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Arrow Electronics SWOT & PESTLE Analysis

ID : 52367053 | Mar 2018

COMPANY PROFILE - Arrow Electronics

Business Sector : Consumer Electronics

Operating Geography : North America

About Arrow Electronics : Started in 1935, Arrow Electronics is among the fortune 150 companies (Rank 119) and is a worldwide provider of products, specialized services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. It is headquartered in Melville, New York and employs 18700 people worldwide in more than 465 locations in over 90 countries as of 2018. Arrow specializes in distribution and value- added services relating to electronic components and computer products and serves around 900 suppliers and 125,000 OEMs, contract manufacturers and commercial customers. Its vision is to be a premier electronics Company in the world. Its mission is to strive for sustainable solutions and maximizing waste utilization in offices, facilities and distribution centres.

Arrow Electronics Revenue : US$26.81 billion - FY ending Dec 2017 (year on year growth of 13%)

Competitive Analysis of Arrow Electronics

The SWOT analysis for Arrow Electronics is presented below:
Strengths
Weaknesses
1. One of the widest varieties of products, services and solutions.
2. Extraordinary performance upon entering new markets
3. Continuous improvement through employee training and automation
4. Earned excellent reputation through high levels of customer satisfaction
1. Unclear USP and positioning of products
2. Supply of innovative products is limited and not comparable to competitors
Opportunities
Threats
1. Focus on increasing sales in Asia for Components and America for ECS
2. Strengthening its focus on inorganic growth
3. Huge investments due to stable free cash flows.
1. Loss of small market share due to competitive new entrants
2. Seasonal Demand of major products

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Detailed SWOT Analysis of Arrow Electronics

 

Strength

1. One of the widest variety of products, services and solutions: Arrow provides superior value to its industrial and commercial customers by providing a huge variety of products, solution and services. Arrow is a provider of technology solutions to a wide variety of markets like the telecom industry, the IS (Information System), transportation, medical and healthcare business, the electronics industry- both industrial as well as consumer. Arrow is also a huge provider of services namely new product design services and design support, materials planning, inventory management, assembly services and reverse logistics, programming, electronics asset disposition (EAD) and a number of online supply chain tools.

2. Extraordinary performance upon entering new markets: Arrow electronics has expertise in the art of entering new markets with its strong and stable free cash flows, sufficient resources and superb ‘Go To Market’ strategy and creating success stories by generating more revenues from diversified sources and lowering the economic cycle risk in the operating markets eg. while penetration in the UK market Arrow joined Voltaire’s ‘adVantage Partner program’. Arrow ECS has ‘Net-New Market Penetration Program’ launched back in 2012 which selects the qualified solution providers and provides market funding to ramp up sales and help capturing new markets.

3. Continuous improvement through employee training and automation: Arrow is one of the few companies in the segment which is famous for skilled as well as highly motivated workforce. Over the years it has spend tremendously in the training and development of the employees through various round the year learning programs aimed at emerging technologies like cloud, security, data analytics and mobility and was amongst top 20 IT training companies for second consecutive year by Training Industry.com. Not only this because of mass scale automation of operating activities, the quality of the Arrow Electronics products have become more consistent and the company can easily respond by scaling up or down as per the market demand of products which are generally cyclical in nature.

4. Earned excellent reputation through high levels of customer satisfaction: Arrow electronics is among the most reputed electronics companies in the United States. This reputation has been built up over the years because of exceptionally dedicated CRM department which not only cares about high levels of customer satisfaction for the existing customers but also maintains good brand equity among the potential future customers. Arrow is known for “connecting customers to the right technology at the right place at the right time and at the right price” by providing specialised services across product lifecycle.

Weakness

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Opportunity

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Threat

1. Loss of small market share due to competitive new entrants: Stable profitability in the segment has invited intense competition especially over the last two-three years. With the increasing number of players there is a downward pressure on sales because the competitors are paying higher margins to the local distributors. Moreover, Arrow electronics has lost small market share in niche categories and this may prove to be signs of danger in upcoming future. Thus, it is high time to strengthen internal feedback mechanism connecting directly from ground sales team.

2. Seasonal demand of major products: The demand of Arrow’s most profitable products is seasonal and hence majority sales of company are cyclical with marked periods of boom and slump. Any undesirable and unlikely event occurring during the peak demand season can have adverse impacts on the profits of the company in short to medium terms.

