Arrow Electronics, Inc. Business Information, Profile, and History

Company Perspectives:

Arrow Electronics is the preeminent provider of products and services to the global electronics industry. With 202 sales locations and 23 distribution centers in 40 countries and territories, Arrow is much more than a supplier of parts and products. Design services, materials planning, inventory management, programming and assembly services, and a comprehensive suite of online supply chain tools highlight the range of our services. Our unwavering mission is to represent our chosen suppliers by assisting our customers in the design, manufacture, and use of electronic products from concept through production--globally and profitably.

History of Arrow Electronics, Inc.

Arrow Electronics, Inc., is the world's largest distributor of electronic components and computer products and a leading provider of services to the electronics industry. Arrow distributes these products and provides services to more than 175,000 customers through more than 200 sales facilities and 23 distribution centers in 40 countries and territories on six continents.

1935-80: From Seller of Used Radio Products to Major Electronics Distributor

Arrow Electronics was founded in 1935 as Arrow Radio, a retail outlet in New York City selling used radio equipment. However, Arrow's emergence as a major distributor of electronic components dates from 1968, when the company was purchased by three recent graduates of the Harvard School of Business.

By the mid-1960s, Arrow was selling a variety of home entertainment products and also had moved into electronic parts distribution. In 1968, B. Duke Glenn, Jr., Roger E. Green, and John C. Waddell, then working for an investment banking firm in New York, recognized the potential for growth in electronic parts distribution, and bought the company for $1 million in borrowed capital. They also purchased a company that reclaimed lead from old car batteries.

Using cash from the profitable lead reclamation business, the new owners began expanding Arrow's inventory of electronic parts, which allowed them to service their customers better. They also sacrificed profits, through aggressive pricing, in order to build volume. By 1971, Arrow had become the tenth largest electronic parts distributor in the United States, although still far behind Avnet Inc., the leading electronic parts distributor.

During the 1970s, Arrow continued its climb up the ranks of the largest distributors of electronic parts in the United States--to number nine in 1972, number five in 1976, and number four in 1977--primarily through internal growth. In 1974, Arrow also became the first distributor of electronic parts to introduce an online computerized inventory system to speed up delivery. Then in 1979, Arrow acquired West Coast-based Cramer Electronics, the country's second largest distributor of electronic parts at that time, with $150 million in annual sales. Although the acquisition, financed with junk bonds, left Arrow heavily in debt, it more than doubled the company's revenues. Its chief rival, Avnet, was still three times as big, but for the first time, Arrow could claim a national presence. Arrow was listed on the New York Stock Exchange in 1979.

With the takeover of Cramer Electronics, Arrow appeared to have fulfilled the vision of its 1969 annual report, which had predicted: "Significant opportunities exist for us in the electronics distribution business owing mainly to the fragmented competitive environment. ... It appears likely that the future will belong increasingly to those few substantial distribution companies with the financial resources, the professional managements, and the modern control systems necessary to participate fully in the industry's current consolidation phase." Arrow would close 1980 with $350 million in sales.

1980-84: Tragedy and Rebuilding

But in December of 1980, a blistering fire raced through the conference center of a hotel in Harrison, New York, killing 13 senior executives from Arrow who had gathered for the company's annual budget meetings. Among the dead were Glenn, then chairman of the company; Green, then an executive vice-president, and all the department heads from the electronics distribution division. Only Waddell, then an executive vice-president, who had stayed behind at company headquarters to answer questions about a two-for-one stock split announced earlier that day, survived from the senior management team.

In a remarkable display of courage, Lynn Glenn, the widow of the company's chief executive, addressed employees at company headquarters the day after the fire. "I don't know your faces," she said, "but I'd know your names, because Duke always talked about you. The company will go on. It won't be sold. You'll be getting calls from competitors, but don't be spooked. Keep the faith." According to Fortune, she then "fled into an adjoining office and burst into tears." Despite her resolve, Arrow's stock fell 19 percent on the first day of trading after the fire, and fell another 14 percent before the month was out.

