Profit warnings drag down channel shares

Ingram and Elcom admit to sluggish sales as analysts revise Tech Data forecast.

The role and value of distribution was called into question as two leading US wholesalers issued profit warnings, causing other channel share prices to slump.

According to US reports, Ingram Micro issued a warning on 22 December, after US stock trading closed, that analysts' fourth-quarter profit and sales expectations would not be met because sluggish sales had squeezed profit.

Inacom, US partner to Computacenter via the International Computer Group (ICG) alliance, followed suit. Following the warnings, Ingram saw its stock plummet $12.63 to $33.63, while Inacom stock fell $3.75 to $15.38.

The spiral dragged other channel equities in its wake as Tech Data registered a $6 drop to $35.50, while MicroAge stock fell $2.06 to $14.94.

Deutsche Bank Securities proceeded to devalue its ratings of both Tech Data and Ingram following the slump.

In a move seen as a demonstration to drum up confidence in Ingram Micro, chief executive Jerre Stead exercised his option on 24 December to buy one million shares of stock, at Ingram's original IPO price of about $18 per share.

Art Singleton, vice president of finance at Tech Data, insisted the firm would meet fourth-quarter profit targets, despite the analysts' revisions.

US reseller Elcom International waited until until the last day of the year before it disclosed its bleak fourth-quarter forecasts.

According to a statement issued by Elcom: 'During the fourth quarter of 1998, the company's product sales have been substantially lower than expected. The company anticipates sales of approximately $185 million during the fourth quarter, down approximately five per cent from the third quarter and substantially less than the company's fourth-quarter plan.'

Elcom blamed the downturn on overall economic conditions within the corporate market.