Ingram Micro, the largest distributor of personal computers in the United States, said on Tuesday its fourth-quarter earnings will be below Wall Street expectations, citing slower-than-expected PC sales.
The Santa Ana, California, computer distributor said while it still expects 1998 to be a record year in revenues and earnings, it experienced slower-than-expected PC sales to corporate resellers in the United States, during what is usually the biggest quarter of the year.
The company said it expects to post fourth-quarter net income between US$73 million and $75 million, or 48 cents to 50 cents per share, which is below the 56 cents a share Wall Street was expecting.
Ingram Micro (IM) executives said the shortfall was the result of PC sales to large corporate resellers, who rely on Ingram Micro as a back-up provider of PCs. These resellers typically get PCs directly from the manufacturers and resell them to corporate users, with extra tailoring to fit the user's needs.
The resellers "got to a point where they got everything they need and they do not need to second-source anything," said Jeffrey Rodek, president of Ingram Micro, in a phone interview. "We are stopping short in saying there is an overall weakness in PC demand. I would not say that. The rest of our wholesale business is extremely strong."
For the fourth quarter ending 2 January, Ingram Micro said it expects sales of between $6 billion and $6.2 billion, 17 to 21 percent higher than reported in the same period last year, which had five additional selling days.
Analysts said that the news was surprising in a quarter that's usually the PC industry's biggest.
"Demand overall is continuing at a fairly good clip, but there are issues that are affecting suppliers and distributors," said Kevin Hause, an analyst at International Data, a market research firm. "We have vendors who are interested in maintaining tight distribution ... and prices have come down considerably."
Ingram said its full-year net income is expected to grow more than 25 percent to over $240 million, resulting in earnings per share of between $1.63 and $1.65, including a non cash compensation charge, for 1998 earnings.
Analysts expected the company to post 1998 earnings of $1.72 per share, according to First Call.
Despite the slowdown in PC sales, Ingram said it expects its full-year net sales to grow more than 30 percent to between $21.8 billion and $22 billion, compared with $16.6 billion for all of 1997.
"We still feel good about next year," Rodek said. "And we feel great about this year as a whole."
In after-hours trading, Ingram Micro shares were down $9.25, or 20 percent, at $37.
Copyright© 1998 Reuters Limited.
