Arrow to cut costs as sales head south

Distributor to take $20m in cost-saving actions after missing Q2 numbers

Distributor Arrow Electronics is to shave a further $20m (£12.8m) off its cost base as its chief executive admitted that the market is likely to be flat for the rest of 2012.

The New York-listed outfit's second-quarter results fell short of Wall Street's aspirations, despite its European enterprise arm registering a double-digit hike in sales.

The distribution giant saw net profit fall to $114.4m from $156.2m a year earlier, on revenue that shrivelled by seven per cent to $5.15bn. Excluding currency effects and recent acquisitions, revenue was down by five per cent.

Weak sales of components lay at the heart of Arrow's poor quarter as sales from this division plunged 11 per cent year on year to $3.45bn.

In contrast, sales of global enterprise computing solutions (ECS) rose two per cent to $1.7bn, with ECS Europe enjoying a 12 per cent sales surge in local currency.

Digging deeper into ECS, although server sales were down, networking sales rose 57 per cent, services and storage by 16 per cent and software by 13 per cent, it was revealed on a Q2 conference call, a transcript of which can be found here.

Arrow said its recent acquisition of France-based Altimate Group, which operates in eight European countries, would bolster ECS' supplier matrix expansion strategy in the region.

The distributor said it is taking $20m in additional cost and expense reduction actions to "advance the efficiency" of its organisation, although chief finanical officer Paul Reilly suggested that sales and marketing roles would be protected.

"There are some areas that we can get more efficient in naturally, whether it's around IT, whether it's around finance, whether it's around logistic centers. Those are the areas that we want to be most active in," he said.

Chief executive Michael Long said the macroeconomic environment had weakened as the quarter went on.

"As we look ahead to the third quarter, we expect business conditions to remain tough," he added. "All indications are that we face a no-to-slow global growth environment for at least the next quarter or two."

Long spoke enthusiastically about Arrow's recently launched cloud services aggregation platform, ArrowSphere, claiming that it would allow it to draw on its "unmatched line card" and technical expertise.

"Investments in these types of value-added offerings and services will enable us to guide innovation, our channel partners and the greater IT industry forward," he said.