Waddell, who was named acting chief executive officer, embarked on what Fortune described as "a one-man campaign to assure security analysts, money managers, and journalists that the company was stable and recovery was underway." However, although sales held steady and none of the remaining managers were lured away to the competition, Arrow's stock continued to fall. That spring, the electronics industry was plunged into a recession, further crippling Arrow's recovery. By the time Arrow's stock bottomed out early in 1982, it had lost 60 percent of its value.

Meanwhile, Waddell also was trying to rebuild Arrow's senior management team. One of his first decisions was to go outside the company to recruit senior executives, rather than promote from within. That included finding someone to become chief executive officer. "If I'd had my druthers," Waddell later told Fortune, "I would have said to the board, there's only one person who can be CEO of this company for the time being, because nobody understands this child the way Waddell understands it."

However, the board did not have the same opinion of Waddell, whom Fortune described as "slender and elegant ... a figure from a bygone era, an apparition out of F. Scott Fitzgerald or The Thin Man," and in July of 1981, Arrow lured Alfred J. Stein away from Motorola to be president and chief executive officer. Waddell remained as chairman. "Stein was clearly the biggest management coup in the history of distribution," Waddell told Fortune three years later. "You should have seen the congratulatory letters and telegrams."

Unfortunately, Stein, who also had worked at Texas Instruments, did not mesh well at Arrow. Rob Klatell, then company attorney, later told Fortune that with Stein's background in manufacturing, he "kept looking for a facility to manage, and all he had were these crazy salesmen running around." The board fired Stein early in 1982, and named Waddell to the position he felt he deserved. Six months later, Waddell recruited Stephen Kaufman, a former partner with McKinsey & Co., to be president of Arrow's electronics division.

In 1982, sales held steady at about $550 million and Arrow lost $1.19 a share. But in 1983, with the recession in the electronics industry over, sales reached $1.4 billion and Arrow earned 85 cents per share. In 1984, Fortune declared that "Kaufman's arrival marks the moment at which Arrow's cruelly unconventional problem came to an end."

In 1983, with Arrow celebrating its financial and emotional recovery, Waddell told Forbes: "Our strategic exercise for a decade has been to get position. It cost us a lot of time, money and aggravation. [After the fire] the overwhelming reality in my life was that I had a job to do. Now it's time to turn our attention to cashing in on a ten year investment."

1984-2002: Rapid Growth, Worldwide Expansion

The company made a major move in 1985 when Arrow purchased a 40-percent interest in Spoerle Electronic, which was already the largest distributor of electronic components in Germany. As Forbes later reported, Kaufman, who spent several years in Europe as a consultant with McKinsey & Co., was "a confirmed internationalist. At the time, no other American electronics distributor had invested consistently in the fragmented European market, but Kaufman was convinced that Europe's internal trade barriers would fall and that Arrow could score big." Since then, Arrow has increased its share in Spoerle to 70 percent, and has acquired 14 more European companies to become the largest electronics distributor in Europe.

Arrow resumed its growth strategy in 1988 by acquiring Kierulff Electronics, then the fourth largest electronics distributor in the United States, for $125 million. Financial World noted, "Although economies of scale in electronics distribution are notoriously hard to come by, the ... purchase complements Arrow's network nicely--and gives Arrow the $1 billion heft it has been looking for." Arrow shut down all four Kierulff warehouses and, as Forbes reported, "As if by a miracle, within a year Arrow's bottom line went from a $16 million operating loss in 1987 to operating profits of $10 million." To reduce its debt, Arrow also sold its lead reclamation business in 1988.

In 1991, Arrow acquired Lex Electronics, formerly Schweber Electronics and the third largest distributor in the United States, and Almac Electronics Corporation, from their British-based parent Lex Service, Plc. The company also acquired a 50-percent interest in Silverstar Ltd. S.p.A., the largest electronics distributor in Italy. A year later, Arrow purchased Lex Service's distribution businesses in France and the United Kingdom. Arrow affiliate Spoerle acquired Lex Electronics in Germany.

In 1993, Arrow became the first electronics distributor to claim a global reach when it acquired Components Agents Ltd., the largest multinational Pacific Rim distributor with operations in Hong Kong, Singapore, Malaysia, China, and South Korea. The same year, Arrow purchased the distribution division of Zeus Components, Inc., a distributor of high-reliability electronic components for the U.S. military; CCI Electronique, a French distributor; and majority interest in Amitron S.A. and the ATD Group, electronics distributors in Spain and Portugal.

