Ingram Micro Inc. has scrapped a global software overhaul launched seven years ago in an effort to improve flexibility as the distribution giant’s business model evolves.
The Irvine-based company recorded a $116 million noncash, pretax impairment charge with the move, adding to a list of woes associated with integrating the massive SAP roll-out that was scheduled for completion last year.
The company’s new IT game plan will rely on a mix of legacy and software systems gained through strategic buys, with ongoing enhancements as part of a new strategy prompted by the relative ease of connecting mobile applications, according to Chief Executive Alain Monie.
“Our business is really becoming very diverse, very different, and requires systems that have strength in specific areas—and one general system usually does not give you those strengths,” Monie said in a recent conference call with analysts. “The business case has changed, and we believe that, today, maintaining diverse systems that are interconnected is a better strategy and more economical.”
Under Monie’s tenure, which began in January 2012, the world’s largest distributor of computers, software, and other technology products has made strides in improving its razor-thin margins with a big push into more lucrative business lines, namely mobility, add-on services and the cloud.
The company posted record sales of $46.4 billion last year, by far the leader on revenue among OC’s established cadre of public and private companies.
It has implemented SAP, one of the world’s most utilized business-management and customer-relationship software programs, in nine countries, 16 short of its intended goal.
The changeover went smoothly in Singapore, New Zealand, Chile, the Netherlands, Belgium, and Indonesia, but a big glitch in Australia dogged Ingram for much of 2011, hampering earnings and rankling investors along the way.
Problems surfaced in February and March of that year, shortly after installing the new software system, which was designed to improve automation behind services for customers and vendors.
The Australian business had used the same software since Ingram acquired then-Tech Pacific in 2004 for $530 million from private equity firm CVC Asia Pacific Ltd. and Dutch computer distributor Hagemeyer NV.
Ingram had installed a proprietary warehouse management system in Australia a year earlier, adding complexity to the system’s communications network.
The new system didn’t communicate with the warehouse system, causing a backlog and other logistical problems internally and for customers.
Ingram spent months fixing the problem, and in the process, lost several customers and business to competitors in the region.
The hiccup led to operating losses in Australia—part of Ingram’s Asia-Pacific market—that exceeded $90 million in 2011 and 2012 combined.
The company posted operating income of $458.6 million in 2011 and $462.3 million in 2012.
Ingram built its logistics system in the 1980s when it was still a relatively young company.
It has since expanded throughout the world, acquiring dozens of companies along the way. Some companies Ingram recently bought, including Istanbul-based technology distributor Armada and smartphone and set-top box repairer and recycler Anovo in Paris, carry SAP software.
Monie said there’s no plan on reverting SAP countries into other systems. Other buys and regions will be analyzed through the cost benefit of using one global system.
“Over seven years, we’ve had ample time to really analyze the pluses and minuses of each and every one of those systems,” he said. “Our success in growing new businesses is also based on having tailored, flexible and cost-efficient IT systems.”
The latest development comes as Ingram recently moved its headquarters from 1600 E. St. Andrew Place in Santa Ana to 3351 Michelson Drive in Irvine.
The recent charge for scrapping the software system led to a $34.3 million loss for the July quarter, when Ingram saw about $10.5 billion in revenue.
The company projects revenue between $10.5 billion and $11 billion in the current quarter and adjusted profits in the range of $93.4 million to $102.8 million, both in line with Wall Street expectations.
