Arrow And Avnet Ride System Upgrade Waves In Recent Quarter
February 20, 2012 Timothy Prickett Morgan
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Despite some issues in the European economy and stalled shipments of disk drives due to the flooding in Thailand, the two biggest master resellers of IT gear–Arrow Electronics and Avnet–turned in improving profits in their most recent quarters. But the revenues were a bit choppy. In the quarter ended December 31, Arrow’s Enterprise Computing Solutions (ECS) had just under $2 billion in revenues in the quarter, up 5.4 percent, and operating income hit $106.4 million, up a very tidy 19.5 percent. Arrow’s electronic components distribution business only grew 3 percent, to $3.4 billion, and the operating income for this part of Arrow actually fell by 2.9 percent to $176.7 million. Total sales in the quarter hit $5.44 billion, up 3.9 percent, and net income was $157.3 million, up 3.8 percent. For the full year, Arrow had sales in the ECS unit of $6.54 billion, up 17.2 percent, with operating income for this IT distribution business up a very impressive 37.3 percent to $262.9 million. Overall sales for the full 2011 year hit $21.4 billion (up 14.7 percent), with operating income of $908.8 million. Net income came to $598.8 million (rising 24.8 percent). In a conference call with Wall Street analysts, Michael Long, Arrow’s president and CEO, said that the ECS unit set records for revenues and operating income last year, in part through acquisitions that allowed the company to enter new businesses and new geographies. Andy Bryant, general manager of the ECS unit, said that profits were driven by a mix of higher-profit software and services distribution and added that hardware sales actually lagged a bit in the fourth quarter. (Intel pushing out its “Sandy Bridge-EP” Xeon E5 processor launch probably didn’t help.) Software for database, systems management, storage management, and virtualization were the hot software items. The company said that in North America, after a very strong refresh cycle for industry standard (meaning X86) servers and for proprietary systems (Power, Itanium, mainframe, and anything else) in prior quarters, sales of both types of systems cooled a bit. However, both X86 and proprietary systems grew in Q4 in Europe, which was good news indeed from the other side of the Pond. Long said that Arrow expected IT spending to be up somewhere between 3 and 5 percent this year and that Arrow would keep pace with that. Over at Avnet, overall sales in the fiscal second quarter ended in December were $6.69 billion, down 1.1 percent, and its Technology Solutions unit, which does IT hardware, software, and services distribution, had sales of $3.1 billion, down 3.5 percent. However, operating margins in Technology Solutions rose by 13 percent, to $118.9 million. Net income after some benefits came to $147 million, up 4.2 percent. Rick Hamada, Avnet’s CEO, said that supply chain issues for both components and IT gear put a damper on sales. On his conference call with Wall Street, Hamada said that sales of X86 servers and software rose by 35 percent in the second fiscal quarter and that storage revenues were up over 20 percent. So whatever was wrong, you can’t blame these areas.
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