Arrow Boosts Sales And Profits For Enterprise Computing In Q1

May 13, 2013 Timothy Prickett Morgan

Various IT suppliers have had a tough time in various parts of their businesses as 2013 has gotten rolling, but master electronics and IT distributor Arrow Electronics seems to be having an easier time than some of the upstream vendors whose products it peddles in the data center.

In the first quarter ended in March, Arrow said that its overall sales contracted by 1 percent to $4.85 billion, mainly by a reduction in its electronic components business, which fell by 5 percent to $3.19 billion. Keeping that revenue coming in selling components came at a cost, however, and operating earnings for the Global Components group at Arrow fell by 24.9 percent to $128.3 million.

The Enterprise Computing Solutions part of Arrow, however, did considerably better despite the uncertainties in spending by the governments of the United States, China, and a number of European countries. The ECS biz posted sales of $1.66 billion in the first quarter, up 7.6 percent, and it operating earnings grew even faster with an 11 percent increase year-on-year to $61.6 million. The distribution business is a tough one, just like retailing is, and in the case of the first quarter, only 3.7 percent of all the sales of servers, storage, switching, software, and services that ECS did for Arrow made it to the operating income line.

Arrow had $21.6 million in restructuring charges in the first quarter, and that pushed down net income to $77.9 million, a decrease of 30 per cent compared to a year ago. Even without those charges, net earnings were going to be down.

In the Americas region, Arrow had a better-than-expected close to the first quarter, but in Europe, sales were a bit below plan. Storage, software, and services “grew at a healthy rate,” according to the statement put out by Arrow in conjunction with its financial results. Michael Long, CEO and chairman at Arrow, said in a conference call with Wall Street analysts that the company had “solid” growth in its X86 server business. Later in the call, Long said X86 server sales were up 6 percent year-on-year, but that proprietary machines (Unix and IBM i boxes for the most part) had an 11 percent bump in EMEA even though they declined worldwide. Software revenues were up 10 percent (it is mostly virtualization tools and middleware), and storage was up 6 percent. Services had a very decent 13 percent jump in Q1 at Arrow.

“I think the good news that we saw was that there was actually some life in that proprietary segment for us,” Long said on the call. “It’s been a long time coming.”

No kidding, brother. Let’s hope it picks up even more steam as the quarters roll forward. With IBM only shipping the entry and midrange Power7+ systems on March 15, the second quarter will be the telling one.