Arrow moved into Scandinavia in 1994 by acquiring Field Oy, a Finnish company, and the TH:s Group, the leading distributor in Norway. The company also acquired Exatec A/S, one of the largest electronics distributors in Denmark, and increased its stake in Silverstar to a majority share. Also in 1994, Kaufman became chairman and Waddell took on the role of vice-chairman.

Later that same year, Arrow exchanged about $142 million in stock to acquire Gates/FA Distributing, Inc., a networking and DOS-based PC business. In October, Arrow purchased semiconductor and computer products distributor, Anthem Electronics for $390.6 million in stock. It also acquired two closely held Australian distributors.

In 1995, Arrow bought Components + Instrumentation (NZ) Ltd., a New Zealand distributor. It also reorganized itself into two marketing groups--one for its commodity PC business and one for the more technical and profitable midrange systems market. By 1996, Arrow was the world's largest distributor measured by sales.

In 1997, Arrow bought the electronic components distribution business of U.K.-based Premier Farnell PLC. It also purchased Conson, Inc., a distributor of mass storage products, and 51 percent of Support Net, Inc., one of IBM's largest distributors of midrange servers and networking products. It formed a joint venture to distribute electronic products in South Africa. Its most important action that year, however, was a major reorganization of its operations into seven business groups, each focused on a particular class of customer rather than on specific products.

With the slump in the PC market caused by the Asian financial crisis, the decline of PC prices, and the dearth of new products to attract customers, Arrow's sales grew by seven percent but its profits declined by 11 percent in 1998. Nevertheless, Arrow bought a majority interest in Scientific and Business Minicomputers, Inc., a leading technical distributor of mass storage products in the United States. It expanded its European operations with the purchase of Unitronics Componentes, S.A., a leading distributor in Spain and Portugal. Arrow also entered a joint venture with Marubun, Inc. of Tokyo to facilitate selling to Japanese-owned manufacturing operations in North America and the Pacific Rim.

Business recovered during the next two years. In 1999, Arrow bought Richey Electronics, Inc. and the electronics distribution group of Bell Industries, Inc. The company purchased majority interests in a Brazilian and an Argentine distributor and added a distributor to its Swiss operations. It also made its initial venture into online services.

In 2000, the company purchased Wyle Electronics, a distributor, and the Sun Microsystems distributor, MOCA, to expand its North American operations. Arrow acquired all or part of distributors in France, Israel, Scandinavia, and Mexico. It further developed several online initiatives, and it began to create various value-added services for which it planned to charge its customers added fees.

The beginning of the decline in the U.S. stock markets in 2000 signaled potential difficulties for Arrow's continued expansion. By 2001, the company faced significant declines in its revenues and profits. Demand for computers of all kinds declined as businesses and consumers significantly reduced purchases. The new Internet commerce industry shrank, as many enterprises went out of business. The rapidly expanding telecommunications industry found itself saddled with massive debt and severe overcapacity.

In response to these developments, the company reduced its inventory by 50 percent and eliminated 1,700 employees worldwide. Nevertheless, Arrow's sales declined 22 percent from $13 billion in 2000 to $10.1 billion in 2001. It recorded a profit of $357.9 million in 2000, but a loss of $73.8 million in 2001.

Sales continued their decline during 2002's first half. Sales declined 32 percent from $5.5 billion during the first half of 2001 to $3.7 billion during the same period of 2002. Profit declined from a $700 thousand gain to a $607 million loss. Arrow responded by selling its Gates/Arrow unit, which sold PCs, printers, other peripherals, and software, for $44.7 million in cash.

