Thin Tablet Margins Drive Ingram Q1 Income Down 45 Percent
Distribution giant Ingram Micro’s (NYSE:IM) net income tumbled 45 percent for Q1 2013. Ingram Micro blamed at least part of the income weakness on thin margins from tablets and mobile devices. Still, quarterly sales roes to $10.2 billion, a 19 percent revenue increase over the $8.64 billion the company posted during the same period last year. The distributor’s North America sales rose 7 percent with all divisions reporting year-over-year growth in the U.S.
Ingram earned $49.8 million, or 32 cents per diluted share, for the quarter, a 44.6 percent fall from the $90.0 million, or 58 cents per diluted share, it posted during the same period last year. While the distributor credited its Q4 2012 acquisitions of Brightpoint and Aptec with adding 13 percent, or some $1.85 billion in sales, to its Q1 2013 revenue totals, it blamed its income downturn on competitive pricing and thinner margins on sales of mobile products such as tablets.
"High growth in tablets and other mobile devices continues to affect gross margins," said Alain Monie, Ingram president and CEO. Despite the thin profit delivered by mobile products, Ingram expects the segment will supply more growth through new vendors and customers, enabling the distributor to “tap into the associated supply chain services to large OEMs and service providers,” which, in turn, “carry better margins and lower working capital metrics,” said Monie.
In other words, mobile is a long term growth play for Ingram, a strategy reiterated by Bill Humes, the company’s chief operating and financial officer.
“As we have updated you over the past year, we have made, and continue to make, investments in several of these areas, which, while they impact our near-term expense levels, are consistent with our strategy to increase the ratio of our higher margin, and better returns businesses,” he said. “We are confident they are the right investments to improve our margin profile and help drive greater profitability this year."
For Q2 2013, Ingram expects a 1 to 4 percent increase in sales sequentially with flat to slightly higher gross margin, based on operating leverage, more higher margin sales and growth in emerging markets.
Ingram rival Avnet posted a similar net income slide in its fiscal Q3 2013.