Distributors feel the squeeze

InterX and Datrontech become latest companies to issue profit warnings as confidence in the market is shattered.

The stock market valuations of InterX and Datrontech plunged last week after the pair issued profit warnings citing disappointing trading conditions, and signalled that the distribution market shows no sign of improving.

The InterX profit warning was announced on 10 June to a stunned stock market as executives admitted to the second big reorganisation within a year at the holding company, including significant redundancies and the disbanding of the Ideal Hardware operational board (see story below).

The distributor said the roots of the problem were within the company but had been compounded by 'soft' market conditions.

Ian French, the recently appointed chief executive of Ideal Hardware, said: 'We had become a fat, lazy company in which certain people had started to build empires. When you build empires, you hire people, and when you hire people you get more costs. Frankly, it was not a pretty picture.'

The announcement prompted InterX shares to fall by 197.5p, or 45 per cent, to close at 237.5p on 10 June. It closed at 260p on 14 June.

Meanwhile, competitor Datrontech said pre-tax profit for the current financial year would be 50 per cent below market expectations, at about £2 million. It blamed depressed demand in the PC market throughout Europe during April and May, adding that there had been little sign of improvement in the first few days of June.

The announcement prompted Datrontech shares to fall 4p to close at 20p on 11 June - a record low for the company which has seen its stock market valuation plummet since it issued an unexpected profit warning in August 1998.

Mark Mulford, chief executive of Datrontech, told PC Dealer: 'The second quarter has been very disappointing for our high-volume, low-margin components business. It's extremely hard to forecast the full year, but we don't appear to be losing market share.'

He said the distributor would continue to dispose of its non-core assets to improve cashflow, adding that he was committed to 'remaining a components distributor'.

Datrontech's Eastern European subsidiaries are still losing money, but at a reduced rate, with vigorous action being taken to improve their performance.

Data Connectivity, the networking division, is performing well, said the company.

Steve Brazier, director of market analysts Canalys, said: 'The biggest problem is falling price points. We will see a shake-up between volume players with further consolidation, while the smaller players need to divest into emerging areas such as Sans or telephone convergence.'