Ingram Micro Inc.

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Ingram Micro Inc.

1600 East St. Andrews Place
Santa Ana, California 92705
U.S.A.
Telephone: (714) 566-1000
Toll Free: (800) 456-8000
Fax: (714) 566-7900
Web site: http://www.ingrammicro.com

Public Company
Incorporated: 1989 as Ingram Micro D, Inc.
Employees: 13,500
Sales: $25.19 billion (2001)
Stock Exchanges: New York
Ticker Symbol: IM
NAIC: 421430 Computer and Computer Peripheral Equipment and Software Wholesalers

As the largest global wholesale distributor of computer and electronics products, Ingram Micro Inc. acts as the middleman between manufacturers and a wide range of retail outlets, value-added resellers (VARs), small businesses, large enterprises, and other customers. Originally a business unit of Ingram Industries, Inc., Ingram Micro grew through a series of mergers and acquisitions. It is a publicly traded company with annual sales in excess of $25 billion. The Ingram family retains control of Ingram Micro by owning 75 percent of its voting stock.

Mergers Leading to Creation of Ingram Micro Inc.: 1982-89

Ingram Micro Inc. was created through a series of mergers among software distributors. In the first half of 1985 Software Distribution Services was acquired by the Ingram Distribution Group. Software Distribution Services was founded in 1982 in Buffalo, New York, and had become one of the top four software distributors in the United States by 1985. Ingram Distribution Group was a unit of Ingram Industries Inc., which PC Week described as “a small conglomerate with operations in marine transportation, energy, distribution, and insurance.” Ingram Distribution Group began distributing entertainment and educational software in 1983. It started by distributing programs for the Commodore computer and later expanded into software for Apple and IBM PCs.

Once Ingram Distribution Group acquired Software Distribution Services, the company was renamed Ingram Software. Ingram Software expanded later in 1985 by purchasing Softeam, a software distributor based in Compton, California. The acquisition of Software Distribution Services included a 50 percent interest in Aviva Software of Toronto, Canada. In December 1986 Ingram Software purchased the remaining half of the Canadian operation and renamed it Ingram Software Ltd. Ingram purchased another Canadian distributor, Frantek Computer Products, Inc., in March 1988 and renamed its Canadian operations Ingram Micro Canada with headquarters in Toronto.

In February 1988 Ingram Software was renamed Ingram Computer. Ingram Computer was headed by CEO and Chairman David Blumstein, who joined the company in January 1988. While Ingram Computer was not profitable in 1987 and had a growth rate of about 10 percent, Blumstein was able to lead the company into profitability in 1988 with a growth rate of more than 30 percent. Blumstein was also responsible for reducing the company’s workforce by about 10 percent.

By January 1989 Ingram Industries had acquired nearly 59 percent of the stock of Micro D, the leading software distributor in the United States. Ingram then launched a public tender offer to buy the remaining shares of Micro D at $12.50 a share. By March Micro D agreed to accept a tender offer from Ingram of $14.75 a share, or about $44 million, for the remaining 41 percent of the company’s outstanding stock.

The new company was called Ingram Micro D. Micro D’s CEO Chip Lacy became its chairman and CEO, while Blum-stein became the company’s vice-chairman. The merger was seen to be a complementary one, with Micro D specializing in large retail computer chain stores and Ingram servicing value-added resellers (VARs) and smaller retail stores. Micro D had sales of $553 million in 1988, and the combined firm was expected to have about $1 billion in revenue for 1989, with a 35 percent share of the U.S. software distribution market and 14 percent of the hardware market. The company consolidated Micro D’s seven stocking locations with Ingram’s four locations into a remaining total of eight shipping locations in the United States. The company also had two shipping locations in Canada. Ingram Micro D’s headquarters were located in Santa Ana, California, the site of Micro D’s old headquarters. The company also maintained an East Coast operations center in Buffalo, New York.

Ingram Micro D quickly established VAR programs for second-tier vendors, which enabled it to sell systems by the largest computer manufacturers such as IBM Corp., Hewlett-Packard Co., and Compaq Computer Corp. Ingram Micro D subsequently established segmented business units to focus on the sale and service of specific products. The company also created the Alliance, a division focused on high-volume system sales.

Growing into a Multibillion-Dollar Company: 1990-96

Ingram Micro expanded into Europe in 1989 with the purchase of Softeurop, a software wholesaler based in Brussels, Belgium, that had subsidiaries in France and The Netherlands. Ingram expanded its European presence in 1991 with acquisitions in the United Kingdom and a start-up operation in Italy. A European Coordination Center was established in Brussels in 1992 to coordinate the activities of the company’s five European subsidiaries. Additional European acquisitions took place in 1993 and 1994, including House of Computers in Germany; Datateam in the Scandinavian countries of Denmark, Norway, and Sweden; and Keylan in Spain.

Ingram Micro entered the Asia-Pacific region in 1992 by establishing operations in Malaysia and Singapore. In January 1993 Ingram acquired a majority interest in Mexico’s largest wholesale distributor and began operations in Central America as Ingram Dicom. By 1993 Ingram Micro had expanded into global distribution through a series of strategic acquisitions.

