Analysts Su Chen Thanh Le Gina Huang Presented: November 17, 2011
Jan 29, 2016
AnalystsSu Chen
Thanh Le
Gina HuangPresented: November 17, 2011
Business Summary
Arrow Electronics, Inc. distributes products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions worldwide.
Source: Arrow 2010 Annual Report
Locations: 340 locations in 52 countries
Corporate Headquarters: Melville, New York
Customers:115,000
2010 Sales:$18.7 billionGlobal Components:$13.2 billionECS:$5.6 billion
Employees:12,700; Suppliers:1,200Fortune 500 Rank:140
Arrow Worldwide
Source: Arrow 201 Fast fact
Global Customer Base
Source: Introduction to Arrow Electronic_9_16_2011 pg. 4
Electronic Components
Source: Introduction to Arrow Electronic_9_16_2011 pg. 10
Electronic Components Core Drivers Broad line card –1,200+ suppliers Broad customer base –100,000+ Engineering focus Demand creation Value-added programs
Differentiators Global strength and depth Design win performance Highest ranked level of customer
service Industry leading operating margins Financial resources
Source: Introduction to Arrow Electronic_9_16_2011 pg. 11
Enterprise Computing Solutions
Differentiators Customer service Customer and OEM relations Solutions focused Non-compete relationship with
reseller customers Unparalleled line card
Core Drivers Small and medium sized customers –
13,000 VAR partners Business continuity Server consolidation Compliance/regulatory environment Engineering and technical expertise Education and training services Enterprise Solutions Centers (Atlanta &
Minneapolis) Financing programs Business development & marketing
expertise Innovation and investments
Enterprise Computing Solutions (ECS) – 30% of 2010 ARW RevenueArrow ECS is the global business group that provides enterprise and midrange computing products, services and solutions to value-added resellers and system integrators-ECS Americas –72% of ECS sales
--4 Billion-ECS Europe –28% of ECS sales --1.6 Billion
Source: Introduction to Arrow Electronic_9_16_2011 pg. 12
Industry Structure
Source: IBISWorld
Wholesale Annual Sales Growth
Source: First Research
Industry Trends, Opportunity, Challenge, external revenue drive
Source: First Research & IBISWorld
Per Capital Disposable Income
Source: IBISWorld
Products & Services Major products:
semiconductors (computer chips); connectors; electromechanical devices.
Other products disk and tape drives, computer subsystems, microwave and fiber optic
components, transistors, diodes, power supplies, switches.
Services: purchasing; marketing; warehousing; packing, shipping, and
delivery; customized packaging private labeling minor repair and
refurbishment simple assembly.
Source: IBISWorld
Global Semiconductor Sales
Source: First Research
Demand for communications equipment
Expanding consumer and enterprise reliance upon voice, video and data communications has increased demand for carrier network bandwidth.
Demand for wireless handsets over the next five years will be influenced by the degree to which consumers respond to an increasing number of products with multimedia capability and with functions previously found in other products.
Source: First Research
Demand for electronic parts
Demand for electronic components will be promoted by the continued substitution of mechanical devices for electronic devices and growth in sales of final electronic products.
Adversely effected by slow growth in final electronic product manufacturing industries
Source: First Research
Domestic Industry Forecast
Source: First Research
Global StrategyDrive growth in the core, services & high-growth product sets
Source: Introduction to Arrow Electronic_9_16_2011 pg. 6
Source: Introduction to Arrow Electronic_9_16_2011 pg. 7
Powering the Supply Chain: ECS
Source: Introduction to Arrow Electronic_9_16_2011 pg. 13
10 years price performance
Source: Capital IQ
10 years revenue performance
Source: Capital IQ
Financial Ratios Growth
Source: Arrow Electronic website
Acquisition Activities 2011
Nu Horizons Electronics Corp.
On January 3, 2011, the company acquired Nu Horizons Electronics
Corp. ("Nu Horizons"), a global distributor of advanced technology
semiconductor, display, illumination, and power solutions to a wide
variety of commercial OEMs and electronic manufacturing services
providers.
This acquisition builds on the company's strategy to expand its global
capabilities, particularly in the fast-growing Asia Pacific region.
Source: Arrow Electronic 2010 Annual reports
Acquisition Activities 2011
Richardson RFPD
On October 1, 2010, the company announced an agreement to acquire all the
assets and operations of the RF, Wireless and Power Division ("RFPD") of
Richardson Electronics, Ltd. ("Richardson") a leading value-added global
component distributor and provider of engineered solutions serving the global
radio frequency and wireless communications market.
This acquisition supports the company's strategy to expand its portfolio of
products and strategic capabilities, such as value-added services, to help it meet
the evolving needs of its suppliers and customers. The acquisition is done.
Source: Arrow Electronic 2010 Annual reports
Acquisition Activities 08-10
In February 2008, it acquired the components distribution
business of Hynetic Electronics and Shreyanics Electronics
("Hynetic") in India.
• In February 2008, it acquired all the assets and operations
of ACI Electronics LLC ("ACI")
In December 2008, it acquired Excel Tech, Inc. ("Excel
Tech")
In December 2009, it acquired A.E. Petsche Company, Inc.
("Petsche")
Source: Arrow Electronic 2010 Annual reports
Acquisition Activities 08-10
In April 2010, it acquired Verical Incorporated ("Verical")
In June 2010, it acquired PCG Parent Corp.
In August 2010, it acquired Transim Technology Corporation
("Transim")
In October 2010, it acquired Eshel Technology Group, Inc.
("ETG")
In December 2010, it acquired all of the assets and
operations of INT Holdings, LLC
Source: Arrow Electronic 2010 Annual reports
Competitors
AVNET Inc distributes electronic components, enterprise computer and embedded subsystems
Watsco Inc distributes refrigeration equipment and offer flexible marketing programs, technical support
Brightpoint Incdistributes information technology products ,offers logistics management and other value-added services
Network Engines, Inc
provides application platforms and appliance solutions for original equipment manufacturers and independent software vendors worldwide
Tech Data Corp.
distributes information technology products, as well as offers logistics management and other value-added services
Competitors Financial Ratio
Enterprise Value
EBITREVENU
EP/E P/B P/S ROA ROE
AVT AVNET Inc 5840.19 1007.7 26778 7.0x 1.15 0.17 6.60% 18.45%
WSO Watsco Inc 2170 673.24 2990 23.9x 2.58 0.69 8.62% 13.32%
Cell Brightpoint Inc 801.17 314.62 4180 14.0x 2.35 0.14 4.81% 19.15%
NEINetwork Engines,
Inc31.58 25.47 263.72 1.3x 0.77 0.18 3.60% 8.93%
TECD Tech Data Corp. 1767.23 944.1 26062.5 10.2x 0.99 0.08 3.78% 11.39%
Multiple
Valuation Method Weight Price Relative Price
P/E 33% $41.18 $13.59
TEV/Revenue 33% $39.26 $12.96
TEV/EBIT 33% $38.25 $12.62
Estimated Value $39.17
ARW valuation
Recommendation
Current price: $37 Recommendation: Put on the watched list