Distributors report stability in the North American market, but executives remain wary of the potential for a slowdown.
Earnings reported by distributors last week pointed to stability in the North American market, which has been dealing with higher energy costs as well as questions over the economic impact of Katrina.
Arrow Electronics Inc. on Thursday said its North American Computer Products business generated year-over-year sales for the 10th consecutive quarter. Worldwide, the company's computer distribution business sales actually declined 1 percent in the company's third quarter ended Sept. 30.
The company, overall, posted Q3 net income of $63.5 million on revenue of $2.71 billion. This compares to net income of $63.4 million on revenue of $2.62 billion in last year's Q3.
William Mitchell, Arrow's president and chief executive officer, speaking during the company's earnings teleconference, cited "stability in North America." But Europe remains weak, he said.
Avnet Inc.'s Technology Solutions operating group, which houses the company's value-added distribution business, posted sales of $1.16 billion for its fiscal first quarter ended Oct. 1—an 11.7 percent increase over the same period last year. The group's Americas region outpaced the company's overall quarterly growth rate, generating a $14.1 percent revenue boost.
Avnet Chairman and CEO Roy Vallee described demand as softening in Europe.
Overall, Avnet reported Q1 revenue of $3.27 billion, a 25.7 percent increase over last year's Q1 revenue of $2.6 billion. The previous year's quarter did not include revenue from Memec Group Holdings Inc., a semiconductor distributor Avnet acquired in July. One-time charges associated with the integration of Memec dropped the company's Q1 net income 31 percent to $24.9 million from net income of $36.3 million in last year's Q1.
At Ingram Micro Inc., North American sales came in at $3.09 billion for the company's Q3 ended October 1. That's a slim increase over last year's $3.05 billion, but company officials said the third quarter of 2005 was particularly strong due to Microsoft upgrade renewals, among other factors.
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Ingram Micro reported worldwide Q3 sales of $6.96 billion, a 16 percent increase over the $6.02 billion produced in the year-earlier quarter. Net income for Q3 was $48.4 million compared with $77.3 million last year. The company attributed the 37 percent drop to one-time charges associated with Ingram Micro's outsourcing program and acquisition integration.
Kevin Murai, Ingram Micro's president and chief executive officer said North American demand "seems pretty solid."
Just the same, distribution executives like Murai keep an eye on broader economic trends. The big question mark, he said, is whether higher energy costs will affect demand.
Earlier this month, The Conference Board reported that the index of leading economic indicators declined 0.7 percent in September, following drops of 0.1 percent in both August and July. The board suggested that the country may be in for slower economic growth.
Murai said he hasn't detected a slowdown in the market to this point.
Indeed, any ripple effect from rising energy costs and resulting consumer impact may take a couple of quarters to reach distributors.
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