As one of the world’s two largest electronics distributors, Arrow Electronics Inc. has perspective from more than 700 electronics component suppliers and 100,000 or so customers. During its Q2 conference call with analysts, Arrow executives said Brexit is having a mixed impact on Arrow’s main businesses, components and computer systems; supplier consolidation is benefiting the broadline distributor; and competitor Avnet Inc.’s proposal to buy Premier Farnell further differentiates the two distributors’ strategies.
Following adjustments, Arrow’s component business grew in all regions with the exception of the Americas where sales remain flat. Arrow CEO Mike Long attributed growth to the distributor’s efforts in securing design-wins with customers. Once a design with an OEM is secured it can take as long as 18 months for a design to reach production. Long said Arrow is benefiting from the work it has done in the past two years in beefing up its engineering staff.
“Design activity in the second quarter grew in the high single digits with strong growth in Asia and in Europe, where we have concentrated our investment,” Long said.
Brexit, Long said, did not have an impact on Arrow’s components business because of the long-term relationships it has with manufacturing customers. It did, however, impact Arrow’s computer business, where customers pushed out commitments they had with Arrow. Executives estimated the impact at about $40 million, but they expect the business will be fulfilled at a later date. “We see [Brexit] as more of a market hiccup,” said Long, “we don’t see the impact as lasting.”
Arrow’s results came out on the heels of another consolidation announcement in the semiconductor industry: Analog Device’s acquisition of Linear Technology. In some cases, when suppliers merge they drop distributors that don’t carry both lines. Arrow, which lists both ADI and Linear on its linecard, said it has benefited from supplier consolidation so far. “We are seeing consolidation as a net positive,” said Long, adding component makers continue to push more business through distribution rather than handle it direct.
Arrow noted that it did suffer some declines in high-volume supply chain relationships in the Americas and Asia during the quarter. “I would expect that to abate as we get near the Christmas building season,” Long said. “It’s not a change in our strategy or direction.”
Although Arrow and its leading competitor Avnet carry many of the same component lines, have significant business in computer systems and provide end-of-life recycling and reclamation services, Long said the business strategy of the two companies continues to diverge. Avnet recently announced its intention to buy Premier Farnell, a big player in the catalog business. “We don’t see that particular transaction as something that will affect us,” Long said. “Premier Farnell is a big player in industrial electronics.” Although Premier Farnell is expected to bolster Avnet’s digital business, Long said Arrow’s digital sales in Q2 exceeded expectations. “We have no interest in moving into the industrial space and that will continue to be a differentiator.”
Long added that Arrow did not directly benefit from a systems disruption Avnet suffered during the first half of the year. “Customers don’t switch distributors because of six days [of disruptions],” he said. “That’s not what we are attempting to do. We are growing our business the old-fashioned way and that is what is helping us build lasting customer relationships.”
Arrow’s entering Q3 with its book-to-bill ratio above parity and above prior-year levels; backlog at its highest level ever; and expects to see improvement in its components sales over the next two quarters, executives said.