Arrow Hit by X64 Downturn, Proprietary Servers Do OK
February 16, 2009 Timothy Prickett Morgan
IT and electronics distributor Arrow Electronics finished up its fourth quarter and year at the end of December, and considering how bad off the economy seems to be around the world, the numbers could have been worse.
Arrow said that sales fell by 7.5 percent to $4.09 billion, and if the acquisition of LOGIX was excluded, sales would have dropped by 12 percent. The company booked $44.4 million in restructuring and integration charges, which ate into operating income and forced the company to report $43.2 million in net earnings, down 62.1 percent. For the full year, Arrow posted $16.8 billion in sales, up 4.9 percent, and brought $301.5 million to the bottom line, a decrease of 26.1 percent.
“We were able to achieve sales and earnings in line with our guidance range in the face of deteriorating market conditions during the fourth quarter,” explained William Mitchell, Arrow’s chairman and chief executive officer in a statement accompanying the financial results. “Macro pressures intensified through the quarter and demand has continued to weaken, impacting all markets and economies around the globe. We expect the marketplace to continue to be unsettled and that visibility will remain limited most likely through 2009. While we cannot control external forces, we will continue to manage our business with the discipline necessary to maintain our financial strength, which we see as a competitive advantage in these difficult times.”
Thanks to the LOGIX acquisition, Arrow’s Enterprise Computing Solutions group was able to boost sales by 2 percent to $1.62 billion; excluding that deal, sales were actually down 11 percent year-on-year. “ECS sales were in line with our expectations, as strong double-digit sequential growth in storage, software, services, and proprietary servers was offset in part by weakness in industry-standard servers,” said Michael Long, Arrow’s president and chief operating officer. “Our outlook for the ECS business is decidedly mixed, as this business is sensitive to capital expenditures for IT systems–an area under intense scrutiny by companies as they look to adjust to declining market conditions. Still, our value model remains strong and is not tied to discretionary commodity products like laptops, printers and accessories, and customers should continue to use enterprise solutions to boost productivity through the downturn.”
Sales in Arrow’s electronic components group fell by 13 percent to $2.45 billion, which was in line with the company’s reduced expectations.
Looking ahead to the first quarter of 2009, Arrow says that it expects sales of between $3 billion and $3.6 billion, with ECS bringing in between $1 billion and $1.2 billion. ECS had sales of $1.11 billion in the first quarter of 2008, up 55 percent thanks in large part to the acquisition of KeyLink Systems Group from Agilysys. Not including KeyLink, Arrows ECS group only grew 6 percent in the first quarter of 2008, and this time around in Q1 2009, Arrow will be lucky to see a little bit of growth after adding LOGIX. Again, things could be worse.