Arrow Electronics, Inc. - Company Profile, Information, Business Description, History, Background Information on Arrow Electronics, Inc.

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History of Arrow Electronics, Inc.

With operations in North America, Europe, and the Pacific Rim, Arrow Electronics, Inc., based in Melville, New York, is the largest distributor of electronic components in the world. Sales, which reached $2.56 billion in 1993, were expected to exceed $3 billion in 1994, as the company continued a strategy of growth built on acquisitions, consolidations, and economies of scale begun in the late 1970s.

Arrow Electronics was founded in 1935 as Arrow Radio, a retail outlet in New York City selling used radio equipment. However, Arrow's emergence as a major distributor of electronic components dates from 1968, when the company was purchased by three recent graduates of the Harvard School of Business.

By the mid-1960s, Arrow was selling a variety of home entertainment products and also had moved into electronic parts distribution. In 1968, B. Duke Glenn, Jr., Roger E. Green, and John C. Waddell, then working for an investment banking firm in New York, recognized the potential for growth in electronic parts distribution, and bought the company for $1 million in borrowed capital. They also purchased a company that reclaimed lead from old car batteries.

Using cash from the profitable lead reclamation business, the new owners began expanding Arrow's inventory of electronic parts, which allowed them to service their customers better. They also sacrificed profits, through aggressive pricing, in order to build volume. By 1971, Arrow had become the tenth largest electronic parts distributor in the United States, although still far behind Avnet, Inc., the leading electronic parts distributor.

During the 1970s, Arrow continued its climb up the ranks of the largest distributors of electronic parts in the United States-&shyø number nine in 1972, number five in 1976, and number four in 1977-&shy′imarily through internal growth. In 1974, Arrow also became the first distributor of electronic parts to introduce an on-line computerized inventory system to speed up delivery. Then in 1979, Arrow acquired West Coast-based Cramer Electronics, then the country's second largest distributor of electronic parts, with $150 million in annual sales. Although the acquisition, financed with junk bonds, left Arrow heavily in debt, it more than doubled the company's revenues. Its chief rival, Avnet, was still three times as big, but for the first time, Arrow could claim a national presence. Arrow was listed on the New York Stock Exchange in 1979.

With the takeover of Cramer Electronics, Arrow appeared to have fulfilled the vision of its 1969 annual report, which had predicted: 'Significant opportunities exist for us in the electronics distribution business owing mainly to the fragmented competitive environment.... It appears likely that the future will belong increasingly to those few substantial distribution companies with the financial resources, the professional managements, and the modern control systems necessary to participate fully in the industry's current consolidation phase.' Arrow would close 1980 with $350 million in sales.

But in December of 1980, a blistering fire raced through the conference center of a hotel in Harrison, New York, killing 13 senior executives from Arrow, who had gathered for the company's annual budget meetings. Among the dead were Glenn, then chairman of the company; Green, then an executive vice-president, and all the department heads from the electronics distribution division. Only Waddell, then an executive vice-president, who had stayed behind at company headquarters to answer questions about a two-for-one stock split announced earlier that day, survived from the senior management team.

In a remarkable display of courage, Lynn Glenn, the widow of the company's chief executive, addressed employees at company headquarters the day after the fire. 'I don't know your faces,' she said, 'but I'd know your names, because Duke always talked about you. The company will go on. It won't be sold. You'll be getting calls from competitors, but don't be spooked. Keep the faith.' According to Fortune, she then 'fled into an adjoining office and burst into tears.' Despite her resolve, Arrow's stock fell 19 percent on the first day of trading after the fire, and fell another 14 percent before the month was out.

Waddell, who was named acting chief executive officer, embarked on what Fortune described as 'a one-man campaign to assure security analysts, money managers, and journalists that the company was stable and recovery was underway.' However, although sales held steady and none of the remaining managers were lured away to the competition, Arrow's stock continued to fall. That spring, the electronics industry was plunged into a recession, further crippling Arrow's recovery. By the time Arrow's stock bottomed out early in 1982, it had lost 60 percent of its value.

Meanwhile, Waddell also was trying to rebuild Arrow's senior management team. One of his first decisions was to go outside the company to recruit senior executives, rather than promote from within. That included finding someone to become chief executive officer. 'If I'd had my druthers,' Waddell later told Fortune, 'I would have said to the board, there's only one person who can be CEO of this company for the time being, because nobody understands this child the way Waddell understands it.'

However, the board did not the same opinion of Waddell, whom Fortune described as 'slender and elegant ... a figure from a bygone era, an apparition out of F. Scott Fitzgerald or The Thin Man,' and in July of 1981, Arrow lured Alfred J. Stein away from Motorola to be president and chief executive officer. Waddell remained as chairman. 'Stein was clearly the biggest management coup in the history of distribution,' Waddell told Fortune three years later. 'You should have seen the congratulatory letters and telegrams.'

Unfortunately, Stein, who also had worked at Texas Instruments, did not mesh well at Arrow. Rob Klatell, then company attorney, later told Fortune that with Stein's background in manufacturing, he 'kept looking for a facility to manage, and all he had were these crazy salesmen running around.' The board fired Stein early in 1982, and named Waddell to the position he felt he deserved. Six months later, Waddell recruited Stephen Kaufman, a former partner with McKinsey & Co., to be president of Arrow's electronics division.