In 1991 sales topped $2 billion for the first time and registered a 41 percent increase over the previous year. For the first quarter of 1992 sales grew another 40 percent to a record $606 million, with international sales accounting for about 15 percent of revenue. Ingram Micro was the leading wholesaler of personal computer products.

With the prices of individual workstations falling from $50,000 to less than $10,000, computer manufacturers began to consider outsourcing their sales efforts and refocusing their direct sales forces on higher-priced merchandise. As part of this trend, in 1992 Ingram Micro became the wholesale partner of choice for Hewlett-Packard, which authorized Ingram to distribute its HP Apollo 9000 Series 700 workstations and X stations to VARs. At the time the HP workstation was the only one Ingram was offering to the VAR market.

Ingram also began to expand its original equipment manufacturer (OEM) base in the mid-1990s. In 1994 the company became an authorized reseller to VARs for Compaq Computer Corp. In mid-1995 Netscape Communications Corp. selected Ingram Micro to be its North American distributor. Ingram also distributed products for about 30 OEM vendors who made products such as disk drives and other equipment, which Ingram sold to VARs and systems integrators who were building at least 100 systems a month.

Ingram was the leader of a fast-growing trend in computer distribution. For 1993 distributors accounted for about 40 percent of the estimated $6.5 billion in sales of PC-related products. Ingram developed programs to distribute to electronics chain stores who were becoming interested in selling personal computers, offering them in-store training and merchandising programs. Ingram’s business model was to be a one-stop shop that could accurately process orders in a timely fashion. As the middleman between computer manufacturers and retailers, Ingram and other distributors had to offer services to both. Ingram claimed to have an order-fill rate of 97 percent, and all orders received by 5 p.m. were shipped the same day. Ingram also offered retail customers a 150-day returns policy on most of its products. Ingram’s principal markets were warehouse clubs, office product stores, and mass merchants. It signed agreements with Staples and Office Max as well as Wal-Mart and Target. It also made inroads into alternate channels such as video stores and music outlets.

For 1994 Ingram reported domestic sales of $4.1 billion and overall sales of $5.8 billion. Significant growth was reported in the networking market, with Ingram’s Technical Products Division reporting sales of $1.02 billion. The Technical Products Division sold a mix of routers, hubs, interface cards, servers, and database products for networks from manufacturers such as 3Com, Compaq, Intel, Bay Networks, and Novell.

Although the company had a $300 million line of credit and sufficient financial resources, it was planning to go public in 1996 as part of the restructuring of parent company Ingram Industries. In 1995 the conglomerate announced it would form three independent companies: Ingram Industries, Ingram Entertainment, and Ingram Micro, with Ingram Micro the only one going public. Ingram Industries was to be headed by company founder Bronson Ingram’s widow, Martha Ingram, who became president and CEO. Ingram Industries’ subsidiaries included Ingram Book Company and Ingram Merchandising Services, as well as Ingram Barge Co., Ingram Materials Co., Ingram Cactus Co., and Permanent General Cos. Ingram Entertainment was focused on distributing vidéocassettes and was headed by David Ingram, son of company founder Bronson Ingram, who died in the summer of 1995. Bronson Ingram’s other sons, John and Orrin, remained president of Ingram Book Co. and senior vice-president of Ingram Barge Co., respectively.

Company Perspectives:

Ingram Micro is a global market leader with a vast network of resources and infrastructure unrivaled in the IT supply chain management industry.

The reorganization divided up the Ingram Distribution Group. As a result Chairman Philip Pfeffer resigned but remained on the board of directors of both Ingram Industries and Ingram Micro. During 1995 Chip Lacy was promoted to co-chairman and CEO of Ingram Micro, and Jeff Rodek joined the company as president and chief operating officer (COO). Under Rodek numerous management changes were made at the senior executive level of Ingram Micro as the result of a new business model that was more focused on customer segments. Two top sales vice-presidents were promoted to senior vice-presidents, with one focused on VARs, enterprise systems, and OEM functions. The other was responsible for the dealer channel, major accounts, field sales, and government and education resellers. Ingram’s Consumer Market Division, which had grown to account for 20 percent of sales, was broken out as a separate business unit.

For 1995 Ingram Micro had revenue of $8.6 billion and a profit of $84.3 million. That compared to net income of $63.3 million on sales of $5.83 billion in 1994.

Prospering Despite Management Changes: 1996-2002

Ingram’s preparations for its initial public offering were complicated by the reorganization of Ingram Industries. As the company awaited a favorable ruling from the Internal Revenue Service (1RS) for a tax-free split-up, disagreements arose among top executives over corporate governance issues. Ingram Micro CEO Chip Lacy was dismissed effective May 31, 1996, over “irreconcilable differences regarding corporate governance during Ingram’s final period as a private company,” according to Martha Ingram’s public statement. Lacy was a respected veteran in the distribution industry who was credited not only with driving Micro D’s growth, but also with leading Ingram Micro from a company with less than $1 billion in annual revenue to a company that would reach $12 billion in 1996 revenue. In August 1996 Ingram named Jerre Stead, former CEO of AT&T Global Information Solutions and Legent Corp., as CEO of Ingram Micro.

