Opinion
IT Recovery is a Long Way Off
 By Robert C DeMarzo
Are we out of the woods or still in them? Based on the financial results posted by Ingram Micro and PC Connection last month, it is difficult to decipher just when the channel will experience a widespread rebound.
The results by Ingram Micro are closely watched as the distributor serves as an industry bellwether, while PC Connection's results provide more insight into the corporate and public-sector markets where profitability is hard to maintain.
Ingram Micro posted a Q2 sales decline of 25 percent accompanied by a statement that the distributor plans to get more aggressive driving sales in the second half. Usually when a distributor uses the word ‘aggressive’ it implies price-cutting. In North America, Ingram Micro sales declined 22 percent. In Q1, Ingram recorded a 16 percent drop in North America sales, so the pace of the decline accelerated through the quarter for a region that accounts for around 41 percent of Ingram's sales. Greg Spierkel, CEO, Ingram addressed the financial results stating that Ingram does not anticipate an economic rebound in the near term.
Ingram has a huge hold on the market for commodity products such as displays, printers, notebooks and networking gear, which show few signs of a rebound. But if the company gets more aggressive on the sales side, VARs and their customers could benefit from some good deals.
PC Connection, which, unlike Ingram, sells directly to customers, said Q2 sales were off 16 percent but up 16 percent over the first quarter. The company was willing to sacrifice margin to prop up sales in the quarter as it struggled with weak demand. On the product front, PC Connection watched notebooks and PDAs plummet by 22 percent, with desktop computers and servers declining 13 percent. The company, which posted sales of $377 million for the quarter, recorded a loss of $6.45 million vs a profit of $5.08 million.
So here is the good news inside PC Connection's results. While its SMB business unit was down 25 percent with its large account segment off 14 percent, its government and education business unit was up 6.1 percent to $90 million.
According to Raymond James, a financial analyst firm, IT spending is expected to recover when corporate profits rebound and the availability of credit improves. They see positive signs now that credit is becoming less constrained while corporate profits are near historical lows. So perhaps an up tick in IT spending is on the way.
But don't open the champagne just yet. Keep it on ice, though, because if you study the correlation between IT spending and corporate profits/credit availability you will see a strong relationship. |