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Article Excerpt
BRIAN ALEXANDER, ANALYST, RAYMOND JAMES & ASSOCIATES: As you can tell, the format will be a fireside chat. We've got Paul Reilly, CFO of Arrow Electronics, with me this morning. So I will kick it off with a series of questions and then we will open it up to the audience.
Paul, just referring back to your guidance for the fourth quarter in the components business, which for those of you who don't know, it's about 70% of the overall Company -- you guys are looking for a sequential decline of about 13%. So, just remind investors how that decline compares to normal seasonality and just kind of walk around the world and let us know what you're seeing in each of the major geographies and the end markets on the components side.
PAUL REILLY, SVP, CFO, ARROW ELECTRONICS, INC.: Sure, Brian; and thanks, everybody, for joining us this morning. When we were looking at the guidance for the fourth quarter, we actually went region by region, trying to understand the pace of business. And, coming out of the month of September into the first half of October, we really saw that September we had not seen the same pace of recovery that we normally see seasonally. We also saw that many of our supplier partners were less confident, if you will, about the fourth quarter.
So generally, each of our regions around the globe in the components business has expectations that there will be less than normal seasonality. And, in fact, in some regions that's more pronounced and reflective of the economic pressure they are under; I would consider that to be North America and Europe. And then in Asia-Pac, in components, we are seeing also less than normal seasonality -- a little bit different, there. Yes, we're expecting a slowdown in the economy or we were expecting a slowdown in the economy. But also, we were coming off a very robust Q3 where we had outperformed the market by about 2X in sales growth.
So we said, hey, we are coming off of a high point, if you will, a very, very strong quarter, a bit of a slide down. So normally in Asia-Pac, I think expectations would be about 2% to 4% contraction. We were talking about 4% to 8% to 10% as an example, once again off of a very strong Q3 surge, and was probably our fourth quarter in a row where we were 1.5 to 2X the overall market growth.
In Europe, excluding impact to FX, which has come down dramatically if you look at it year over year and even compared to the third quarter, we were looking at to be 200 to 400 basis points less of normal seasonality -- the same type of pattern we expected to see in the North American marketplace also.
BRIAN ALEXANDER: So obviously, it's weak around the world. How is the weakness in demand affecting the competitive dynamics? Because the industry is a lot more consolidated now than it used to be in comparing the prior downturns, thanks to a lot of acquisitions you have made and your major competitor has made. So has the consolidation led to a more rational environment from a pricing perspective, or is it just equally as tough now as it has been in prior downturns?
PAUL REILLY: Right. It's very interesting because we have seen three different factors impact us. One is a change in mix where we have grown very rapidly in Asia-Pac, as I mentioned. We've had some of our own challenges, quite honestly, with some regions that had been very strong for us not performing at the same level.
But on a macro basis we've seen some pricing pressure, but it's in 10's and 20's and 30's of basis points, not dramatic decline in the overall pricing environment. So there is still some competitors out there, and our largest competitor is a very strong company, great competitor, very rational in how they approach the market. But there are still what I would call smaller niche competitors that sometimes are willing to do -- to be a little bit more irrational.
It's interesting; that's an opportunity for us. When you look at it, our financial strength right now, our balance sheet, is incredibly strong, the strongest it has been in ten years. And if you go back to the last downturn, 2001 time period, the difference in night and day. So we can afford to be more competitive now.
I wonder, though, some of these weaker competitors, if they are going to be able to withstand the shock...
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