Arrow, Avnet Report Better Than Expected Enterprise Sales

Published: November 16, 2009

by Timothy Prickett Morgan

The mood around master IT resellers Arrow Electronics and Avnet must be a lot more chipper than it was a year ago, with both companies reporting better-than-expected sales of enterprise computing gear in their most recent quarters.

Taking the two companies in alphabetical order (we don't play favorites here at The Four Hundred), Arrow reported revenues of $3.67 billion in the third quarter, down 14.5 percent from the year-ago quarter. Net income collapsed by 83.5 percent to $12.6 million, which certainly doesn't sound like great news. Thing is, the news has been worse in the past year.

Arrow said that its Enterprise Computing Solutions group, which sells servers, storage, and software, posted $1.13 billion in revenues in Q3, down 14 percent. "ECS sales were ahead of the midpoint of our expectations and above normal seasonality, fueled by a strong federal government year-end, as well as sequential increases in storage and services," explained Michael Long, chief executive officer at Arrow, in a statement. "In our worldwide server business, the year-over-year declines have moderated," he added.

Arrow's electronic components business also did better than expected, even though sales fell 15 percent to $2.54 billion. Sales in Asia grew, and declines in Europe and North America moderated.

Paul Reilly, Arrow's chief financial officer, said in a call with Wall Street analysts that the company had a pretty wide range of sales expectations for the fourth quarter, with overall revenues pegged at between $3.65 billion and $4.25 billion; ECS is expected to bring in between $1.4 billion and $1.6 billion of that, and component sales worldwide making up the remaining $2.25 billion to $2.65 billion. Earnings per share are expected to come in between 45 cents and 56 cents, which is a lot better than the 10 cents a share it got in the third quarter.

Over at Avnet, sales in its first quarter of fiscal 2010 ended October 3 were down 3.1 percent to $4.36 billion, and net income fell by 43.6 percent to $50.9 million. Sales were helped because this quarter included a fourteenth week of sales because of the way the weeks broke down this year and last year.

Avnet's Technology Solutions group, which is the part that buys servers, storage, and software from IT vendors and sells them downstream to other distributors and resellers, had sales of $1.92 billion, rising 6.9 percent compared to the year-ago quarter. On a constant currency basis, the Technology Solutions group actually had a 10.5 percent sales bump. Sales of servers, storage, and software to resellers was up 9.2 percent in the Americas, down 9 percent in Europe, and up a stunning 71.4 percent in Asia. (At constant currency, European sales for Technology Solutions was flat.)

Avnet's Electronics Marketing group had sales of $2.44 billion in the first quarter of fiscal 2010, down 9.8 percent.

"While the impact of the global economic slowdown remained evident in our year-over-year revenue decline, our better than expected sequential growth rates provides additional confidence that the business environment is improving," said Roy Vallee, chief executive officer and chairman at Avnet, said in a statement. "Both operating groups delivered revenue growth at a rate that was above normal seasonality, even excluding the estimated $400 million beneficial impact of the extra week in this fiscal period." Vallee said that sales in the Technology Solutions group were better than expected.

Looking ahead, Avnet said that it expected the normal seasonality between its first and second fiscal quarters, adjusting for the extra week in Q1. Avnet expects sales to be between $4.1 billion and $4.7 billion, with Technology Solutions being $1.95 billion to $2.25 billion of that and Electronics Marketing being between $2.15 billion and $2.45 billion of that. Earnings per share, absent any charges, are expected to fall between 52 cents and 60 cents in fiscal Q2.

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