Computers and Peripherals Wholesale Distributors:
Industry Snapshot and Competitive Dynamics
Dr. Sandy Boyson, September 7, 2005

The Role of Computer and Peripheral Wholesale Distributors in The Value Chain

• Alleviates need for suppliers/manufacturers to maintain extensive inventories and helps them avoid risk positions.
• Helps suppliers/ manufacturers save on the costs of establishing sales forces.
• Provides One Stop Shopping to customers.
• Provides extended credit terms to customers
• Enables customers to avoid inventory buildup.

Snapshot Of The U.S. Industry

• Total Industry Revenue 2003-2004: $273.6 billion
• # of Enterprises:  10,026
• # of Employees: 330,637

Types Of Computer & Peripherals Wholesale Distributors

• Source & sell globally a full spectrum of finished systems, components and software: Arrow, Ingram
• Specialize in sourcing from Asia & selling in U.S.: Global Sources
• Buy and sell used or refurbished equipment and peripherals: Network Liquidators

Types Of Distributors

• Specialize in reselling specific brands such as IBM PCs: Synnex
• Specialize by customer segments such as VARS and System Integrators: Atomic Park.
• Specialize in custom configurations of systems: Computer & Control Systems
• Act as aggregators of multiple other distributors and serve as an inter-enterprise hub: CNET

Major Industry Trends: Concentration Trend

• In 1970, top 5 electronics distributors accounted for 25% of industry revenue
• In 1990, top 5 accounted for 60% of revenue
• In 2000, top 5 accounted for 75% of revenue

Major Industry Trends: Dominant Companies

• Ingram Micro
  $25.4 billion revenues; 13,600 employees
• Arrow Electronics
  $10 billion revenues; 12,450 employees

Major Industry Trends: Downward Trend In Profit Margins

• Ingram had $2.92 billion in North American sales in 2004, 4 % growth versus year ago
• But gross margins were only 5.37%, 8 basis points lower than year ago quarter.
• The company attributed the reduction in margin to "increased competitive environment in North America" (Annual Report 2004)

Operation Challenges: Order Surges

• Batches of orders arrive late in day, right before FEDEX/UPS pickups.
• Due to order surges, Arrow dropped from 94% same day ship rates to 75% in its four North American warehouses over a two year period.
• This leads to customer complaints about missed shipments.
• It also leads to increased freight costs from using premium services to compensate for missed schedules.
• As a result of surges, Ingram has to hold $1.88 billion in inventory or 27 days of on hand inventory.

Operation Challenges: Order Surges

• Batches of orders arrive late in day, right before FEDEX/UPS pickups.
• Due to order surges, Arrow dropped from 94% same day ship rates to 75% in its four North American warehouses over a two year period.
• This leads to customer complaints about missed shipments.
• It also leads to increased freight costs from using premium services to compensate for missed schedules.
• As a result of surges, Ingram has to hold $1.88 billion in inventory or 27 days of on hand inventory.