Channel After-Market Opportunity in the Billions

Global environmental regulations are continuing to put pressure on electronics OEMs to plan for their products' end-of-life. The collection, recycling, and disposal of electronics goods represents a lucrative opportunity for companies that are willing to manage these responsibilities on a global scale.

To date, the world's largest electronics distributors -- Arrow Electronics Inc. (NYSE: ARW) and Avnet Inc. (NYSE: AVT) -- have stepped up to the plate. In 2010, Arrow Electronics began investing in the after-market through the acquisitions of Converge and Verical Inc. In 2011, it launched three brands of after-market service companies: Converge, ReSolve, and Intechra; collectively focusing on both IT asset disposition and electronics components. Arrow company executives shared the potential of the electronics after-market with analysts today during its annual Investor Day. To say it is a multibillion-dollar opportunity still falls short.

IDC analyst Joseph Pucciarelli provided a backdrop for Arrow's after-market business. According to IDC, the IT asset disposition (ITAD) market is made up of three main segments: lifecycle disposition services, IT used equipment, and recycling. Lifecycle disposition's value is estimated at $3.7 billion; used equipment, $298 billion; and recycling, $13 billion. Arrow sees a $24 billion addressable market in which it believes it can leverage its core distribution assets.

Through acquisition, Arrow already has eight locations in the US for the processing of equipment and six in Europe. In addition to these, Arrow has sales locations in many local markets through its Enterprise Computing Services (ECS) division. With minimal incremental investment, Arrow was able to leverage an ECS location in France to also provide after-market services, executives said.

Handling physical equipment is only a small part of the demand Arrow is seeing in this business, according to Ernie Keith, Arrow's vice president for global operations and services. Before any type of computing equipment can be resold into the market, Keith said during Arrow's live Webcast, data has to be wiped clean from the system. This time-consuming and labor-intensive process is something OEMs and resellers are anxious to outsource. Arrow's ability to collect, consolidate, and process this equipment is a considerable value proposition for OEMs, executives said. Additionally, since this is a service -- rather than a hardware sale -- it is a highly profitable opportunity for the distributor.

Arrow ECS already resells equipment from brands such as HP, IBM, and EMC, and lifecycle management is becoming an increasing part of manufacturers' concerns. "OEMs are always looking to return a functional product to the market or to harvest valuable parts," Keith says. "The centerpiece of our [after-market] effort is to bring both trust and quality to the partnership. If we can't recycle usable equipment, then we do everything we can to ensure that anything leftover that makes it into the ground is 100 percent compliant with environmental regulations."

Arrow estimates it has already kept about 50,000 tons of e-waste out of landfills.