Technology

The Personal Computer Industry Loses a Key Components Distributor

Jon C. Ogg

Published: July 16, 2019 10:30 am

Last Updated: January 30, 2020 6:33 pm

Arrow Electronics Inc. (NYSE: ARW) is about to make a change that does not sound all that promising for the personal computer space. The company has thousands of products it distributes in electronic components and computer products, and along with weaker preliminary results for its second quarter of fiscal 2019, the company announced a planned wind-down of its personal computer and mobility asset disposition business.

While this was not a full earnings report, the company cited deteriorating demand conditions in the global components business for its weakness. The company called out its efforts as taking decisive actions to preserve profits while the company maintains its engineering and value-added capabilities. Distributing and aggregating components for customers and suppliers within industrial and commercial markets requires a large effort, and Arrow currently has 349 different locations that serve customers in more than 80 countries.

Arrow now expects to report total second-quarter 2019 sales of about $7.30 billion. The Refinitiv consensus estimate was calling for $7.55 billion in sales. The global components sales were approximately $5.25 billion, and global enterprise computing solutions sales were about $2.05 billion.

The company is expecting a loss in the second quarter after items, but normalized earnings from operations are now being put in a range of $1.50 to $1.62 per share. Refinitiv’s consensus estimate is $1.91 ahead of this news. Arrow noted that the revised second-quarter expectations exclude approximately $78 million of sales and $78 million of after-tax losses from the personal computer and mobility asset disposition business.

The big news from Arrow Electronics is that the company has decided to close its personal computer and mobility asset disposition business. The previous results had been included within its global components business, and it has begun notifying employees of the coming exit. Arrow also plans to close this business in Sweden, Belgium and the United Kingdom.

Arrow plans to focus its efforts on next-generation technologies such as artificial intelligence, smart cities, vehicles and automation.

Michael J. Long, board chair, president and chief executive officer of Arrow Electronics, said:

After careful market analysis indicating that business dynamics have changed since we entered this market, we have decided to wind down operations at our personal computer and mobility asset disposition business. This will allow us to continue to focus on our cross-enterprise strategy to enable next-generation technologies such as artificial intelligence, industrial automation, smart cities and vehicles.

The wind-down of its personal computer and mobility asset disposition business will incur an expected charge of roughly $115 million, including an estimated $75 million noncash impairment charge and $40 million future cash expenditure primarily related to personnel and other exit and disposal costs. Arrow Electronics expects to cease operations and have the remaining wind-down of the personal computer and mobility asset disposition business completed by the end of 2019.

Revenues of $23.3 billion in 2015 and $26.55 billion in 2016 grew to $26.55 billion in 2017 and then to $29.67 billion in 2018. Analysts had been looking for revenues to reach $30.2 billion in 2019 and $30.6 billion in 2020.

Arrow shares had been down as much as 6% in Monday’s after-hours trading session, but the stock was down almost 3% at $67.00 on Tuesday morning after the market digested the news.