Ingram gets slap on wrist for channel stuffing

Ingram Micro, has been all over the news this week – some of it good, some not so good. It’s offering a POS security bundle for small retailers and teaming up with EMC (NYSE: EMC) on a partner training centre for data centre solutions. But it also had to pay a hefty fine – to the tune of US$15 million – for a “channel stuffing” scheme with McAfee (NYSE: MFE) that took place over two years during the dot-com heydays.

Ingram “neither admits nor denies any wrongdoing regarding the matter,” which is rather amusing considering the evidence collected by the Securities and Exchange Commission (SEC). McAfee paid a fine of US$50 million back in 2006, which went to its shareholders.

Here’s what happened: McAfee artificially boosted its revenues by accounting for goods sold to distribution (namely, Ingram) as goods sold – rather than goods waiting to be sold to end-user customers. McAfee provided a number of discounts and rebates to Ingram, with an unwritten agreement that Ingram could return unsold products to McAfee. So Ingram bought way more product than it could ever expect to sell and then returned unsold product – not directly to McAfee, but to a “subsidiary” that McAfee set up called Net Tools, which essentially acted as a reseller by repurchasing inventory sold to Ingram.

According to SEC, McAfee overstated its revenues by US$622 million between 1998 and 2000. So what was in it for Ingram? This scheme also inflated Ingram’s profit margins through unearned compensation – hence, the hefty fine. Might as well just admit to it.

But it wasn’t all bad news this week. Ingram is now offering a point-of-sale security bundle with end-to-end encryption to help SMB retail customers meet security requirements (it’s available to resellers in the U.S., but Ingram has plans to bring it to Canada). Typically, this type of solution would be much too expensive for a small retailer – to the point where they’d rather risk the security of customer credit card information (though, with compliance regulations, they can no longer get away with this). In this case, Ingram is helping ensure retailers don’t break the law.

The SecurePOS SMB Bundle is an all-inclusive out-of-the-box bundle that includes HP’s rp3000 Point of Sale System and MagTek MagneSafe Card Reader, as well as solutions from Uniforce Technology, Citizen, Cherry Electronics and Planar and Payment Processing. Bundles will start at US$1,850 and leave room for partners to add service value. More vertical-specific bundles are on the way for government and health care.

Ingram is also partnering with EMC on its Velocity Solution Center, a partner training and demonstration lab in Buffalo, NY. This is in response to demand from solution providers for data centre solutions, particularly storage and virtualization – both of which have remained fairly strong, despite the economy, as end-user customers look for ways to cut costs and streamline their business.

The centre, which focuses on EMC data centre architecture and VMware virtualization, will allow solution providers to demo complex technologies such as backup, recovery and virtualization to their customers, so they can test-drive before they buy. In today’s economy, this can make the difference between sitting on the fence and investing in new technology. At this point, it’s only available to EMC-accredited channel partners in the U.S., so hopefully that will evolve to include 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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