Arrow: Proprietary Server Sales Up 22 Percent in Q1

May 16, 2011 Timothy Prickett Morgan

Server makers, including IBM and thankfully including Power Systems machines supporting the IBM i operating system, saw an uptick in server sales in the first quarter. So it will come as little surprise that master distributor Arrow Electronics, which pulls from the big server makers and pushes down through its vast global reseller channel, is seeing business improve a bit, too.

In its first quarter of fiscal 2011 ended April 2, Arrow posted $5.22 billion in revenues, up 23.3 percent over last year. Sales in its electronic components group were up 23.4 percent, to $3.89 billion, while its Enterprise Computing Solutions (ECS) group, which peddles servers, storage, and software, rose by 20.7 percent, to $1.33 billion. The company as a whole brought $136.5 million to the bottom line, up 56.6 percent.

“Sales were in line with the high end of normal seasonality, and we saw excellent year-over-year growth in industry-standard servers, storage, and services,” explained Michael Long, Arrow’s president, CEO, and chairman in a statement accompanying the financial results.” We remain very optimistic about the outlook for the ECS business, as we have diversified into a number of faster growing markets, such as security, networking, and virtualization, and are well positioned to capitalize on the next wave of IT spending growth.” The ECS business had an operating income of $39.1 million, or about 2.9 percent of revenues, seven-tenths of a point better than the year-ago quarter. The components group, by contrast, was more profitable in the first quarter, with an operating income of $228.9 million, or about 5.9 percent of revenues.

And IBM i platforms, of which Arrow is a big reseller, saw some of a bounce through the Arrow channel, too.

“We saw a fair amount of rebound, not only in industry standard servers, but also in proprietary servers being up for the quarter,” Long said on a conference call with Wall Street analysts. “And I believe as long as the cloud continues to be built out, it should be a good robust year for IT spending.” The prognostications for 2011 are certainly warming up a bit, which is a good sign. “When you look at the overall IT spending business, whether it is services, software, storage, and even servers, it is nice to see a rebound in servers because that tells us some of the larger projects are back out there and money is getting spent.”

Arrow said that its X64 server business was up over 30 percent, and that virtualization software sales were also up over 30 percent. Security product sales within ECS rose by 16 percent, while networking gear had a 24 percent bump.

Proprietary server sales–and that is mostly Power Systems machines running IBM i–were up 22 percent, according to Long. The wave took off first in Europe, he said, and then moved over to North America. This is the combination of the availability of Power 720 and Power 740 machines and the relatively large number of small companies using small OS/400 and i machines to run their applications. In the United States and Canada, the companies tend to be larger and use larger machines to run their apps.

In that conference call, Paul Reilly, Arrow’s chief financial officer, said that the company expected sales in its second quarter would be somewhere between $5.55 billion and $5.95 billion, with the ECS group doing between $1.55 billion and $1.75 billion. Reilly said that Arrow was expecting for growth to be better than what the company sees from normal seasonality, which is a sign that the economy is improving. Some of that is due to recent acquisitions, but some is due to old-fashioned organic growth as Arrow pushes more stuff through its channel.