System Biz Growth Can’t Offset Component Slump At Arrow

May 14, 2012 Timothy Prickett Morgan

Weakening macroeconomic conditions in Europe and Asia made for a rougher than usual first quarter for Arrow Electronics, one of the two big master resellers in the world for systems and electronic components. However, the systems business was up and the components business was down, which is a better sign than you might otherwise think.

During the first quarter ended in March, Arrow’s Enterprise Computing Systems group posted sales of $1.54 billion, up 15.2 percent compared to the year ago period and posted an operating income of $55.5 million, up 42 percent. But the Arrow components biz shrank by 13.8 percent, to $3.35 billion, and operating income fell 25 percent, to $170.7 million. Good time to be in the system racket, bad time to be in the components racket.

Arrow’s overall sales were just under $4.9 billion, off 6.4 percent, and net income was $113.6 million, off 16.6 percent.

Michael Long, Arrow’s president, CEO, and chairman, said in a conference call with Wall Street analysts that the ECS group had growth that was well ahead of seasonality and more than three times the rate that the market was expected to grow. The storage, software, and services units of ECS all grew more than 20 percent in the quarter on a year-on-year basis, which presumes that systems didn’t do quite as well with the average across all products being only a shade higher than 15 percent. This is understandable given the relatively late entry of Intel’s Xeon E5-2600 processors for two-socket servers to the market, which were only announced on March 6. Arrow did not discuss how its particular server brands did in the quarter through the reseller channel, as it sometimes does.

Arrow is projecting that it will bring in somewhere between $5.04 billion and $5.44 billion in the second quarter, with components sales of between $3.37 billion and $3.57 billion and ECS sales of between $1.67 billion and $1.87 billion. Earnings per share excluding any charges are anticipated to be in the range of $1.08 to $1.20.