Merisel merrily ignores PC biz bad times.

Wholesaler posts record profits, plans new stock offering

Los Angeles County's biggest wholesaler of personal-computer products reported sharply higher fourth-quarter profits and record financial results for all 1991, somehow shielding itself from the lousy year suffered by most of the microcomputer industry.

Merisel Inc.'s annual sales were up 33 percent to $1.585 billion. Profits leaped 16-fold to $11 million, with $5.8 million of that coming in the fourth quarter.

Admittedly last year's profits were tiny, as the company struggled to digest Microamerica Inc., a rival wholesaler bought that year by Merisel for $91 million.

Nevertheless, buoyed by black ink and its escalating stock price, the El Segundo company moved quickly to cash in on Wall Street. Merisel officials last week announced they had filed with the Securities and Exchange Commission to offer new stock. Merisel shares have roughly tripled in value since last fall, so at today's share prices the 4.85-million-share offering would raise roughly $55 million.

Wholesaling magic, however, was not confined to Merisel.

Ingram Micro, Orange County's largest wholesaler and an archrival of Merisel, this month reported 1991 sales up 41 percent to top $2 billion for the first time ever. (Privately held Ingram Micro does not divulge profit totals.)

The two wholesalers' recession-era success heralds computer makers' growing reliance on middlemen to get their boxes to retailers, especially during a down patch for the personal computer industry at large.

Many top manufacturers, from IBM on down, had weaker sales and profits in 1991. Nationwide, personal computer sales declined 8 percent. But somehow, Merisel managed to capitalize on their troubles.

As computer makers felt profit squeezes, wholesaling was seen as cheaper or simpler than their traditional sales channels -- direct-sales forces and authorized dealerships.

Some tapped Merisel and Ingram Micro to feed mass-market discount chains, like Circuit City, Office Depot and Montgomery Ward, which all were signed up by Merisel last year.

Those vast chains, late-comers to computer retailing, are probably the fastest-growing retail channel today. The trend has certain consequences for buyers. They can now find far lower prices at discount chains but without the custom services offered by traditional resellers, like network integration, a paramount concern among business buyers.

For networking, they must still shop at either custom-shops, called value-added resellers in the retail industry, or buy into an off-the-shelf system sold by most retailers. While some key software publishers sell direct to the retailer, Merisel handles a few of the top names, like Lotus Development and Novell.

Indeed, off-the-shelf networking products were a top seller for Merisel, said Merisel Vice President of Products Linda Kroog. The other sales leader was graphics software and related products, from Microsoft's Windows system software to graphics circuit boards. The graphics craze has snared customers from the low-end buyer, who finds object-driven menus simpler, to the sophisticated buyer, who wants the latest animation or 3-D programs.

Kroog wouldn't disclose unit sales to Merisel's 50,000 resellers.

On the supplier side, the El Segundo company signed up a few plum manufacturers like Compaq Computer Corp. but just to value-added resellers. On the selling end, it opened up new distribution offices abroad, including a joint venture in Russia.

"Merisel is in a very strong position, from a business point of view," said PC software analyst Will Fastie of stock brokerage Alex. Brown & Associates in Baltimore.

Fastie said he's particularly impressed with Merisel's building a worldwide network. He said high-profile sign-ups, like getting IBM to distribute its software and peripheral equipment through Merisel in 18 countries, is precisely the kind of deal that is "essential to building worldwide clout" to help sign up more computer makers.

Merisel Chief Financial Officer James Brill said revenue from the proposed stock offering, after paying down debt, would enable the company to acquire more outposts abroad. He said Merisel is particularly looking at Mexico and the Far East.

Merisel's net profit margin tripled during the fourth quarter to 1.2 percent of net sales from the 0.4 percent it averaged during the first three quarters.