Arrow Electronics ECS Unit Keeps Humming In Q3
November 7, 2011 Timothy Prickett Morgan
Last week, we told you all about how the IT distribution business of master reseller Avnet did in the third quarter, and this week, it is time to take a gander at what is up with its rival Arrow Electronics, which is also a big distributor of IBM systems, storage, and software.
In the quarter ended in September, the Enterprise Computer Systems group at Arrow grew by 26 percent, to $1.54 billion, and it even managed to grow its operating income by 51.4 percent to $53.7 million. The electronics components distribution business, which is larger at $3.65 billion, grew a lot more slowly at 6.1 percent, but had an operating income of $194.2 million, down a smidgen from the year-ago period. Add it all up, and pay the taxes and other expenses, and Arrow had sales of $5.19 billion (up 11.4 percent) and net income of $132.2 million (up 11.6 percent).
Michael Long, who is president, CEO, and chairman at Arrow, said all of its system lines, including proprietary machines (mostly small IBM System z machines and Power Systems boxes running AIX and IBM i but also including X86 boxes and storage), drove ECS to the high-end of the revenue and profit guidance that Arrow had previously set for the third quarter.
In a conference call with Wall Street analysts, Long said that Arrow had just signed a distribution agreement with switch maker and IBM partner Juniper Networks, which would help bolster its sales into the data center. “We are focused on several growth opportunities including the addition of new suppliers, the penetration of new market segments, and the expansion of our services portfolio,” explained Long.” In particular, our midmarket initiative has seen great success as we’ve increased our market penetration in this segment and expanded our customer base.”
Well, that is always good news. But the question is what platforms is Arrow peddling in the midrange? Hopefully the IBM i platform is getting some love and attention, not just Windows and Linux. Andy Bryant, who runs the ECS unit, said that proprietary server revenues were up 18.4 percent, compared to just 6 points of growth in “industry standard” servers, by which he meant X86 machinery. (I really don’t like the term “industry standard” any more than IBM likes the term “proprietary.”)
Long said that Arrow expected for enterprise IT spending to “remain solid” in the fourth quarter and Arrow was longing forward to a “seasonally strong” fourth quarter. Looking ahead, Arrow expects for ECS to bring in between $2 billion and $2.2 billion in revenues and total sales to come in at between $5.29 billion and $5.69 billion. Earnings per share should be between $1.25 to $1.37, which is anywhere from 3 to 15 cents per share better than what Arrow did in Q3.
Arrow was not about to make any solid predictions about how its business would do in 2012, but Long said that he was expecting IT spending to exhibit “mid-single digit type growth” and that it would not dip below that point.
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