Ingram Micro's Q3 2025 Earnings Call: Contradictions Emerge on AI-Driven Hardware Expansion, SMB Market Recovery, and Inventory Management

Date of Call: None provided

Financials Results

• Revenue: $12.60B, up 7.2% YOY in USD (6.0% FX-neutral); above the high end of guidance
• EPS: Non-GAAP diluted EPS $0.72, flat YOY (at high end of guidance); non-GAAP net income $169M, up 6.0% YOY; estimated ransomware impact ~$0.02–$0.03 per share
• Gross Margin: ~6.90% (gross profit $870M vs $845M prior year); down 29 bps YOY, up 34 bps sequentially; would have been >7% excluding low‑margin large GPU shipments
• Operating Margin: Approx. 1.8% operating margin (operating income ≈ $224M); operating expenses $646M or 5.13% of sales vs 5.33% prior year (improved leverage)

Guidance:

• Q4 net sales $14.0B–$14.35B (midpoint >6% YOY growth)
• Q4 gross profit $935M–$990M (roughly 6.8% gross margin at midpoint)
• Q4 non-GAAP diluted EPS $0.85–$0.95 (assumes ~235.9M shares and ~33% non-GAAP tax rate)
• Expect continued YoY net sales growth while investing to scale Xvantage and strategic capabilities

Business Commentary:

• Revenue Growth and Market Share:
• Ingram Micro reported revenues of $12.6 billion in Q3 2025, up 7.2% year-over-year, exceeding the high end of their guidance.

• The growth was driven by gaining market share across various regions and businesses, and the growing momentum of the Xvantage digital platform.

• AI and Platform Momentum:

• IDA, Ingram Micro's intelligent digital assistant, contributed hundreds of millions of dollars in incremental revenue in Q3.

• The adoption of IDA in non-U.S. operations grew by over 100% in the quarter, reflecting the global scaling of the Xvantage platform.

• Geographical and Product Growth:

• The company experienced robust FX-neutral growth in the low teens year-over-year in both Latin America and Asia-Pacific, with North America growing at over 3%.

• Strong demand for notebooks, desktops, and related products, along with solid growth in servers and storage, contributed to this growth.

• Customer Mix and Profitability:

• Ingram Micro observed continued growth in its higher-margin SMB category, marking a trend that started in Q1 2025.

• This trend contributed to a 34 basis point sequential improvement in gross margins, despite a higher mix of lower-margin client and endpoint solutions.

• Strong Financial Performance:

• The company reported a non-GAAP diluted EPS of $0.72, which aligned with the high end of their guidance.
• The financial results were largely unaffected by the July ransomware incident, demonstrating effective business continuity.

Sentiment Analysis:

Overall Tone: Positive

• Management: "revenues of $12.6 billion, up 7.2% year‑over‑year"; "non‑GAAP diluted earnings per share was $0.72 at the high end of our guidance"; "IDA contributed hundreds of millions of dollars in incremental revenue"; "we enter the fourth quarter with confidence in our roadmap and our guidance."

Q&A:

• Question from Ruplu Bhattacharya (Bank of America): Given the dynamics this quarter and for the December quarter, how should we think about margins going forward (gross and operating)? How does mix of SMB versus large enterprise impact margins? Any color?
  Response: Q4 margins are implied in guidance at high‑6% gross margin (~6.8–6.9% midpoint); mix shifts (stronger SMB and higher‑volume client/endpoint sales) are offsetting lower margins from some server/GPU deals and timing in virtualization projects.

• Question from Ruplu Bhattacharya (Bank of America): On inventory, free cash flow, and cash conversion cycle: inventory sequentially fell a bit—how should we think about pace of inventory reduction and whether Q4 will be a negative free cash flow quarter as you prepare for H1?
  Response: Q3 inventory decline reflected expected sell‑through of prior build; working capital rose with higher sales; management didn't give cash guidance but expects a solid cash flow quarter in Q4 similar to prior seasonal patterns (no formal cash/BS guidance provided).

• Question from Maya for Erik (Morgan Stanley): On traditional hardware, where are we in the PC/server cycle? Also, given memory market dynamics, are customers pulling forward spend to avoid rising component costs?
  Response: PC refresh is in the later innings but demand remains healthy; servers performed well in Q3; management has not seen customers pulling forward spend due to component cost inflation.

