Tech Data confesses prediction shortfall
Distribution Fourth-quarter profits fail to meet analysts' projections.
Tech Data has conceded that its earnings for the period ended 31ctions. January will fall short of analysts' expectations, despite assurances by officials last month that the distributor would achieve its fourth-quarter profit targets.
The US distribution giant is the sixth channel organisation since December to announce a shortfall in projected profit. Ingram Micro, Inacom, Arrow Electronics, Avnet and Merisel also missed targets.
A month ago, Art Singleton, vice president of finance at Tech Data, insisted the distributor would meet its projected profit targets (PC Dealer, 6 January). The slump in the distribution market prompted Deutsche Bank Securities to devalue its ratings of Tech Data and Ingram Micro in January.
But last week, Steve Raymund, chief executive of Tech Data, admitted fourth-quarter earnings per share for 1998 would fall five to eight cents short of predictions.
Speaking to PC Dealer last week, Raymund blamed shrinking margins and lower than expected rebates for the rapid change of fortune.
'We made our announcement the moment it was clear to us that we could not hit our plan for the quarter,' he said. 'Front-end margins were too low relative to our volume, even though the latter did rebound somewhat with more aggressive pricing from December.
'In addition, because vendors are distributing quotas which in aggregate exceed demand, rebates didn't add up the way we hoped and there was no way for us to know that until the quarter ended.'
Raymund said he expected Tech Data to maintain its price-cutting policy to meet sales targets and did not see the flat distribution market improving in the near future.
See finance, page 6.
INGRAM DIVULGES DETAILS OF WHITE BOX OPERATION
Ingram Micro has shed further light on its white box PC manufacturing operation, following plans to bring out its own brand of PCs.
The distribution giant's decision came under criticism last week after it revealed its intentions at the System Builder Summit conference in Phoenix, Arizona.
The move comes after Ingram first disclosed its worldwide white box assembly plans last April. At the time, Sandy Scott, managing director of Ingram UK, insisted the distributor would not put its brand on the machines.
A final decision on the brand name will be made within the next two months and could involve the possibility of sales in the UK.
Meanwhile, Ingram has commenced a pilot system building operation in the Netherlands, after it bought former PC vendor Tulip's manufacturing plant last year (PC Dealer, 27 May 1998).
Initially, Ingram beefed up its manufacturing capacity, called Frameworks, but has expanded its vision and is seen by industry insiders as taking on the role of OEM partner to vendors as well as supplier to resellers.
Ruud van Nespit, vice president of marketing at Frameworks, said: 'We will be selling some of the boxes on behalf of our resellers. Some of them will need boxes with a name on it. This is not branding because they will not be advertised to users, there is no brand equity and they will not have the Ingram Micro brand.' He insisted that the systems would never be sold direct and were not pitched against system builders.
'We are actually offering them a service. With tougher safety laws in Europe, a lot of builders will have to increase their investment to attain required safety levels,' van Nespit added.
In another development, Compaq and Ingram announced a European-wide alliance this week, but van Nespit would not confirm whether it involved channel assembly.
By Wale Azeez.