In 1982, sales held steady at about $550 million and Arrow lost $1.19 a share. But in 1983, with the recession in the electronics industry over, sales reached $1.4 billion and Arrow earned 85 cents per share. In 1984, Fortune declared that 'Kaufman's arrival marks the moment at which Arrow's cruelly unconventional problem came to an end.'

In 1983, with Arrow celebrating its financial and emotional recovery, Waddell told Forbes: 'Our strategic exercise for a decade has been to get position. It cost us a lot of time, money and aggravation. [After the fire] the overwhelming reality in my life was that I had a job to do. Now it's time to turn our attention to cashing in on a ten year investment.'

The company made a major move in 1985 when Arrow purchased a 40 percent interest in Spoerle Electronic, which was already the largest distributor of electronic components in Germany. As Forbes later reported, Kaufman, who spent several years in Europe as a consultant with McKinsey & Co., was 'a confirmed internationalist. At the time, no other American electronics distributor had invested consistently in the fragmented European market, but Kaufman was convinced that Europe's internal trade barriers would fall and that Arrow could score big.' Since then, Arrow has increased its share in Spoerle to 70 percent, and has acquired 14 more European companies to become the largest electronics distributor in Europe.

However, Arrow first had to struggle through another downturn in the electronics industry, which struck about the same time the company unveiled the first fully automated robotic warehouse for electronics parts distribution in Brookhaven, New York. Annual sales fell by 30 percent and Arrow lost $45 million between 1985 and 1988. Waddell relinquished the role of CEO to Kaufman in 1986, although he remained chairman.

Arrow resumed its growth strategy in 1988 by acquiring Kierulff Electronics, then the fourth largest electronics distributor in the United States, for $125 million. Financial World noted, 'Although economies of scale in electronics distribution are notoriously hard to come by, the ... purchase complements Arrow's network nicely--and gives Arrow the $1 billion heft it has been looking for.' Arrow shut down all four Kierulff warehouses and, as Forbes reported, 'As if by a miracle, within a year Arrow's bottom line went from a $16 million operating loss in 1987 to operating profits of $10 million.' To reduce its debt, Arrow also sold its lead reclamation business in 1988.

In 1991, Arrow acquired Lex Electronics, formerly Schweber Electronics and the third largest distributor in the United States, and Almac Electronics Corporation, from their British-based parent Lex Service, Plc. The company also acquired a 50 percent interest in Silverstar Ltd. S.p.A., the largest electronics distributor in Italy. A year later, Arrow purchased Lex Service's distribution businesses in France and the United Kingdom. Arrow affiliate Spoerle acquired Lex Electronics in Germany.

In 1993, Arrow became the first electronics distributor to claim a global reach when it acquired Components Agents Ltd., the largest multinational Pacific Rim distributor with operations in Hong Kong, Singapore, Malaysia, China, and South Korea. The same year, Arrow purchased the distribution division of Zeus Components, Inc., a distributor of high-reliability electronic components for the U.S. military; CCI Electronique, a French distributor; and majority interest in Amitron S.A. and the ATD Group, electronics distributors in Spain and Portugal.

Arrow moved into Scandinavia in 1994 by acquiring Field Oy, a Finnish company, and the TH:s Group, the leading distributor in Norway. The company also acquired Exatec A/S, one of the largest electronics distributors in Denmark, and increased its stake in Silverstar to a majority share. Kaufman also became chairman of the company in 1994, with Waddell retaining the title of vice-chairman.

Although Avnet remained the largest electronics distributor in the United States, it was late entering the European market and Arrow was easily the global leader with 125,000 original equipment manufacturers and commercial customers around the world. The company also maintained more than $500 million in inventory from more than 200 leading manufacturers.

In its annual report for 1993, Arrow noted, 'In the global markets served by Arrow, electronics distribution is now nearly a $25 billion business, with growth prospects greater today than at any time in the past.' The annual report goes on to predict, 'As we embark on a second quarter-century of strategic leadership, Arrow will remain the company that others follow into the new world of electronics distribution.'

Principal Subsidiaries: Cramer Electronics; Spoerle Electronic; Arrow Electronique S.A.; Components Agents Ltd.; Silverstar Ltd., S.p.A.; Arrow-Field Oy; TH:s Electronik AB; Amitron-Arrow S.A.; ATD Electronica S.A.; Arrow Electronics Ltd.; Almac Electronics Corporation; Zeus Components, Inc.

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Further Reference

Alster, Norm, 'I Am a Growth Guy,' Forbes, February 15, 1993, p. 118.Bernstein, James, 'Unrivaled Rivals,' Newsday, June 13, 1994, p. C1.Magnet, Myron, 'Arrow Electronics Struggles Back,' Fortune, April 30, 1984, p. 77.McGough, Robert, 'Phoenix,' Forbes, June 6, 1983, p. 82.Rayner, Bruce C. P., 'Arrow's Kaufman: Planning a Profitable Path,' Electronic Business, May 1, 1987, p. 47.

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