Arrow Electronics executives remain upbeat on their outlook for the Englewood, Colo.-based enterprise IT distributor's business after notching gains in the second quarter.
The distributor continues its shift away from a server-heavy portfolio in favor of high-value, comprehensive solutions for the enterprise in an effort to remain relevant amid a changing landscape in which sales of proprietary servers continue to shrink as sales of software and services expand.
"We're in a much better position long term than when we were primarily in servers," Arrow Chief Executive Michael Long said during a conference call with analysts Tuesday afternoon. "The server head winds are the piece that you see slowing, offset by security, software and storage, which has not been spectacular, but I wouldn't argue over something not being spectacular these days."
The company said it expects an adjusted profit between $126 million and $138 million for the current quarter, with analysts projecting $130 million.
Arrow said it expects third-quarter revenue in the range of $5.25 billion to $5.65 billion. Analysts are projecting $5.39 billion in the current quarter.
The guidance followed relatively upbeat second-quarter results.
Arrow had an adjusted profit of $144.3 million, up 16.4 percent from the year-ago period and beating consensus estimates of $143.3 million.
The distributor saw second-quarter revenue rise 7 percent from a year earlier to $5.68 billion. Wall Street analysts had projected quarterly revenue of $5.69 billion.
The company's global components business rose 5 percent from a year earlier to $3.57 billion.
The global enterprise computing solutions business rose 10 percent from the year-ago period to $2.11 billion, led by infrastructure, security and virtualization software. Proprietary servers sales were off during the quarter.
Arrow sales were trading down about 2 percent in late-afternoon trading Tuesday to $59.38 for a recent market value of $5.92 billion.
Arrow executives hold a generally positive outlook on how the company's positioned for the longer term.
Buzz over whether Arrow would be negatively impacted by supplier channel changes, such as IBM's partnership announced last year with Santa Ana, Calif.-based Ingram Micro and Clearwater, Fla.-based Tech Data, has not impacted Arrow, Long said.
"We have seen absolutely nothing from the IBM change," Long said. "I can't imagine why somebody would want to put a bunch of engineering work into a dying technology, but for some reason we have to keep talking about it to make everybody happy. The proprietary server business has been declining for years. We don't see it driving to anything different and, obviously from our results, we haven't been hurt by it."
Long went on to add that proprietary server sales were down 17 percent year-over-year.
"That's why I'm really ho-hum on the IBM changes," Long said. "We really made a move over the last several years to change the complexion of this business, and that's also driven our margin activity higher too. … We're following with where the market is going."
Arrow's prepared for that migration to the cloud, company executives said.
"The one thing we know today about the cloud is that it's not an either-or decision," said Andy Bryant, chief operating officer of Arrow's Global Components and Global Enterprise Computing Solutions business, during the conference call. "It's very much a blend of on-premise, off-premise, and we've been very strong in both those spaces. We've built our ecosystem to build that out. Things aren't maybe going quite as fast as everybody thought and we stayed very focused on our data center line card."
Bryant added that last year's $317 million purchase of Munich-based Computerlinks was a "home run" for Arrow that brought new capability, geographic reach and record sales to the company.
"That's a big validation of the strategy," Bryant said.
PUBLISHED JULY 29, 2014