Look for a different kind of Ingram Micro Inc. in 2006.
After years of getting its costs under control and focusing on high-profit businesses, it’s now time to stoke sales at the Santa Ana-based distributor of technology products.
In a recent interview, Ingram Chief Executive Gregory Spierkel said he was shifting the company’s focus from mainly cost-cutting to more of an even split with sales growth.
“We’ve put more emphasis on margin improvement and profitability improvement because we felt that we weren’t meeting market and peer group (benchmarks), particularly in North America,” Spierkel said. “We know in doing that we might not keep up with some of our competitors and that was fine for us.”
Of course, profit margins are mighty important when you’re a company that doesn’t make anything,Ingram primarily helps manufacturers get their products to retailers and buyers.
In 2005, Ingram’s net income was just 0.86% of overall sales. But in the fourth quarter, margins showed some big improvement.
Overall, operating margins expanded to 1.76% in the period, up from 1.45% a year earlier. That’s also up from 1.3% in the third quarter.
In North America, operating margins showed a big jump,from 1.21% in the year-ago period to 1.85%.
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Ingram Micro warehouse: margins expanding, sales focus gaining |
Ingram’s Latin American region showed the largest leap, up to 2.54%, versus 1.71% a year earlier.
With margins expanding, Ingram’s adjusted net earnings rose 38% in the fourth quarter to $90 million, versus a year earlier.
The results beat the company’s guidance, which it reaffirmed in early December, for income of $78 million to $84 million.
“It’s all moving in the right direction,” Spierkel said.
Revenue also showed some improvement, though not as much profits.
Ingram’s sales of $7.96 billion in the quarter were at the high end of it sales projections. Sales were up 7% from a year earlier.
One analyst wasn’t all that impressed by the quarter and the more balanced approach.
“While we believe there is room for incremental operating margin improvement into 2006 and 2007, driven by continued cost reductions and improvements in operating efficiency, we think our operating margin expansion thesis has mostly played out,” wrote Steven Fortuna with Prudential Equity Group LLC in New York. “We note that in the past, the main driver of upside earnings surprises has been stronger than expected operating margin performance and/or strong fourth quarter seasonality.”
Fortuna downgraded his rating on Ingram shares to “neutral weight” from “overweight.”
The downgrade came a day after the earnings report. Ingram shares initially fell from $20.19 to as low as $19.
But investors didn’t stick with Fortuna’s line of thinking for long. By midday the stock had recovered its losses and ended the day slightly higher at $20.50. It recently was hovering at $20.
One other tidbit from my interview with Spierkel: More acquisitions could be in the offing.
The company could make moves on consumer electronics makers. Asia or Eastern Europe are interesting target regions, Spierkel said. No guarantees from Spierkel, but these are areas of potential.
Broadcom Brings It
Earlier this month, Broadcom Corp. tried to make some waves at the huge 3GSM World Congress conference, a major one for companies connected to the wireless phone industry.
It was big enough for Broadcom Chief Executive Scott McGregor and other top executives at the Irvine-based chipmaker to attend.
And why not? Broadcom unveiled its big push into next-generation cell-phone processing.
The chips will help enable third-generation (3G) cell phone features, including video, audio and mobile TV capabilities, at what it called 2G prices. This would push the price of 3G phones down to around $100. The company announced other cell phone chips as well.
I didn’t make it to Barcelona for the press conference, but according to reports in the International Herald Tribune, McGregor called the unveiling a sort of coming-out party for Broadcom and a further push into broad-based cell-phone platforms.
In the past, Broadcom has offered the platform, but not the software and framework to make it easier to incorporate other chips in a phone.
The $100 price could undercut competition, such as San Diego-based Qualcomm Inc., whose chips can push phone prices into hundreds of dollars, according to the report.
Broadcom is embroiled with Qualcomm in a legal battle at a couple of venues over patent infringement disputes.
We’ll see if Broadcom can beat Qualcomm and others with the new chips.
More Love for Quest
Irvine-based Quest Software Inc. has the stock to beat, according to a recent report.
Walter Pritchard, an analyst with SG Cowen Co. in New York, called Quest his favorite small capitalization stock and predicted gains of 20% to 25% versus the market during the next year, according to an article at Forbes.com.
The analyst thought Quest should ride high on the product upgrades at Microsoft Corp.
That’s the same sentiment of analysts with Goldman Sachs Group Inc. in January.
Pritchard raised 2006 estimates on Quest to $71.5 million on revenue of $535 million, from $68.5 million on revenue of $525.5 million, the article said.
The stock is up more than 10% in the past six months.
