Arrow Electronics boss sees encouraging market portents
Sean Kerins, President and CEO of Arrow Electronics elaborated on industry trends during a Q2 conference call with analysts.
“There are a few dynamics currently at play,” he explained.
“Component lead times are coming down. We have seen consistent improvement in average lead times for the past few quarters. While they are not quite back to pre-pandemic rates across the board, there has been substantial progress. At the same time, inventory levels throughout much of our customer base remain elevated. Consequently, while longer-term electronics markets are expected to grow, the total addressable market for semiconductors according to multiple sources will clearly decline in 2023.”
He continued, “While it may take time to work through existing inventories, we are encouraged that in general and particularly in the West, end of market demand appears to be fairly steady. And in addition to improving lead times, we do see other indicators that speak to the underlying health of the business. In Q2, the pricing environment was largely stable. Our book-to-bill rates, though below parity, continued to hold steady.”
Kerin is also encouraged that Arrow’s design-related activity grew substantially in Q2, and there is continued adoption of the company’s supply chain services offering.”
Looking at performance in each of Arrow’s operating regions, Kerins revealed, “In Europe, we saw a slight sequential decline in revenue, but that was better than normal seasonality, and we achieved robust year-over-year growth from a resilient industrial market along with strength in automotive as well as aerospace and defence. In the Americas, we experienced a sequential and year-over-year decline in revenue. However, performance was stronger when adjusted for the further decline we experienced in the shortage market, which we now believe to have largely normalised. In addition, our focus on the market for interconnect, passive and electromechanical devices is helping to offset a more challenging semiconductor operating environment.”
Turning to Asia, Kerins saw continued softness in the Chinese market across both verticals, adding, “We did grow sequentially in the region with relative strength in sales from networking and communications infrastructure, along with modest improvement in parts of both the industrial and consumer segments. Profitability in our global components business remained above historic levels in the second quarter.”
“We continue to believe our value-added offerings, including demand creation, design services and supply chain management are contributing to our structural margin health and remain committed to our long-term profitability outlook for this business,” said Kerins.
He added optimistic thoughts as we look to the future.
“First, I want to be clear. I am very excited about the key markets in which we operate and believe the long-term growth prospects are promising. You consider just a few key trends: the electrification and connectivity of everything; the accelerated adoption of new technologies such as electric vehicles, renewable energy and artificial intelligence, just to name a few; and in the IT space, the growing relevance of hybrid and multi-cloud solutions all delivered on an as-a-service basis. And second, while the current market trajectories are challenging and a little bit uncertain, we're confident in our ability to generate cash in the near term, providing us the flexibility we need to serve our capital allocation priorities very effectively.”