References

Business Wire , August 25, 2017 : https://finance.yahoo.com/news/arrow-electronics-helps-create-better-182600624.html

Arrow Investors Relations: CFO Commentory 2017: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Njg3NzMyfENoaWxkSUQ9Mzk3OTkxfFR5cGU9MQ==&t=1

Arrow Research and events: https://www.arrow.com/en/research-and-events

Greg Avery, American City Business Journals •February 8, 2018: https://finance.yahoo.com/m/677f730e-bffe-37d0-88a8-e121c95a8df9/arrow-electronics-posts.html

Business wire: 6 feb 2018:Arrow Electronics Reports Fourth-Quarter and Year-End 2017 Results: https://www.businesswire.com/news/home/20180206005402/en/Arrow-Electronics-Reports-Fourth-Quarter-Year-End-2017-Results

Electronics components manufacturing in India: 2017 ElectronicsB2B.com: http://www.electronicsb2b.com/industry-buzz/electronic-components-manufacturing-in-india-poised-for-growth/

Moody's rates Arrow Electronics' new notes at Baa3, outlook is stable,June 01, 2017: https://www.moodys.com/research/Moodys-rates-Arrow-Electronics-new-notes-at-Baa3-outlook-is--PR_367632

The PESTLE/PESTEL analysis for Arrow Electronics is presented below:
Political
Economical
1. The US tax reforms zapped company’s profits
2. Rules regarding ‘conflict minerals’ mined from Democratic Republic of Congo
1. Stability in profits due to global economic recovery
Social
Technological
1. Solution based subscription – a growing social trend1. ARM mbed Partner Ecosystem
2. Enhancing IOT capabilities through acquisition of e-Infochips
Legal
Environmental
1. The Export Administration Regulations for non US sales
2. Stringent Laws that needs to be followed in operating countries
3. Faced reputational challenges because its internal controls were ineffective to detect fraud.
1. Focus on environment in company’s policy and practice
2. Comply with numerous environmental certifications
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Detailed PESTLE Analysis of Arrow Electronics

 

Political

1. The US tax reforms zapped company’s profits: In 2017, Arrow Electronics Inc. had made record sales and the results were extraordinarily high as compared to the expectations. This is evident from the fact that for Q4’17 Arrow predicted sales in the range of $ 7.2 - $ 7.6 Bn. but the actual sales were above high end and equaled $ 7.63 Bn. But it was because of Donald Trump’s policy of repatriating profits to the US with tax and tariff changes that the profits were sharply declined as $125 million was the total loss in profits that the company suffered. It was because of this negative impact that the earning per share of the company dropped by $1.40 per diluted share.

2. Rules regarding ‘conflict minerals’ mined from Democratic Republic of Congo: As per the disclosure requirements regarding use of ‘conflict minerals’ mined from the Democratic Republic of Congo and adjoining countries, Arrow must publicly disclose the process it took to determine whether it manufactures any products containing conflict minerals. Because the company's material sourcing is broad-based and multi-tiered, and different suppliers provide conflict mineral information in different manner, it is difficult to verify the origins for conflict minerals used in all of the products it sells. Thus, company may face reputational challenges if it is unable to sufficiently verify the origins of conflict minerals used in its products when asked.

Economic

1. Stability in profits due to global economic recovery: As per the Moody’s research of June 2017, stable profit margins which is around 12% now, will continue for Arrow electronics in the coming years due to the global economic recovery growing at a rate of 3.6% in 2017 and is expected to increase further in 2018. Also, the trends of lower margin sales in the Asian region will continue in the coming years as well and these factors would lead to stability in profit margins.

Social

1. Solution based subscription – a growing social trend: With the advent of internet and technologies such as Internet of Things (IoT), innovation has become more accessible to a broad range of customers. Customers have evolved and are not just interested in solving technical problems but also want to monitor the improved performance backed up with data. For example customers had a pacemaker that had sensors, the company could charge for a subscription for heartbeats or if the shoes that had sensors, the company can charge for the data for the distance covered daily, etc. These subscription models are changing the way the industry works.

Technological

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Legal

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Environmental

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References

Arrow Corporate and Social Responsibility and Sustainability report 2016: https://www.arrow.com/s-tech/wp-content/uploads/2017/09/2016-Arrow-CSR-Report.pdf

PR Newswire,January 10, 2018: Milbank Advises Arrow Electronics Inc. on Acquisition of Engineering Firm e-Infochips: http://www.prnewswire.com/news-releases/milbank-advises-arrow-electronics-inc-on-acquisition-of-engineering-firm-e-infochips-300580169.html

Zacks Equity research, Jan 3 2018: Arrow electronics buys einfochips: https://finance.yahoo.com/news/arrow-electronics-buy-einfochips-expand-134601709.html

Investors Relations : Arrow Electronics Inc.: http://investor.arrow.com/phoenix.zhtml?c=85834&p=irol-reportsother

News Release: Arrow Electronics Inc.: http://investor.arrow.com/phoenix.zhtml?c=85834&p=irol-newsArticle&ID=2330517

Business wire: 6 feb 2018:Arrow Electronics Reports Fourth-Quarter and Year-End 2017 Results: https://www.businesswire.com/news/home/20180206005402/en/Arrow-Electronics-Reports-Fourth-Quarter-Year-End-2017-Results

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Arrow Electronics SWOT and PESTLE analysis has been conducted by Farheen Rahman and reviewed by senior analysts from Barakaat Consulting.

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