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Ingram Micro Stock Up as Investors Bet on Tech Rebound

Ingram Micro Stock Up as Investors Bet on Tech Rebound

By ANDREW SIMONS

Shares of Ingram Micro Inc. have climbed steadily the past two months as investors and analysts,mindful of the company’s 2001 cost-cutting,have placed bets on a technology turnaround this year.

“It is a leading indicator for the technology sector,” said Matthew Sheerin, an analyst with San Francisco’s Thomas Weisel Partners. “Investors are trying to play the upturn, and they’re looking for the best companies going into it.”

Santa Ana-based Ingram Micro’s business distributing computers and other electronics is a good way for investors to put their money into a lot of different companies, Sheerin said, since it does business with all the major PC makers.

“You can invest in technology with Ingram, but it’s a bit safer. It’s like a mutual fund,” he said.

Ingram’s stock has gone from 12.55 on Oct. 24 to around 18 last week, a more than 40% gain and nearly double Nasdaq’s 22% rise during the period. Ingram’s average daily volume also has risen in the past few months.

There’s more to Ingram than a simple way to invest in tech, said Michael Grainger, the company’s president and chief financial officer.

“One of the things that we’ve done a good job with is focusing on the key things that make our business successful,” Grainger said. “And we’re pretty crisp in communicating that.”

Ingram’s third-quarter results have helped fuel the rally in the company’s shares. Ingram showed gains in operating margin and sharp reductions in inventory and debt. Income from operations rose sequentially despite a slip in sales.

A sequential improvement in net income before special charges was forecast for the fourth quarter. Ingram’s results are due Feb. 14.

Two weeks after Ingram’s third-quarter results, analyst Sheerin upgraded his rating of the company’s shares to “attractive.” Last month, Dallas-based SWS Securities initiated coverage on Ingram with a “buy” rating.

Ingram’s improved performance came after some hard slogging by the company, which was hit by two years of falling computer sales and prices. Computer sales suffered a 6.3% decline in 2001, according to market researcher International Data Corp.

In June, Ingram announced plans to close several facilities in Southern California, Florida and the Northeast and lay off 1,000 employees, a move designed to save more than $40 million annually. A Fullerton plant was among the casualties.

The company also reorganized its sales force to focus on faster-growing markets.

The cost-cutting extended to eliminating many of the special processes and perks the company would offer customers.

“Anything we weren’t getting paid for, we took a look at that. It’s a part of our culture now,” Grainger said. “We need to save money.”

Grainger declined to comment on whether the company is planning any further layoffs, except to say, “I never say never.”

As a result of driving down costs, Ingram’s gross margin in the third quarter climbed to 5.27%, 14 basis points better than the prior third quarter.

“That’s what investors see,” Grainger said. “They see that we’re positioned to take advantage when business turns around. They’re going to see that a lot of the money we get at the top will go right to the bottom line.”

Ingram also has taken steps to stay competitive with Tech Data Corp., its Clearwater Fla.-based rival. Ingram recently bought Singapore’s Electronic Resources Ltd. and Germany’s Macrotron AG, both of which improved the company’s presence in those areas. Ingram is looking at more acquisitions in the coming year, Grainger said.

“There’s been a lot of consolidation in the industry, so I think you’ll see what you would expect to see from a company our size,” he said. “Maybe some niche type deals that wouldn’t make the front page.”

And recently investors have given Ingram the edge over Tech Data, whose share price has hovered around 45 since October, following a rise from the 30 level in June. As of last week, Ingram counted a market value of $2.6 billion, just ahead of Tech Data’s $2.5 billion.

Still, not everyone is convinced.

“While we are encouraged by Ingram Micro’s skillful balance-sheet management and cost-cutting initiatives,” said Morgan Stanley analyst Shelby Fleck, “we would like to see a pickup in sales, since it is difficult to trim your way to profitability in the computer products distribution industry.”

Among the risks Fleck notes are the severe price erosion in PCs and competitive pressure.

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