Arrow sees glimmer of hope in downturn

Arrow announced negative results for its second fiscal quarter and Ingram is poised to make its earnings announcement later today (and Avnet Inc. (NYSE: AVT) next week).

But this isn’t exactly a big surprise. Last quarter was tough for a lot of businesses. These negative numbers shouldn’t instigate a wave of panic about the next quarter – not all the news is negative, and there are glimmers of a recovery on the horizon.

Arrow reported that sales dropped 22 per cent year over year for Q2, yet the distie’s results started to pick up toward the end of the quarter in North America, with better bookings and billings. Arrow’s cash flow is just fine, with more than US$300 million in cash from operations in Q2, making it the eleventh consecutive quarter of positive cash flow generation, Arrow execs said during a conference call.

But Arrow hasn’t been able to offset ongoing sales declines and margin pressures related to the downturn, so it’s looking to cut another US$100 million in annual cost reductions. A lot of these cuts will take place in Europe, a market where it’s still struggling to regain profitability. But Arrow execs believe they’ve seen signs of stabilization in the Asia-Pacific and have experienced one month of stability here in North America.

So, while it may not be time to break out the champagne and declare the recession over – although, apparently it’s already over, according to the Bank of Canada – there is some good news in the midst of all this negativity.

Though it doesn’t exactly feel like the recession is over and will probably be awhile before people start getting their jobs back, the Bank of Canada does have a point: We’ve seen a return to growth after three quarters of decline, and it expects growth will accelerate through the end of the year and the first half of next year.

Even if this is the case, the business climate is still tough, particularly for the IT industry as customers indefinitely shelve their capital-intensive projects. This has hit Arrow’s Enterprise Computing Solutions division particularly hard – sales dropped 19 per cent in Q2, thanks to lower demand and IT spending.

But those projects won’t be shelved forever. Arrow says its ECS division is poised for growth when the market returns. In the meantime, its mix of services, software and storage is helping weather the fall-off of server sales, but customers are continuing to design new products in anticipation of future market strength. With an eye to the future, Arrow is still investing in areas such as ERP, vertical markets, emerging markets and, perhaps most importantly, talent.

So, maybe we should break out the champagne anyway.

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Jim Love, Chief Content Officer, IT World Canada

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Vawn Himmelsbach
Vawn Himmelsbach
Is a Toronto-based journalist and regular contributor to IT World Canada's publications.

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