Arrow Revises Its Fiscal Q2 Outlook Downward

Published: June 8, 2009

by Timothy Prickett Morgan

When the economy is booming, distributing electronic components and IT products can be a good, if challenging, business. But the economic downturn is still putting a damper on IT spending, and that has compelled master distributor Arrow Electronics to revise its expectations for its fiscal second quarter ending July 4 downward.

As The Four Hundred reported two weeks ago, both Arrow and its main rival in IT distribution, Avnet, managed to do as well as could be expected considering the steep drop off in server spending since last summer. While the economy in the United States is showing signs of improvement--notably that the rate of job losses in May was half the rate of the prior six months, with only 345,000 jobs cut from the payroll in America--it is still not stabilized and it certainly is not growing. And the economies in Europe and Asia are wrestling with their own issues, too.

Considering all of this, it is not a surprise that Arrow announced last week that it is revising its expectations for its second quarter. Arrow had previously thought that sales in the quarter would come in at between $3.15 billion and $3.75 billion, which is admittedly a pretty broad range, with earnings per share coming in somewhere between 26 cents and 38 cents. Now, Arrow has downshifted its expectations for the quarter, saying sales will come in between $3.05 billion and $3.65 billion, and earnings will be on the order of 26 cents to 31 cents per share. Basically, around $100 million in sales are not going to come in, but Arrow is going to be able to hold to the low-end of its profit range nonetheless. As a public company, this is preferable to the alternative, which is to boost revenues and undermine profits.

Arrow reiterated that the economic meltdown was impacting its electronic components business in Europe and that its Enterprise Computing Solutions business--the $5.4 billion unit of Arrow that has over 18,000 resellers in 26 countries worldwide, peddling myriad products from some 75 different IT suppliers--would make or break its numbers in the last few weeks of June, as the calendar quarter ends. Presumably, the pipeline is not looking as strong as it had a few months ago, and that is probably because channel partners are burning off inventories of servers and storage before taking on new gear, no matter how nice and shiny it might be.

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