Ingram Micro has become the latest channel player to see its profitability hit by low margins in the tablet space, as its net income fell more than 40 per cent despite a big sales hike in Q1.
The broadliner's revenue for the three months to 30 March rose 18.8 per cent on an annual basis to $10.26bn (£6.6bn). Much of this growth can be chalked up to acquisitions, including the bumper buyout of $5bn mobility distribution giant BrightPoint last summer. But Ingram claims that Q1 revenue was also up six per cent organically.
But despite the sales boom, quarterly net profits plummeted 44.7 per cent to $49.76m, equating to a year-on-year drop in margins from one per cent to less than half a per cent. The decline in profitability was chalked up to three key factors, according to chief financial and operating officer Bill Humes, speaking in a conference call with investors transcribed by Seeking Alpha.
"When compared to last year, gross margin was down, driven by three primary factors," he said. "First, a continued greater mix of lower-margin products, such as tablets and other personal devices; second, a competitive pricing environment, particularly in Europe and North America; and third, margins last year benefited by approximately 10 basis points from favourable pricing on hard-disk drives."
First-quarter sales in Ingram's North American homeland grew seven per cent annually to $3.87bn, while European revenue was flat at $2.67bn. Turnover in both the Latin America and Asia-Pacific regions hit a record high, growing to $461.96m and $2.19bn respectively.
Europe was also the laggard in the profitability stakes, with GAAP operating margins of 0.52 per cent, compared with 1.44 per cent in North America, 1.2 per cent in Latin America and 0.63 per cent in Asia-Pacific. The BrightPoint operation posted operational margins of 0.87 per cent during the quarter.
For the second quarter Ingram looks set to endure another margin erosion, as it predicts that turnover will grow between one and four per cent sequentially while gross margin will be "flat to slightly up".
"I am pleased with the progress we are making on driving cost synergies and business integration in our recent acquisitions," said chief executive Alain Monie. "More importantly, the addition of these companies has expanded our capabilities in highly strategic markets and new geographies and is expected to provide a strong foundation for future profitable growth. I am also encouraged by our progress in Australia and our ability to drive solid overall revenue growth; however, I am not satisfied with our bottom-line results."
"High growth in tablets and other mobile devices continues to affect gross margins. However, this high growth product opportunity also brings the addition of a new set of vendors and customers to the Ingram Micro ecosystem, which enables us to tap into the associated supply chain services to large OEMs and service providers. These services carry better margins and lower working capital metrics. We recognised this opportunity early last year, leading us to acquire BrightPoint, our new mobility business, which has already been nicely accretive to gross margin and earnings."
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