Arrow Snags $350M of Channel Business From Competitors, Lands Dell Enterprise Portfolio

Arrow Electronics has closed on more than $350 million of annual business coming from other IT distributors, and has been authorized to carry Dell's enterprise offerings.

"In all my years at Arrow, I've never seen greater opportunities for our business than coming into 2017," said Chairman, President and CEO Mike Long, a 26-year Arrow veteran. "It's not an exaggeration, but a fact."

Long said the Centennial, Colo.-based distributor learned very recently that, effective this month, Arrow has been authorized to distribute Dell's enterprise offerings in all of the same markets where they carry EMC today. Arrow has worked closely with Dell around reverse logistics in North America, but the company has only historically been a distributor of EMC products in the region.

[Related: Arrow CEO: Avnet-Tech Data Deal Is Bringing More Partners To Us]

"Given the footprint we have with EMC, we certainly think that we have a good shot at some growth with that [Dell enterprise] line," Sean Kerins, president of Arrow's Enterprise Computing Solutions (ECS) business, told Wall Street analysts on Tuesday.

Kerins, however, said it's too early to predict how much revenue Arrow will generate from the new Dell distribution relationship given that it's still new and a few unknowns remain. Tech Data had been the only IT distributor authorized to carry both Dell and EMC products in North America, but distribution relationships are changing as Dell EMC rolls out its new, post-acquisition partner program.

Arrow also has agreements in place to grab more than $350 million in annual business from other distributors in the coming quarters, Long said. The new channel business wins won't have much of an impact in the first quarter, Kerins said, with intake ramping in middle and late 2017.

"We're bringing new VARs and MSPs in house, and doing more business with our existing customers," Long said.

The distribution landscape has experienced lots of upheaval in the past year, with core competitor Avnet agreeing to sell its Technology Solutions (TS) business to Tech Data in September for $2.6 billion and the closing of Ingram Micro's $6 billion sale to Chinese logistics firm Tianjin Tianhai in December.

Additionally, Datatec Ltd. announced late last month that it's negotiating a material transaction, and sources told CRN the most likely outcome is the sale of $4.9 billion distributor Westcon-Comstor.

Kerins believes there are still more opportunities for the company to bring over sizable business from competitors thanks to the appeal of Arrow's differentiated approach, though he cautioned that it often takes a while to onboard newly-won business.

"We're having a lot of great conversations with a lot of interesting channel partners these days, so we'll see how it plays out," Kerins said. "But we're confident [we'll win more business]."

Long said in November that the company had seen a big uptick in VARs and MSPs trying to figure out how they could do more business with Arrow since they will be the only pure-play value distributor left once volume distributor Tech Data closes its purchase of Avnet TS in the first half of 2017.

The Tech Data-Avnet TS deal will give Arrow a big edge around the internet of things, Long said in November, since they will be the only distributor with both an IT and components practice under the same roof. The combined Tech Data-Avnet TS plans to continue partnering with Avnet's legacy Electronics Marketing (EM) business to leverage EM's IoT capabilities.

Revenue for Arrow in the quarter ended Dec. 31 was $6.44 billion, down 4.6 percent from $6.75 billion a year ago. That missed Seeking Alpha's projection of $6.53 billion.

Net income jumped to $164.5 million, or $1.81 per diluted share, up 3.8 percent from $158.5 million, or $1.69 per diluted share, last year. On a non-GAAP basis, net income dipped to $181.7 million, or $2 per diluted share, down 0.3 percent from $182.1 million, or $1.94 per diluted share, the year prior. That was in-line with Seeking Alpha's estimate of $2 a share.

On a full-year basis, revenue climbed to $23.83 billion, up 2.3 percent from $23.82 billion last year. Net income, meanwhile, jumped to $522.8 million, or $5.68 per diluted share, up 5 percent from $497.7 million, or $5.20 per diluted share, a year ago.

Arrow shares sunk $5.09 (-6.82%) to $69.49 in trading Tuesday afternoon. Earnings were released before the market opened Tuesday.

Fourth quarter sales for Arrow's global ECS business plummeted to $2.45 billion, down 20.6 percent from $3.08 billion last year due to a 10 percent decline in hardware sales and very weak year-end budget flush.

Arrow's Americas ECS business sales fell to $1.63 billion, down 19.7 percent from $2.03 billion the year prior. The picture was even gloomier in Europe, where Arrow's ECS sales sunk to $818.4 million, down 22.4 percent from $1.05 billion last year.

Software and services now account for 65 percent of Arrow's total ECS revenue thanks to continued growth in the space, Long said. Within hardware, newer technologies such as solid-state storage and hyper-converged infrastructure are enjoying year-over-year growth rates of 50 percent, Long said.

Arrow is projecting total sales of between $5.38 billion and $5.78 billion in its next quarter, with ECS contributing revenue of between $1.6 billion and $1.8 billion. Diluted earnings per share excluding any charges are expected to come in at between $1.37 per share and $1.49 per share, the company said.

That projection is in line with what investors were expecting. Thomson Reuters predicted Arrow would earn $1.46 per share on overall sales of $5.57 billion.