Principal Subsidiaries:Arrow Electronics International, Inc. (100%); Arrow Electronics Canada Ltd. (100%); Schweber Electronics Corporation (100%); 10556 Newfoundland Ltd. (100%); Schuylkill Metals of Plant City, Inc. (100%); Hi-Tech Ad, Inc. (100%); Consan, Inc. (100%); Arrow Electronics (Delaware), Inc. (100%); Arrow Electronics Funding Corp., (100%); Arrow Electronics Real Estate, Inc. (100%); Arrow Electronics (U.K.), Inc. (100%); Arrow Electronics South Africa, LLP (99%); Arrow Altech Holdings (Pty) Ltd. (50.1%); Panamericana Comercial Importadora, S.A. (66.67%); Elko C.E., S.A. (70%); Eurocomponentes, S.A. (99.99%); Macom, S.A. (70%); Compania de Semiconductores y Componentes, S.A. (70%); Arrow Electronics Asia Pacific, Inc. (100%); Arrow Electronics, Holdings Pty Ltd. (100%); Components Agent (BVI) Ltd. (90%); Texny (Holdings) Ltd. (100%); Arrow Strong Elkectronics Co. Ltd. (100%); Arrow Asia Distribution Ltd. (100%); AE Logistics Sdn Bhd (100%); Arrow/Ally, Inc. (75%); Arrow Components (NZ) Ltd. (75%); Arrow Electronics (CI) Ltd. (100%); Marubun-Arrow USA, LLC (50%); VCE Virtual Chip Canada, Inc. (49%); Technologies Interactives Mediagrif, Inc. (10%); Arrow Electronics Mexico, S. de R.L. de C.V. (100%); Dicopel, Inc. (60%); Dicopel S.A. de C.V. (60%); The Performance Consortium, LLC (50%); Wyle Electronics, Inc. (100%); Wyle Electronics de Mexico, S. de R.L. de C.V. (100%); Wyle Electronics Caribbean Corp. (100%); Marubun Corp. (5.2%).

Principal Competitors:Avnet; Pioneer-Standard Electronics; Rexel; Premier Farnel; Ingram Micro; Graybar Electric; WESCO International; Advanced MP Technology; All American Semiconductor; Future Electronics; Bell Microproducts; Tech Data.

Chronology

• Key Dates:
• 1935: Founded as Arrow Radio.
• 1968: Roger E. Green, John C. Waddell, and B. Duke Glenn, Jr., pay $1 million for the company.
• 1971: Arrow becomes the tenth largest electronic parts distributor in the United States.
• 1974: Arrow is the first electronic parts distributor to introduce a computerized inventory system.
• 1979: Arrow acquires Cramer Electronics, the nation's second largest electronic parts distributor.
• 1980: A fire kills 13 of Arrow's senior executives.
• 1985: Arrow buys 40 percent of Spoerle Electronic, Germany's largest electronic parts distributor.
• 1988: Arrow purchases Kierulff Electronics, the fourth largest electronics distributor in the United States.
• 1991: Arrow buys Lex Electronics and Almac Electronics Corporation. It buys 50 percent of Silverstar Ltd., an Italian distributor.
• 1992: Arrow buys distribution businesses in France and the United Kingdom. Spoerle buys a distributor in Germany.
• 1993: Arrow buys Component Agents Ltd., a Pacific Rim distributor; Zeus Components, Inc., a distributor specializing in supplying the U.S. military; CCI Electronique, a French distributor; and majority interests in Amitron S.A. and the ATD Group, distributors in Spain and Portugal.
• 1994: Arrow buys Field Oy of Finland, TH:s Group of Norway, Exatec A/S of Denmark, and two Australian distributors. It also buys Gates/FA Distributing, Inc. and Anthem Electronics in the United States.
• 1995: Arrow buys Components + Instrumentation (NZ) Ltd. of New Zealand.
• 1997: Arrow buys a United Kingdom distribution business and Conson Partners of the United States. It buys 51 percent of Support Net and forms a joint venture in South Africa.
• 1998: Arrow buys U.S. distributor Scientific and Business Minicomputers and Unitronics Componentes, a distributor in Spain and Portugal. It joins Marubun of Japan in a joint venture.
• 1999: Arrow buys Richey Electronics and the distribution group of Bell Industries in the United States. It buys majority stakes in Brazilian and Argentine distributors. It buys a Swiss distributor.
• 2000: Arrow buys Wyle Electronics and MOCA of the United States. It adds French, Israeli, Scandinavian, and Mexican distributors to its operations.
• 2002: Arrow sells its Gates/Arrow unit.