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More Positive Signs on Inventory

{complink 453|Arrow Electronics Inc.}, one of the industry's two largest distributors, reiterated today that the global supply chain's components inventory is approaching balance. Arrow's report, made during its Q4 2011 earnings conference call with analysts, comes on the heels of similar observations from {complink 577|Avnet Inc.} and market research firm IHS iSuppli.

In 2011, Arrow’s sales reached $21.4 billion, a record level for the distributor. Arrow's components business, which reached $3.4 billion in revenue in Q4 2011, represents the industry's major semiconductor, interconnect, passive, and electromechanical suppliers. As such, Arrow has a broad view of global demand trends.

Although some of Arrow's semiconductor suppliers believe the industry has hit rock bottom and is now beginning to rebound, Arrow executives were more cautious. “As these cycles happen, we come out [of a downturn] after our suppliers,” said Arrow CEO Mike Long during the call.

“Having said that, we saw our book-to-bill ratio improve from Q3 to Q4 and is back at parity. That is a good thing. In terms of market stabilization, we are not sure if we are at an inflection point. Some of our customers aren't sure they are at the bottom; others are bouncing back. But I consider what our suppliers say as good news and I don't think we are that far behind them.”

North America showed particular strength in Arrow's components sales, particularly in Q4. Long said: “We did see above normal growth, and as we look at the coming year, we are expecting mid to normal seasonality. We saw strength in aerospace and defense; lighting held its own; alternative energy didn't decline that much and the medical market showed a bit of a decline. However, those are still the four markets driving growth in North America and in the new year.”

Arrow's Asia-Pacific components sales dipped a little during Q4 and, like its nearest competitor Avnet, is unwilling to forecast the market until after the Chinese New Year. Some of Asia's weakness is coming out of low-end handsets, said Long, adding that “it'll be another six weeks before we have a better idea what's going on [in Asia.” Both distributors say Europe continues to lag the Americas and Asia-Pacific sales regions.

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5 comments on “More Positive Signs on Inventory

  1. Cryptoman
    February 2, 2012

    Arrow's sales hitting a record high is good news.

    I wonder if that is a clear sign of a positive outlook on the economy and the job market on the whole. Surely, if Arrow is selling components, many people must be adding value by building products using those components.

    I am trying to undestand the interworking between the job market, the economic outlook and the sales of large distributors like Arrow. What kind of information (related to the economy and the job market on the whole) can we glean from such increased sales figures other than the obvious fact that the distributor is making money? Is there such a linear link at all?

  2. Barbara Jorgensen
    February 2, 2012

    @cryptoman: I can help you there. Arrow's record sales and earnings were bolstered by acquisition and entering into new markets such as reverse logistics. It wasn't driven by components sales alone. In fact, demand has been below the norm for 2011, but is picking up in 2012. An interesting observation by Avnet EM President, Global, Harley Feldberg, on a follow up call with EBN: China's economy depends a great deal on exports to regions such as the Americas and Europe. Exports are down becuase demand for even the products exported by China is soft. Demand is soft becuase unemployment is still high in the US and the economic situation in Europe is uncertain. So although both Arrow and Avnet executed their businesses to record levels in 2011, the demand picture is still so-so.

  3. DataCrunch
    February 5, 2012

    I wouldn't expect “hockey stick” spikes in sales anytime soon, but a slower and steadier sales growth pattern as the US economy recovers.  Europe is still hard to forecast at the moment.  Having a more steady and predictable demand during times of economic recovery may not be such a bad thing either for suppliers, keeping inventory at proper levels.

  4. mfbertozzi
    February 6, 2012

    I could agree with you Dave, maybe current position about Europe is related to specific fields mentioned within Barbara's article. If the go throught the editorial, we could outline major fields which are impacting in a positive way the sector, are aerospace and defense, right now Europe is not directly involved in military actions as sounds since a long ago for US, for example.

  5. Barbara Jorgensen
    February 6, 2012

    Hi readers: from what the distributors say, the main reason Europe is uncertain is the debt and bail-out debate.  I haven't heard that any specific vertical market is driving the trend–all manufacturers are delaying investing/spending becuase of the economic uncertainty. The one specific item I did hear about is Avnet Technology Solutions is pulling out of Italy. I believe that refers to physical sites there, as Italy will be serviced from other regions in Europe. But Italy has been a standout in all distribution companies becuase of its extended credit payment terms. It can take companies up to 160 days to collect payment within the country, which ties up capital that can be spent in others ways.

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