Mixed Bag For Arrow’s Enterprise Biz In March Quarter

May 12, 2014 Timothy Prickett Morgan

Master reseller Arrow Electronics, like its peer Avnet, is a bellwether for the IT market. And like Avnet, Arrow saw a bit of a slowdown in the first quarter in its Enterprise Computing Solutions business unit.

In the quarter, Enterprise Computing Solutions had sales of $1.66 billion, up a quarter of a point compared to the year-ago period, but taking out the effect of acquisitions (including Computalinks), organic sales actually fell by 11 percent. “We experienced a pause in our hardware business, but our software and security businesses were on plan and delivered growth,” explained Michael Long, who is CEO and chairman at the electronics and IT distribution giant, on a conference call with Wall Street analysts. “Growth was also negatively impacted by having one fewer shipping day than the fourth quarter.”

Paul Reilly, chief financial officer at the company, said that Enterprise Computing Solutions had a decline of 10 percent year-over-year and that this was below the normal level of seasonality. Sales were up 15 percent in Europe, thanks in large part to the acquisition of Computalinks, and taking that effect out, sales in Europe fell by 11 percent at constant currency.

The good news is that a more favorable product mix at Enterprise Computing Solutions helped push operating income up by 6 percent to $64.2 million. Long said that while server sales were down in the quarter, services, software, and security products picked up the slack and that Arrow believed that “servers and storage will come back” and that “it will be a decent year for IT.” Long said that the last week of March was particularly weak, and that business for systems picked up in April, particular for proprietary servers. He added that the main problem was that the reseller channel absorbed a lot of servers in the fourth quarter and that it was still working on “digestion.” Anticipation for product refreshes later this year also had an effect on the first quarter, he said. Intel is expected to revamp its Xeon E5 line towards the end of this year and IBM has more Power8 systems to roll out.

The components business at Arrow rose by 7.2 percent, to $3.42 billion, and operating income was up 25.6 percent to $161.1 million. All told, Arrow’s sales were up 4.8 percent to $5.08 billion, and net income rose 20.3 percent to $124.1 million.