Ingram Micro 2010 Annual Report Download - page 32

Overview of Our Business
Sales
We are the largest wholesale distributor of IT products and supply chain solutions worldwide based on
revenues. We offer a broad range of IT products and supply chain solutions and help generate demand and create
efficiencies for our customers and suppliers around the world. Our results of operations have been, and will continue
to be, directly affected by the conditions in the economy in general. Our sales and results of operations are also
impacted by the integration of several acquisitions worldwide, comprised primarily of small but strategic
acquisitions of businesses in the consumer electronics, automatic identification and data capture/point-of-sale,
or AIDC/POS, and enterprise computing markets that we have completed over the past five years. Our consolidated
net sales grew 8.8% and 11.8% year-over-year in 2006 and 2007, respectively, primarily reflecting the strong
demand environment for IT products and supply chain solutions in most economies worldwide. Also contributing to
the growth trend over this period were the addition of new product categories and suppliers, the addition and
expansion of adjacent product lines and services, the addition of new customers and increased sales to our existing
customer base. In 2008, our consolidated net sales declined 2.0% despite the relative year-over-year strength of
foreign currencies, which provided approximately two percentage-points of growth. The decline primarily reflected
the downturn in the macroeconomic environment, which began in early 2008 in Europe and North America and
began to adversely impact Asia Pacific and Latin America towards the second half of 2008. It also reflected our
efforts to exit or turn away certain unprofitable business relationships, primarily in the second half of the year. The
effect of the global recession became more pronounced in 2009 as our consolidated net sales declined 14.1%
year-over-year. Contributing to this decline was the approximately three percentage-points negative impact of
relatively weaker foreign currencies. In the second half of 2009, we began to strategically leverage our gross
margins and strong balance sheet to drive incremental sales, while the overall IT demand environment started
showing modest signs of improvement near the end of the year. In 2010, the overall global economy continued to
improve and business began to re-invest in technology despite pockets of financial weakness continuing in certain
economies. These economic drivers, coupled with our continued efforts to enhance our customer and vendor
positions in the IT market, drove an increase in our consolidated net sales of 17.2% in 2010.
Gross Margin
The IT distribution industry in which we operate is characterized by narrow gross profit as a percentage of net
sales, or gross margin, and narrow income from operations as a percentage of net sales, or operating margin.
Historically, our margins have been impacted by pressures from price competition and declining average selling
prices, as well as changes in vendor terms and conditions, including, but not limited to, variations in vendor rebates
and incentives, our ability to return inventory to vendors, and time periods qualifying for price protection. To
mitigate these factors, we have implemented changes to and continue to refine our pricing strategies and inventory
management processes, and continually work with our vendors on the vendor programs in which we participate. In
addition, we continuously monitor and change, as appropriate, the terms, conditions and credit offered to our
customers to reflect those being imposed by our vendors. We have also strived to improve our profitability through
evolution of product offerings, including our development of adjacent product category offerings, such as AIDC/
POS, enterprise computing, consumer electronics and fee-for-service logistics offerings. While these dynamics
have kept our overall gross margin relatively stable, near or above 5.4% on an annual basis since 2003, the shift in
overall mix of business toward our higher margin adjacent businesses and growth in our fee-for-service business,
coupled with efforts to exit or turn away certain unprofitable business relationships during 2008, helped to yield
gross margins in excess of 5.6% in 2008. Shifts in mix of business, combined with the moderated use of pricing and
customer terms and conditions as one of several tools to help grow sales, kept gross margins above 5.6% in 2009 but
yielded gross margins below 5.5% in 2010. We expect competitive pricing pressures and restrictive vendor terms
and conditions to continue in the foreseeable future. These factors could hinder our ability to maintain and/or
improve our gross margins or overall profitability from the levels realized in recent years.
Selling, General and Administrative Expenses or SG&A Expenses
Another key area for our overall profitability management is the monitoring and control of our level of SG&A
expenses. As the various factors discussed above have impacted our levels of sales over the past several years, we
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