Transformation of Enterprise Computing Solutions
Throughout 2007, we continued on our journey to transform our Enterprise Computing Solutions business, and we began to reap the financial and operational benefits. Sales in Enterprise Computing Solutions increased 132 percent over the last three years, and this business now represents nearly a third of Arrow’s total revenues.
This business serves value-added resellers (VARs), companies that provide a wide range of computing solutions to customers, from small businesses to larger organizations requiring more complex solutions. The expansion of our Enterprise Computing Solutions business gives us a more balanced portfolio offering unique software- and solution-selling capabilities with the increased scale necessary to achieve greater levels of operating efficiency.
Enterprise Computing Solutions generated double-digit organic growth in 2007 in a market that grew in the midsingle digits. Driven by acquisitions and strong performance in the fast-growing segments of industry-standard servers, storage, software and services, this business grew revenues to $4.8 billion in 2007, a 91 percent increase from 2006. Operating income rose to $202 million in 2007, representing a 64 percent increase from the prior year.
We increased our geographic reach with the acquisitions of DNSint.com AG in 2005, InTechnology plc in 2006 and the Centia Group Limited and AKS Group AB in 2007. We gained significant cross-selling opportunities with the acquisitions of Alternative Technology in 2006 and KeyLink Systems Group (KeyLink) from Agilysys, Inc., in 2007. These acquisitions will accelerate our growth in the enterprise computing solutions market.
These strategic moves have significantly expanded our reach to resellers in 22 countries and territories. All of these acquisitions are on track, fully integrated, and are meeting our target financial goals.
Enterprise Computing Solutions unveiled an expanded portfolio of storage, software, security products and services. This focus on selling total solutions better enables our reseller and supplier partners to serve the growing technology needs of medium-sized businesses. This strategy leverages our vertical market expertise in the $87 billion midmarket – the fastest-growing segment in enterprise computing – which also helps to diversify our revenue stream.
We continue to make investments in this business, such as in the fast-growing markets of Eastern Europe and high-growth customer segments in North America. We are laying the groundwork to create further long-term opportunities for our vendors, resellers and customers.
Investing in the Long-Term Growth of Arrow
Looking ahead, we are confident of our ability to perform in any marketplace given our leading position, our broad base of approximately 140,000 customers and 700 suppliers, and our global network of more than 300 locations in 50 countries and territories. Entering new geographies and markets, expanding our product offerings and operating more efficiently will increase our ability to serve our customers.
Our disciplined operations and financial focus coupled with our market-leading position enable us to manage the company for consistent performance as we invest in Arrow for the long term.
We are transforming our systems to operate with standardized global processes through our ongoing enterprise resource planning (ERP) platform initiative. By moving to one global system, we will draw on best practices across the entire organization as we drive the company to higher levels of efficiency and productivity, allowing us to enhance business agility and customer service. This program is on track and on schedule, and we believe its benefits, when fully implemented, will in fact be even greater than when the program was first announced over a year ago.
In March 2008, Michael J. Long was named president and chief operating officer of Arrow, and elected to the board of directors. Joining Arrow in 1991, Mike held significant leadership positions in Arrow’s businesses, most recently as senior vice president of Arrow and president of Global Components. Prior to that, he was president of Arrow North American Computer Products (now Enterprise Computing Solutions). Mike has been a powerful contributor to Arrow’s growth agenda, and I am delighted that all of our businesses now will benefit from his leadership.
We also announced the appointment of Gail E. Hamilton, former executive vice president of Symantec, to our board of directors. Gail brings over 20 years of experience growing technology and services businesses in the enterprise market. Her proven track record of creating value for customers in this industry will be an asset to Arrow.
With 12,600 Arrow employees around the world as our solid foundation, we are committed to developing and cultivating the future leadership at Arrow for the ongoing success of the company.
In 2007, Arrow was once again named to Fortune magazine’s list of America’s Most Admired Companies. In addition, Arrow was selected as one of Forbes magazine’s 400 Best Big Companies in America. These and other awards and acknowledgements from customers, suppliers and the media reflect the importance we place on listening to the distinct needs of our customers.
Continuing to create value for our business partners and shareholders while investing in future growth and profitability is our priority. As our 2007 results demonstrate, we are generating solid results while investing in our vision for the future. We have made substantial progress on our journey in the last five years – we remain excited about and committed to what we believe is a strong, vibrant future for Arrow.
William E. Mitchell
Chairman & Chief Executive Officer
