Arrow Electronics reported strong third-quarter earnings recently and also announced a new distribution agreement with Juniper Networks. Andy Bryant, president of Arrow Enterprise Computing Solutions, the company's enterprise channel-focused arm, recently spoke with CRN's Scott Campbell and Chad Berndtson about the company's financial performance, its strategy towards Juniper, and other subjects. The following are excerpts from the conversation.
Arrow reported its third-quarter earnings last week, showing strong growth. Can you provide some more details on that business in the quarter?
The third quarter was very strong. Our resellers enjoyed a little better summer than I think most thought. Some federal spending did come through. There was some question marks around that but it did play out. We had our second quarter in a row at or above seasonality.
You also announced a new relationship with Juniper Networks last week. What are you hoping to do with that vendor for your VARs?
Juniper is a great addition to our data center lineup. One of our focuses on coverage is taking care of the communications market. They're looking to penetrate the enterprise data center and now we have access to their full switching, routing and security product lines. Particularly in cloud, they're a real player in the networking security space around cloud. This is going to be a very important line for ECS going forward.
How many of your current VARs sell Juniper? Is your role to find new VARs or do have a lot that now buy Juniper from other sources?
I assume there are some already buying Juniper. Our role is recruiting, but we'll probably take some exiting Juniper VARs looking to move further up the food chain around the data center focus.
What sorts of resources and programs are you putting around Juniper?
We just announced it so we're just launching the line. We will put in the resources and surely there will be programs, but I will defer to others [at Arrow] as to what those are.
Going back to the 3Q numbers, what areas were particularly strong?
The two areas that I know where we were exceptionally strong were software and services. Within software, we count virtualization. Virtualization was very strong in year-over-year growth. Storage continued to have a good solid pace. But the biggest upside for us came in services. We're doing a lot of things there. We're reselling services but also offering our own services. We work with VARs on that service and we're getting traction there.
Servers weren't as fast growing as they were in the March quarter, but they continue to grow. Proprietary servers were up 18 percent, industry standard servers were up 6 percent year over year. The combination of the two was pretty good, but not as fast as the last two quarters.
Next: Where's The Opportunity With Cloud?
Regarding services, what types of services are hot and are they being sold alone or attached to hardware and software sales?
Some are accompanying a project with hardware and software, some are standalone. What's going well is integration and implementation [services] around storage and servers. That's where resellers are physically doing some install onsite. What's growing is interest in our cloud builder model where [VARs] help end users build out their private cloud. We're providing some of those types of services. We provide backup to them with expertise, with professional people. Then the other thing getting big interest is an annuity stream and managed around reselling cloud services. That's going slower than most people envisioned but it is moving along. The whole concept of reselling that cloud service, provisioning and invoicing and getting into an annuity model, I'd still characterize that as developing.
There's a lot of 'get ready' going on right now. People are busy building their own capabilities to take advantage of how this may evolve. We are looking at our portal to deliver, configure, and provision cloud services. Many other distributors are looking at the same type of tool. The resellers in cloud are quite entrepreneurial. Some resellers will provide [cloud services] themselves. Some are looking for a niche to provide in cloud, not mainstream software or applications, but they want to play in cloud. They're looking to [distribution] as the go-to aggregator for cloud services.
It seems most cloud solutions now are e-mail or other non-mission critical applications. Do you envision ERP or other mission critical apps moving to the cloud in next year, or beyond that, or maybe never?
That's one hard to predict. You're right in that today it's less mission critical apps going into the cloud. What may be the next step in my mind is more information driven and people beginning to want to buy storage on demand as an infrastructure service. What they choose to store there, whether it's certain BI or information, that's the logical next step. Certain independent software vendors are looking more to cloud delivery. It's important to note that all big ERP players are providing their apps in a cloud environment, but I'm not sure how traction will go. It may be more of the tier two or three players first, not the tier one players.
Arrow has bought a couple of big Avaya solution provider companies in the last couple years and now rebranded them as S3. What's your goal with them?
Starting with our overriding strategy, we've been looking to enter new segments of the market that provide us with profitable growth for ourselves and partners. When we looked at the unified communications market and saw how it was evolving, we took a tact to buy Cross Telecom because we felt the voice space in particular and also the video space that were areas to add to the portfolio. We haven't had any competitive situations [with VARs] really to date.
We also saw some synergies where we can go long term with services. We intend to build upon that capability and white label that to our VAR base.
We sell more remotely managed services to our partner base. That means taking more into telephony, storage, other parts of the data center focus. It's a stepping point where we will take our services strategy.
Next: Why Buy Avaya Partners?
What's the future of S3? Are you looking to acquire more Avaya partners?
We picked up two major solution providers. Absolutely they will continue to focus on their Fortune 500 base. We're now one of leaders in call center infrastructure and that's a pure telephony voice play. We're one of leaders in the health-care vertical in the telephony space.
We want to build upon that business where it makes sense and grow it with Avaya. The [partnering] part with the VAR base is a long term objective. We have to evolve to that. We're going to leverage it and white label it. That'll be a separate effort under Sean Kerins to grow that with the VAR base.
Why did you pick Avaya partners to buy and not partners of another vendor like Cisco?
We saw Avaya as more compatible with our go-to-market strategy. We believe it's something we can build over time. Clearly there are other players in the market, but Avaya is a very supportive vendor to the channel. It's a good relationship we're building where we want to build one of the biggest relationship. Clearly Avaya has some services they want to deliver and services they want channel to deliver. We want to participate in that stack and do that service in a way better than Avaya can do it.
Can you update us on your relationship with Oracle? Is that progressing to where you'd like or are there more things you'd like to see from them?
Obviously, there's still some work to do there. But they are being very aggressive in the channel. They're coming out with new products that play to the midmarket, some new appliances coming out are very exciting. We're still in the mode where you want to build a little more traction but we do see it building. There's a lot of competition in the Unix space right now, but we see it moving along and we intend to work hard on Oracle.
How about HP? Has Meg Whitman reached out to you guys yet? Arrow doesn't have a PC business, but does the company keeping its Personal Systems Group have an impact on you or your VARs?
We haven't chatted with her yet. They have a major partner conference for the Americas in Las Vegas in November. I've spoken with Dave Donatelli [HP's executive vice president and general manager of Enterprise Servers, Storage, Networking and Technology Services] and other executives. Things are steady as she goes. The announcement that they would not spin off the PC business is good for the channel, regardless of whether you have a data center or desktop PC focus. It sent the message that they intended to stay in the technology hardware space, which is important to their supply chain. That was good news from my perspective.