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By | Paul Kunert 25th July 2013 13:04

Enterprise tech market returning, says Arrow CEO Long

Servers still up the swannee but plenty of gear shifted in Q2

Enterprise tech buyers may have started to shake off the residual effects of the recession, judging by the fortunes of sector bellwether Arrow Electronics, whose numbers came in at the high end of expectations.

Turnover for the second quarter of fiscal 2013, ended 29 June, went up three per cent to $5.3bn. However it was the Enterprise Computing Solutions (ECS) unit that fuelled growth and offset declining component sales.

Revenues in the Global Components division dipped 1.6 per cent to $3.4bn, and component sales in Europe fell 9.1 per cent to $901.7m, but ECS posted a 12.4 per cent hike to $1.9bn.

After factoring in rising selling, general and admin costs of $470.9m, plus restructuring, integration and other charges of $30.2m, operating profit fell to $155.9m from $188.7m a year ago. Net income was down to $90m, from $114.4m in Q2 2012.

CEO Michael Long told city folk on an earnings call last night that components sales were "ahead of expectations" but were down on a year ago "reflecting the ongoing macroeconomic challenges".

By contrast, ECS was up ten per cent in the US and an impressive 18 per cent in Europe due in no small part to the acquisition of French outfit Altimate.

"We're actually seeing some of our bigger customers driving back into the spending arena. So when you look at the markets we serve - financial, healthcare, government and so on - some of the spending is large accounts getting back in the game," said Long.

He added that general IT spending, and in particular investments in data centres were looking a "little bit stronger".

Enterprise players, particularly IBM have felt the squeeze in the server market and Long pointed to "ongoing price pressure" as vendors and their partners try to lubricate the sales machine.

Andy Bryant, worldwide president of ECS, said storage and software lines are shifting well but called the server market "kind of unreliable right now".

Half of ECS' sales come from software services, storage and security; a mix that has been built up over the past five years.

One way of countering challenging trading conditions is to cut costs, and Arrow aims to eke out annualised savings of $75m this year. At the halfway stage, it has already jettisoned more than $68m of expenses. This conservative approach fed into forecasts for Q3, with sales estimated to come in between $4.9bn and $5.3bn.

CEO Long said this was due to uncertainty in its "computer business" and, because there are two fewer days in Q3 than a year ago, "those last couple of days can be a couple of hundred million dollars of sales".

He also said there was a backlog of orders - but Arrow was unsure if these will be realised in the third or fourth quarters. ®

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