position at the top of the supply chain and boost margins by offering customers more.
The challenge is in the hands of newly appointed Chief Executive Alain Monie (a-LAHN MONE-yay), a straight-talking Frenchman who spells it out in plain English.
“If we’re not being paid more for what we do, it is simply because we are not offering more value than what we’re paid for,” he said. “We shouldn’t be complaining about the very low margins we make. If we were to offer a lot more than that, we would be paid more.”
Ingram hummed along the last decade by offering standard services that made it the largest technology distributor in the world, handling everything from software to computers and various accessories. It racked up impressive sales and once again ranks No. 1 on this week’s list of largest public companies based in Orange County based on revenue (see List, page 12; related stories throughout issue).
Profits are another matter—those low margins Monie cited often came to little more than a penny on the dollar. Ingram saw an operating margin of 1.26% on $36.3 billion in revenue last year.
Monie arrived at the start of this year, taking the reins from Gregory Spierkel (see related story, this page). He’s begun making changes to Ingram’s sales networks, which includes a mix of about 150,000 value-added resellers—often technology consultants that sell goods and services to small and midsize businesses—and retailers.
Ingram competes with local, regional, national and global distributors, as well as direct sale suppliers. Substantial domestically based competitors include Phoenix-based Avnet Inc. and Arrow Electronics in Englewood, Colo.
Ingram’s transition to offering more technology-based services can be seen in one of its largest product lines: business software, which accounts for 15% to 20% of annual revenue.
The old model on business software was straightforward: Ingram either sold it on a CD or set up online networks that allowed end users to download programs and applications.
Cloud Applications
Ingram’s resellers now offer customers numerous cloud applications that allow them to use products when needed.
Ingram began investing in the cloud several years ago and has developed about 40 applications for more than 24 resellers.
“We’ve done a lot of work in educating our reseller base, because it’s a different business model for them,” Monie said.
Ingram also helps resellers build data centers to help them become versed in setting up private clouds for business-to-business customers and public versions for wholesalers or retailers.
“There are lots of technological changes,” Monie said. “The difficulty there is not to make bets on whether this is going to win, or this is going to lose, but rather to offer everything because you need to be with the winners.”
The shift has prompted Ingram to reevaluate its workforce, which includes about 15,500 workers companywide and nearly 900 in Santa Ana. Recruiting and training have long been centered on the old-line distribution model.
These days the company is looking for more engineers and software and hardware designers for specialty business lines that have been established alongside cloud services. Those include mobility, data capture, logistics and other units expected to bring higher margins.
“That has influences on how you recruit, who you recruit, how much you pay them,” Monie said. “That kind of disturbs the ecosystem we’ve been used to, but that’s alright. That’s part of where we need to go.”
The mobility segment includes smart phones, accessories, tablets, laptops, and integrated products.
The data capture specialty offers auto identification, point-of-sale and mobile computing products used in offices, government, healthcare, manufacturing, retail, hospitality and warehousing.
• Headquarters: Santa Ana
• Business: technology distributor
• Founded: 1979
• Ticker symbol: IM (NYSE)
• Market value: about $2.79 billion
• Notable: seeking new, higher-margin lines of business under recently appointed CEO
The logistics division operates warehouses or other distribution points for companies including Cupertino-based Apple Inc.’s lone U.S. warehouse.
Ingram is looking far and wide for other ways to boost margins.
The company offers gift wrapping services to customers during the holiday season, when its sprawling warehouses are stacked with action figures, dolls, stuffed animals, apparel items and sports equipment, rather than computer monitors, tablets and servers.
Technical support is another new service.
“Margins are always there when you provide something that people want and need,” Monie said.
Execution
All of the efforts will come down to execution, which has plagued Ingram during its companywide overhaul to improve automation, operations and services for customers and vendors around the world.
Ingram has completed the systems overhaul in seven countries and has 19 more on tap. The program began four years ago and has an expected completion date in 2014.
The changeover went smoothly in Singapore, New Zealand, Chile, the Netherlands, Belgium and Indonesia. Problems installing the software and hardware at its Australian operation dogged the company for most of 2011, bringing down earnings in the process.
Monie is committed to ensuring that doesn’t happen again as the company initiates safeguards and increases testing before the next country roll out.
“It didn’t go as well as we thought it would,” Monie said. “That really shows to me you need to be absolutely ready for these kinds of things.”
Monie is meticulous on details, leading some analysts to dub him an “execution guy.”
Getting things done right the first time brings him satisfaction.
“There’s something good about planning and designing the details, executing those details, and getting that result,” he said. “When you see those things happen, that’s the best satisfaction I could get.”