Ingram Micro’s IPO took place on November 1, 1996. The company sold 20 million shares at $18 per share, with proceeds of approximately $392 million. The company’s stock price rose about 15 percent by the end of the year, giving Ingram Micro a market capitalization of more than $3.5 billion. The company used $366 million from its IPO to pay back debt owed to its former parent company, Ingram Industries. Although Ingram Micro was now a publicly traded company, the Ingram family retained control of 75 percent of the firm’s voting shares.

Ingram Micro posted strong growth in 1996 and 1997. The company reported 1996 revenue of $12 billion and net income of $110.7 million. In 1997 revenue increased to $16.6 billion, and net income reached $193.6 million. Much of the growth was attributed to strong sales in Europe, where quarterly sales grew by 38 percent in the first quarter of 1998. Ingram Micro expanded its European operations in 1997 with the acquisition of TT Microtrading in Finland and J&W Computer GmbH in Frankfurt, Germany. In 1998 Ingram Micro made its largest European acquisition to date with the purchase of Macrotron AG of Munich, Germany, for $100 million from its parent, Tech Data Corp. of Clearwater, Florida. The acquisition of Macrotron AG added more than 1,000 employees and increased Ingram Micro’s presence in Germany, Austria, and Switzerland. Macrotron had about $1.2 billion in annual sales.

Ingram Micro also continued to expand in Latin America. In October 1997 it acquired Computek, one of the largest regional computer wholesale distributors in Latin America with offices in Brazil, Chile, Peru, and Miami, Florida. In 1998 Ingram Micro acquired Nordemaq Ltda. in Brazil and in 1999 opened subsidiaries in Argentina, Panama, and Costa Rica. The company also established a Latin America Export Division in 1998 in Miami to serve international markets where it did not have a stand-alone, local operation.

Ingram Micro gained entry to ten Asia-Pacific countries with a minority investment in Electronic Resources Ltd. (ERL) in November 1997. ERL was a leading Asian computer and electronic products distributor based in Singapore. In October 1998 Ingram allied with Softbank Corp. to provide coverage of Japan, and in 1999 Ingram Micro acquired 100 percent of ERL and renamed it Ingram Micro Asia Ltd.

In the United States Ingram Micro agreed to pay as much as $78 million to acquire Intelligent Electronics Inc.’s $3 billion distribution business, with the exact amount dependent on IE’s Reseller Network Division balance sheet at the time the deal closed. The acquisition boosted Ingram Micro’s projected annual revenue to $15 billion for 1997 and $20 billion for 1998. As it turned out, Ingram Micro’s sales for 1997 reached $16.58 billion and $22.03 billion for 1998. Strong sales were posted for telecommunications and networking products, while European sales climbed 70 percent in 1998 and U.S. sales grew by about 16 percent.

Ingram Micro began to experience revenue shortfalls in 1999. In the first quarter the company laid off about 10 percent of its workforce, or 1,400 employees. Its stock fell by 50 percent, or $3 billion in market capitalization. Later in the year CEO Jerre Stead stepped down as Ingram Micro’s CEO, although he remained as chairman. In October President and COO Jeff Rodek left the company. For 1999 Ingram Micro reported sales of $28.07 billion. Net income was $183.4 million, down from $245.2 million in 1998.

Key Dates:

1982:: Software Distribution Services is founded in Buffalo, New York.
1985:: Ingram Distribution Group, a unit of Ingram Industries, acquires Software Distribution Services and renames it Ingram Software.
1988:: Ingram Software is renamed Ingram Computer.
1989:: Ingram Computer merges with Micro D to create Ingram Micro D.
1991:: Ingram Micro D drops the “D” from its name.
1996:: Ingram Micro becomes a publicly traded company on the New York Stock Exchange.

The years 2000 and 2001 were characterized by new executive leaders and a focus on cost cutting. In March 2000 Ingram Micro named Kent Foster as CEO and president. Foster was formerly president of GTE Corp. At the beginning of 2001 Ingram Micro Chief Financial Officer (CFO) Mike Grainger was named the company’s president and COO. As CFO Grainger had led the company through its IPO and was now in charge of its global operations. In November 2001 Ingram Micro consolidated its U.S. and Canadian operations into a single North American unit. Other cost-cutting measures taken in 2001 included layoffs, consolidating distribution centers, and reorganizing several internal departments. For 2001 Ingram Micro reported revenue of $25.19 billion and net income of just $6.7 million, compared to 2000 revenue of $30.72 billion and net income of $226.2 million.

Ingram Micro continued cutting costs in 2002 as it prepared for an economic recovery. In the first half of the year it cut about 500 jobs, with further layoffs reducing its workforce to about 13,500 employees later in the year. As Ingram Micro sought to improve its bottom line, it remained focused on providing a high level of service to its customers.