• Question from David Vagman (BNP Paribas): Where is Xvantage's benefit being felt most—SMB or enterprise—and does AI‑PC adoption potentially extend the PC refresh into 2026?
  Response: Xvantage benefits both: SMBs use it to run broad operations (single pane of glass, ERP integrations) while enterprises use it for pricing/availability; IDA drives higher quote‑to‑order conversion; AI‑PCs are ~25% of shipments today and could lengthen/reshape the refresh but it’s too early to be certain.

• Question from Logan Katzman (Raymond James): Are you hearing about a potential budget flush exiting 2025? Any abnormal patterns?
  Response: No abnormal budget flush detected; seasonal Q4 budgeting dynamics are expected to drive a customary revenue pop, with SMB strength being the main variable but overall view is of a normal cycle.

• Question from Alec Valera (Loop Capital): What is the biggest catalyst over the next 4–6 quarters? Any VAR feedback on macro conditions?
  Response: Key catalysts are services expansion, AI monetization and security, and moving AI PoCs into production; VAR feedback is encouraging—SMB demand is recovering and participating across cloud, networking, cyber, and endpoints.

Contradiction Point 1

AI-Driven Hardware Market Expansion and Customer Involvement

It highlights differing perspectives on the growth and customer involvement in the AI-driven hardware market, impacting expectations of future growth and market positioning.

Will AI-powered PCs extend the cycle as people upgrade? - David Vagman (BNP Paribas)

2025Q3: We're still in the early part of the cycle with AI PCs representing only 25% of our shipments. We'll know more about the potential for a longer refresh cycle in 2026. - Paul Bay(CEO)

Can you clarify your AI-driven hardware exposure and the customer segments involved? - Ananda Prosad Baruah (Loop Capital Markets)

2025Q2: Our exposure includes large mid-market and enterprise customers. Growth is seen in GPUs, particularly in North America, with a significant deal closure. - Paul Bay(CEO)

Contradiction Point 2

SMB Growth and Market Recovery

It suggests different viewpoints on the extent and pace of recovery in the SMB market, which could affect strategic planning and investor expectations.

What customer feedback are you seeing regarding potential budget changes post-2025? - Logan Katzman (Raymond James)

2025Q3: We're seeing a fairly normal budgeting cycle for Q4. The main variable is how strong SMB will be, but we're encouraged by the growth in that segment. - Mike Zilis(CFO)

How widespread is SMB growth, and should a broad recovery be expected from SMB trends? - Amit Jawaharlaz Daryanani (Evercore ISI)

2025Q2: SMB growth is more modest but significant, driven by server, storage, and notebooks. It is a positive sign, but wider recovery may be gradual. - Michael Zilis(CFO)

Contradiction Point 3

Inventory and Working Capital

It involves changes in the company's inventory management strategy, which affects cash flow and operational efficiency.

With hardware categories recovering, how should we assess inventory reduction pace and working capital? - Ruplu Bhattacharya (Bank of America Merrill Lynch)

2025Q3: We had a stock buildup in Q2 that was largely sold through in Q3. The lower-than-normal seasonal investment into working capital in Q3 means we're well-positioned for a solid cash flow quarter in Q4. - Paul Bay(CEO)

How do you view the second half with ongoing economic recovery and inflation stabilizing? - Samik Chatterjee (Citi Research)

2025Q1: So we expect you'll see strength and positive momentum across many of our key businesses in the next 2 quarters, especially desktop notebook refresh and networking and cloud. - Paul Bay(CEO)

Contradiction Point 4

SMB Market Growth

It involves changes in the company's assessments of the SMB market growth, which is a key driver for revenue.

How should we think about gross and operating margins going forward, and do you expect the trends to improve? - Ruplu Bhattacharya (Bank of America Merrill Lynch)

2025Q3: We're seeing the continued strength in SMB, a trend that's been building over the last couple of quarters. - Mike Zilis(CFO)

How do you view the second half of the year with ongoing economic recovery and stable inflation? - Samik Chatterjee (Citi Research)

2025Q1: Our SMB and mid-market business continues to see double-digit growth. - Mike Zilis(CFO)