Arrow Electronics Sees Second-Quarter Sales Increase with MOCA, Storage

Storage has been one of the few bright spots in IT spending, which certainly doesn't come as a surprise, but Sun has been in a well-documented slump of late. Nevertheless, Arrow's numbers for its overall enterprise-computing sales and products in North America are going against the tide set by the recession and an IT-spending slump at the corporate level.

Arrow Electronics reported strong North American sales with a $6.8 million profit, or earnings of 7 cents a share, and revenue of $2.12 billion for the quarter ended June 30, 2003. The results contrast nicely against the distributor's second-quarter results of one year ago, which were $1.84 billion in sales and a net loss of 6 cents a share. In fact, Arrow would have enjoyed even better results if not for a number of restructuring charges and other items for the quarter, which cost the distributor about $10 million in earnings.

Powering the strong performance was Arrow's North American Computer Products business (NACP), particularly its Enterprise Computing Solutions Group, which showed a 22 percent increase sequentially and 18 percent increase year over year. Mike Long, president and COO of Arrow NACP, said Sun Microsystems technology and enterprise-storage products, such as SANs, were the biggest drivers for the quarter. "All of our midrange lines showed both sequential and year-over-year increases...our Sun business saw the strongest sequential increase," Long said during the company's earnings call. "Sun has been focusing on partnering with the channel more to grow sales, and has done so successfully."

Arrow launched a dedicated Sun Services business unit for its MOCA division in April, along with a program for Sun iForce partners on go-to-market strategies for SunOne solutions. The distributor also got a boost from its recent acquisition of Pioneer-Standard's Industrial Electronics Division, which it purchased for $230 million. The acquisition helped boost Arrow's worldwide computer-components revenue 17 percent from last year's second quarter.

However, Arrow announced that it will close three distribution facilities--two in the United Kingdom and one in Brookhaven, N.Y.--as part of an ongoing cost-cutting effort. The distributor also closed its Memphis, Tenn., integration center in June and consolidated operations into its Phoenix integration center. In addition, Arrow officials announced the company will exit the PC-components business for Norway, Finland, Sweden and Denmark, which was generating quarterly sales of $30 million but losing $4 million annually.

While the distributor was scaling back on its European operations, Arrow president and CEO William Mitchell said the company would continue to expand its business in Asia, which showed healthy increases both year-over-year and sequentially, thanks to growth in the SMB business market in the Pacific Rim region. Mitchell re-emphasized his commitment to building up Arrow's presence in Asia, which he pledged to do when he joined the company in February of this year. "This is our No. 1 priority for investment, for growth and for the future," Mitchell said during the earnings call.

Despite positive results and encouraging signs, Arrow officials gave investors and analysts the same message that other distributors, such as Tech Data and Ingram Micro, have delivered: It sees no evidence of an economic recovery this year. "Our visibility is very limited," Mitchell said. "Overall, we do not see any evidence of a sustained upturn in our industry."

Still, Arrow's effort to grab more business with its VAR customers, and gain more solution providers as well, has yielded success.

Rob Wolfe, president of AvcomEast, a solution provider based in Silver Spring, Md., has centered his business around Sun technology and has found MOCA to be one of his most important allies. Wolfe launched the business earlier this year and says MOCA was imperative to getting AvcomEast off the ground. "MOCA became much more to us than a distributor. They're our partner," Wolfe says.

While Arrow has ditched some markets and obviously scaled back, it's no doubt betting heavily on Sun to help it straighten up and fly right.