This industry consists of establishments primarily engaged in the wholesale distribution of computers, computer peripheral equipment, and computer software. These establishments also sell related supplies, but establishments primarily engaged in wholesaling supplies are classified according to the individual product for example, computer paper in SIC 5112: Stationery and Office Supplies. Establishments primarily engaged in the wholesale distribution of modems and other electronic communications equipment are classified in SIC 5065: Electronic Parts and Equipment, Not Elsewhere Classified. Establishments primarily engaged in selling computers and computer peripheral equipment and software for other than business or professional use are classified in SIC 5734: Computer and Computer Software Stores.
421430 (Computer and Computer Peripheral Equipment and Software Wholesalers)
443120 (Computer and Software Stores)
Five distinct segments exist within the traditional electronics wholesale distribution arena: full-line distributors, technical and professional distributorships, regional and local distributorships, hardware distributors, and software distributors. The limited focus of the respective wholesaler segments distinguishes each from the mixed-sales distributor segments.
Full-line Distributors. Full-line distributors predominate the computer wholesale industry with the broadest product and customer base. Sales in this segment represent 35 percent of the total traditional distribution market and 23 percent of U.S. wholesale computer-distribution network revenue.
Hardware Distribution. Hardware distributors accounted for 22 percent of the nonsystems products. Regional and local distributors within the wholesale category account for 28 percent of the traditional distribution total and 18 percent of the U.S. wholesale computer distribution revenue. These distributors emphasize sales to independent dealers and fulfillment services.
Technical Distributors. Most of the wholesalers in this industry segment supply goods to corporations. Typical product lines include disk drivers, terminals, computers, keyboards, printers, and other computer equipment. Up to 20 percent of sales in the industry are commonly filtered to corporations via systems integrators and value-added reseller (VAR) channels. This segment is characterized by an overriding value-added focus consisting of integration and networking services. High-end product mixes involving complex hardware and software configurations predominate in this market.
Software-only distributors accounted for a scant 4 percent of traditional distribution sales. Their primary focus was on the sale of educational and entertainment software to the mass market. They also played an important role in bringing new software products to the market.
A vital transformation occurred in the computers, computer peripheral equipment, and software industry during the late twentieth century. Industry standards evolved, markets solidified, and customer sophistication matured to new levels. Most significant among the changes was a dramatic shift toward complex network configurations, as a dramatic proliferation of new hardware technology emerged and expanded the functionality of desktop computers. The result was an expansion in the retail computer industry that spurred wholesale and manufacturing markets. Any doubt that the wholesale distribution segment of the industry was a powerhouse was erased in 1992, when IBM, Apple, and Compaq entered the industry. Concurrent with these developments, the larger national wholesalers formed new divisions to pursue such areas as retail sales, direct fulfillment, and emerging technologies.
Following the peak years between 1991 and 1993, there were 38,000 jobs lost in the wholesale sector. The business computer market segment became saturated at 90 percent by 1996, according to a report in Monthly Labor Review. In the face of a waning business market, distributors turned their attention to the new mass market of home consumers who were captivated by the power of the Internet. The market for home computers expanded dramatically at that time with the innovation of easy-touse Internet software interfaces called browsers. The industry rebounded, employment increased by 4 percent, and the industry recovered 32 percent of the lost jobs. Additionally, the expansion of the home computer industry fueled a new market for prepackaged software. Advances in CD-ROM technology resulted in lower equipment prices for associated peripherals, such as optical drives and spurred sales of both hardware and software in the process.
In 1995 computer manufacturers began to encourage competition among wholesale distribution channels by opening the market to unhindered competition. The practice, called "open sourcing," absolved dealers from the requirement to contract exclusively with a specified wholesaler. "Second sourcing," a modified version of open sourcing, limits competition by permitting no more than two wholesalers to enter the channel. As a result of open sourcing policies, competition increased within the industry. Wholesalers were forced to compete and flourish or else to withdraw from the marketplace. Between 1992 and 1995 the number of wholesale distributors dropped nearly in half, from 300 to less than 180.
Likewise, software distributors encountered new challenges in the mid-1990s. In response to the burgeoning popularity of the Internet, some software manufacturers established online outlets and sold products directly to consumers over the World Wide Web. The new online method of distribution enabled the $30 billion software industry to distribute their product directly to a rapidly expanding Internet consumer market and bypass the wholesale industry entirely.
In 2001 sales for all U.S. merchant wholesalers amounted to $2.7 trillion. With sales of $146.2 billion, computer and computer peripheral equipment and software accounted for around 5.4 percent of this total. Annual industry wholesale levels, which amounted to approximately $142.1 billion in 1997, achieved healthy increases through 2000, reaching $165.2 billion. However, sales fell in 2001, as economic conditions worsened.
The terrorist attacks against the United States on September 11, 2001, had a negative impact on already declining economic confidence levels. Widespread layoffs and the possibility of war with Iraq continued to affect the consumer and business outlook into 2003. Virtually every product segment within the computer industry was affected, in business and consumer sectors alike. On the corporate side, a temporary slowdown in technology spending occurred, as companies waited for better times. In addition to spending delays, some analysts cited other factors that attributed to the industry's slowdown. Among these were year 2000 "Y2K"-related new equipment purchases that took place at the end of the 1990s, as well as the availability of quality used equipment from bankrupt Internet companies in the early 2000s. A similar delay in discretionary technology purchases took place in the consumer sector.
Computer equipment distributors responded to these challenging economic conditions in a number of ways. By late 2002 industry leader Ingram Micro was in the process of laying off workers and implementing other measures to reduce expenses as its revenue slipped. It also evaluated credit lines with customers and made a series of adjustments. The largest distributors also began targeting small businesses in the early 2000s. As large corporations tightened their technology purses, small businesses—many of which were in the position to upgrade older equipment—presented distributors with other sales opportunities. Citing research from Roper NOP, Computer Reseller News revealed that in 2002 this market segment represented more than 80 percent of all U.S. businesses and was expected to spend $243 billion on technology purchases.
Although the industry's distributors focus primarily on computers, computer peripheral equipment, and computer software, personal computer (PC) supplies represented yet another niche revenue source during challenging times. Although corporations were holding back with large capital purchases, such was not the case with supplies. Therefore, distributors looked to PC supplies as one way to help offset losses in other product segments. In 2001 industry heavyweight Tech Data created a division devoted to marketing supplies. As of 2003, Ingram Micro also was concentrating in this area.
In addition to economic challenges, computer equipment distributors also struggled with "channel conflict" in the early 2000s, as manufacturers employed sales forces to directly reach end-users, bypassing the reseller or "solution provider" layer of the industry. To offset this competition, resellers were leveraging things like better pricing, the ability to bring end-users combinations of solutions from several different manufacturers, and more personalized service. In addition, distributors like Ingram Micro and Tech Data were investing in technology centers that their reseller customers could use for learning about the latest products, demonstrations, training, and more.
Leading the wholesale industry in the early 2000s was Ingram Micro, Inc. of Santa Ana, California. A public company, Ingram ranked at number 75 on Fortune 's list of 500 leading public corporations in 2002. The corporation was the world's largest computer wholesaler, with 2001 sales of $25.2 billion. With customers in more than 100 different countries, a sizable share of the company's business comes from international markets. The second largest company, Tech Data Corporation of Clearwater, Florida, reported $17.2 billion in sales in 2002. Tech Data appeared at number 117 among the Fortune 500. Other significant businesses included Arrow Electronics, Inc.; Avnet, Inc.; and Co-mark, Inc.
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