Arrow Cites 'Progress' In Digital Transformation Strategy

Arrow Electronics is making "significant progress" in its transformation from being primarily a products distributor to a company focused on delivering digital solutions and services, its chairman and CEO said Tuesday.

In the company's earnings call with analysts for its second quarter, ended July 2, Michael J. Long cited an expansion of the Centennial Colo.-based company's cloud solutions and in opportunities driven by the Internet of Things. That, he said in an earlier statement, will help Arrow "sell the capabilities of our entire enterprise."

And there could be more to come, he told analysts. Long expects Arrow to expand its cloud portfolio during the current third quarter, which began July 3.

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While revenue on the company's technology services side, Global Enterprise Computing Solutions, advanced only slightly in the second quarter compared to the same quarter in 2015, it beat Arrow's expectations "by a wide margin," Long said. Meanwhile, according to Senior Vice President and CFO Chris Stansbury, billings grew during the first half of this year and over the last 12 months.

"We have built a big, robust digital business," Long said. "We're happy with it."

Long said he's also bullish about Arrow's prospects with IoT, saying he would not be surprised if it accounts for 40 to 50 percent of company revenue over the next four to five years.

Arrow's overall revenue for the quarter, $5.97 billion, represented a slight increase of 2.4 percent, from $5.83 billion. But it missed expectations by about $70 million, according to the website Seeking Alpha. Meanwhile, the company's net income of $134.3 million rose a more robust 8.4 percent, from $123.9 million.

But Arrow's Enterprise Computing sales advanced only 0.3 percent, from $2.13 billion to $2.14 billion year over year. However, a $67 million gain in the second quarter of 2015 from acquisitions boosted sales then, turning that slight gain for the second quarter of 2016 into a 2.9 percent organic sales decline.

However, Arrow also said its operating income from its Enterprise Computing division during the quarter jumped 11 percent to $109.4 million from $98.4 million in the second quarter of 2015. Sales in the Americas dropped 2.4 percent, to $1.42 billion, while European sales jumped 6.2 percent to $720.3 million.

Meanwhile, Arrow's components division, which accounts for nearly two-thirds of revenue, saw a 3.6 percent increase in the quarter, from $3.7 billion in the second quarter of 2015 to $3.83 billion. Operating income for the division rose 5 percent from $169.8 million to $178.4 million.

Arrow expects third-quarter revenue to come in at close to its second-quarter top line numbers, with overall revenue expected to be between $5.65 billion and $6.05 billion, with services revenue in the range of $1.925 billion to $2.125 billion.

With more investment in cloud, digital and IoT in the second half of the year, Long said he would expect "that those things are going to be upsides for us" beyond Arrow's initial expectations.

"We're going into the second half thinking that we're going to do a pretty good job in the market," he said.