Arrow eyes ECS growth as components face tough Q3

Broadliner enjoys robust second quarter but components inventory piles up

In an upbeat set of second-quarter results, distribution giant Arrow reiterated its desire to expand its value business as it prepares for a slowdown in components sales in Q3.

During Q2, Arrow's revenue jumped just more than 20 per cent year on year to $5.54bn (£3.4bn), with adjusted operating profit up 30 per cent to $253.55m (£155m). Components sales rose 19 per cent on the corresponding period last year to $3.88bn (£2.4bn). Turnover at the distributor's Enterprise Computing Solutions (ECS) unit grew 23 per cent to $1.66bn (£1bn).

In a conference call with investors, transcribed by Seeking Alpha, Arrow chief executive Mike Long hailed the performance of his firm's burgeoning value operations.

"As far as the computer products business goes, we're starting to see an increase of services going through our current reseller base, and we believe that will keep a consistent growth prospect for us, as IT looks like it's going to continue to be fairly strong for the second half of the year," he explained.

Long also stressed the importance of M&A activity to help Arrow drive into new markets. He told investors that the broadliner will "continue to be aggressive" as a market consolidator.

"Value-creating M&A remains an important focus for us – particularly those acquisitions which fit well with our strategy to expand into faster-growing, high-margin products and services that span the full life-cycle of technology and complement our core business," he added.

For the third quarter, Arrow ECS is projecting global sales of between $1.39bn (£852m) and $1.59bn (£974m), with components revenue coming in at $3.76bn (£2.3bn) to $3.96bn (£2.4bn). The distributor revealed it will face a tougher components market this quarter, as it looks to rid itself of an excess of inventory. Europe was singled as a region with a notable surfeit of kit.

Arrow chief financial officer Paul Reilly said: "In the third quarter, we would expect global ECS sales to be in line with the midpoint of normal seasonality. Sales in our core global components business are expected to be in line with the low end of normal seasonality, reflecting an oversupply of inventory in the supply chain at the end of the second quarter and weaker global macroeconomic conditions."