Storage Surpasses Servers As Arrow's Biggest Product Category

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Arrow Electronics beat Wall Street earnings and revenue estimates for its fourth fiscal quarter thanks to strong performances within its Enterprise Computing Solutions business from storage and networking solutions, said Mike Long, chairmen, president and CEO.

The Englewood, Colo.-based distributor earned $174.1 million or $1.53 per diluted share on $5.44 billion in sales. The results compare to $157.9 million in net income, or $1.34 per diluted share, on $5.24 billion in sales in the year-ago quarter. Excluding a number of charges and credits, Arrow would have earned $1.38 per diluted share. Analysts were expecting earnings of $1.30 per share on $5.43 billion in sales.

Arrow ECS revenue in the fourth quarter was $2.0 billion, up from $1.89 billion in the year-ago quarter. For the 2011 fiscal year, Arrow ECS sales were $6.54 billion, up from $5.58 billion.

"Global ECS had a remarkable year. As Andy Bryant [Arrow ECS president] and team set records in sales and operating income. We have made significant progress to differentiate Arrow ECS. In 2011, we acquired new businesses and improved our strategic position in the market and expanded our services offering to achieve higher end margins," Long said on a conference call with analysts.

Storage now represents the biggest product category in terms of revenue for Arrow ECS, Long said.

"That growth over the last several years has [now] outpaced the server business and with all the storage still required out there, all the data centers of the futures, cloud, infrastructure changes, that continues to accelerate that business for us," Long said.

In addition, Arrow reported strong growth in several categories including networking (up 72 percent), infrastructure (up 25 percent), and virtualization ( up 17 percent), according to Brian Alexander, managing director, technology supply chain, at Raymond James & Associates, in a report on Arrow's earnings.

Added Long, "Almost every product category saw good gains. The changes in the product portfolio helped us grow."

Server sales increased year-over-year in Europe, but were down year-over-year in the Americas, said Arrow's Bryant.
"In North America, after a very strong refresh cycle [servers] took a pause," Bryant said. "But the server business will continue to chug along and get back to normal seasonality in the first quarter."

For the 2011 fiscal year, Arrow reported $598.8 million in net income, or $5.17 per share, on $21.39 billion in sales. In the 2010 fiscal year, the distributor earned $479.6 million, or $4.01 per share, on $18.74 billion in sales.

For the current quarter, Arrow expects sales between $4.67 billion and $5.07 billion, with ECS sales between $1.32 billion and $1.52 billion. The distributor expects earnings per share between $1.01 and $1.13 per share. Analysts were projecting average earnings of $1.07 per share on sales of $4.89 billion for the current quarter.

"If you look at the new year, we expect IT growth to be 3 to 5 percent based on the forecasts we read. We're on track with that, we're in there with where the market is. More importantly, we're in a great position for where the market is heading with cloud and data center of the future," Long said.

Arrow shares were trading at $42.43 Wednesday afternoon, up $1.14 or 2.8 percent.

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