Acquisition Spurs Arrow’s Systems Biz In Q4

February 10, 2014 Timothy Prickett Morgan

The Enterprise Computing Solutions group at Arrow Electronics turned in its financial report card for the fourth quarter ended in December, with very good revenue growth, and the company’s components business also did pretty well, too, on that sales front. But costs were on the rise and the company also booked some restructuring charges that took a bite out of profits.

In the quarter, Arrow had $6.15 billion in sales, up 13.9 percent, and net income, after an $18.2 million restructuring charge, fell 22.8 percent to $134.9 million. This once again demonstrates how tough it is to make a nickel in the distribution business, and Arrow does better than most.

The Enterprise Computing Systems group, which distributes IT products, posted $2.72 billion in sales, up 23 percent year-on-year. Operating income for this group skyrocketed 29.7 percent to $148.2 million. About $208 million of that revenue for ECS came from the acquisition of Computerlinks, and excluding this impact to the numbers, the group had a 13 percent sales jump. That is a lot better than the IT market as a whole did.

Michael Long, Arrow’s president, chief executive officer, and chairman, said on a conference call with Wall Street analysts that storage, software, and services all had double digit growth rates, and sales in the Americas region were up 19 percent across all products. The company’s server business grew in the quarter as well. And for those that are worried about the effect that the sales of IBM’s X86 server business to Lenovo might have on Arrow, Long said that X86 servers overall generate less than 1 percent of “the company’s growth profit.”

I am not sure what that means, to be honest. But what Long and his team did make clear is that overall server sales are up and that storage sales were up 23 percent, and Arrow was focused more on selling solutions than being a box shifter. Arrow and everyone else, of course. The rack is the new computer, and the software costs more and increasingly matters more. Hardware matters, there is just not as much margin in it any more. The pressure is coming to software too, as open source and SaaS both keep taking tiny bites out of the market.