Distributors face tough economic climate

Normally, reading about companies’ quarterly earnings bores me to tears, but last quarter, the results pretty much across the board were interesting – and perhaps an indication of how the economy is starting to affect IT sales (at least in a couple of areas).

Ingram Micro, Avnet and Arrow still made more money than they did last year this time around, but none of them met company objectives, thanks to sky-high gas prices and a slowing economy. As a result, both Ingram and Avnet announced cost-reduction initiatives.

Ingram was surprised by the flatness in sales at the end of last quarter, and attributed this to macroeconomic factors in North America and Europe (Asia-Pacific and Latin America are actually doing quite well). The price of fuel has risen 60 to 70 per cent over last year, and the price of food is also on the rise – we’re just starting to notice this in Canada.

But Ingram is predicting a healthy outlook for this quarter – perhaps because it’s initiated an “expense-containment plan,” which has eliminated 66 jobs in North America. It also plans to restructure its Europe, Middle East and Africa operations. These cuts are expected to save anywhere from $18 million to $24 million.

Avnet is in the same boat – it made more money than last year this time, but operating groups were below its profit forecast. It also has “targeted actions” that are expected to save $23 million to $27 million on an annual basis. It blamed its results on deals that were pushed into next quarter, as CIOs are delaying major IT purchases.

Arrow also experienced lower-than-expected revenues in its enterprise computing solutions business, as well as lackluster sales in some key product areas. But it will continue to invest in the business unit long-term. Also, it experienced lower gross margins due to rebate issues (many rebate goals have been reset for this quarter).

The distie anticipates its server business will continue to be under pressure worldwide, and expects its high-margin components business in Europe to soften.

It’s not all bad though. It seems IT departments may be waiting it out when it comes to big capital expenses, but other IT sales haven’t yet been affected by economic conditions. Ingram says that some product areas showed growth, such as point-of-sale, data capture and wireless printers, as well as its managed services business.

So, while the IT business may not entirely escape the economic downturn, there are still growth areas – and the big opportunity for the channel could be helping their customers find ways they can use technology to save money during these tougher times.

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Jim Love, Chief Content Officer, IT World Canada

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Vawn Himmelsbach
Vawn Himmelsbach
Is a Toronto-based journalist and regular contributor to IT World Canada's publications.

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