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Profits at Tech Data see fall off

Tech Data Corp.'s earnings dropped 31 percent in the quarter ended Jan. 31 as technology spending continued to be sluggish worldwide.

The Clearwater distributor of computer hardware and software on Thursday reported net income of $36.5-million, or 63 cents per share, in the fourth quarter of its fiscal year, compared with $52.7-million, or 92 cents per share, a year ago. Sales for the quarter were $4.2-billion, down from $5.3-billion for January 2001.

For the year, sales were $17.2-billion, down from $20.4-billion a year ago. Net income was $110.8-million, or $1.98 per share, compared with $178-million, or $3.14 per share.

Chief executive Steve Raymund suggested that the good news is that things weren't worse. "We certainly felt the pain of recession, yet we made the right adjustments to maximize our results," he said. "We drove new efficiencies, managed costs and positioned ourselves for success when a rebound occurs."

But Raymund, who has headed Tech Data since 1986, was unable to say when that rebound might come.

"We hear some anecdotal remarks, but in general we've not seen sustained coalescence of demand that encourages us that recovery is around the corner," he said. "A lot of CIOs (chief information officers) and smaller businesses have put a freeze on additional long-term investment till they can consume what they've got."

Since the slowdown began a year ago, Tech Data has focused on paring expenses to remain profitable. In the past fiscal year, the company reduced its net indebtedness by $990-million, resulting in a debt-to-total-capital ratio of 36 percent. Inventory levels also reached a new low of 21 days at the end of the fourth quarter.

The company also reduced its work force globally by 18 percent to 8,600 by the end of January. Raymund said about 600 jobs were eliminated at the Clearwater headquarters, where there are now 3,200 employees.

He said further job cuts would be tied to revenues. "If sales drop off further, we'll have to make further cuts," he said. "On the other hand, if revenue rebounds, we might need additional help, though the pace of hiring would lag behind any revenue growth we might enjoy."

During the most recent quarter, Tech Data's sales declined 29 percent in the United States, 12 percent in Europe and 23 percent in the rest of the world. By product type, hardest hit was networking equipment, with a 35 percent drop in sales.

Raymund told analysts during a Thursday morning call that he didn't expect Tech Data to experience a significant impact from the Compaq-Hewlett Packard merger. Its business with Compaq dropped to 16 percent from 18 percent in the most recent quarter as Compaq sells more personal computers directly to customers. Tech Data continues to handle HP's printer products.

"The product overlap between the two companies is quite small," Raymund said. "And I don't believe the merger will affect HP's strategies to get their printers to the end user."

As part of its effort to keep expenses in check, Tech Data said it will close its operations in Norway during the first half of the year, and it is considering exiting another as-yet unidentified country. It expects to take a charge of $6-million to $9-million for the closings.

The company acquired the Norway business in July 1998, and Raymund said it had been a consistent money-loser. "We finally said that's enough," he said.

Reflecting the company's cautious outlook, Tech Data said it expects sales for the quarter ending April 30 to be $3.7-billion to $3.9-billion, with net income of $32-million to $35-million, or 55 cents to 60 cents per share. Raymund said sales so far in the quarter have met expectations.

"It feels like a bottom, with sequentially flat sales," he said. "But that's not to say we couldn't sink lower. We're reluctant to issue a full-year forecast because the proverbial visibility isn't there."

Investors seemed pleased that Tech Data had exceeded analysts' expectations of 61 cents per share. The company's shares closed Thursday at $46.90, up $3.64.

_ Kris Hundley can be reached at hundleysptimes.com or (727) 892-2996.

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