Arrow Electronics Inc. is intensifying its cost-cutting efforts with plans to lay off an additional 1,000 workers, close some facilities and pare back other operating expenses in response to continued pressures in the distributor's components' business.
Although Arrow's second quarter net income exceeded expectations, the company said this was due to stronger sales of computer products and that its main electronic components business further deteriorated during the period. As a result, Arrow's third-quarter results may be "somewhat worse than the second," according to president and chief executive Francis Scricco.
The Melville, N.Y., company posted profits of $7 million, or 7 cents per share, in the three months ended June 30, down 92%, from $84 million, or 75 cents per share, in the year-ago quarter. Revenue slid 21%, to $2.5 billion from $3.2 billion in the second quarter of 2000.
Arrow's gross margin remained relatively unchanged at approximately 16%, but its selling, general and administrative expenses rose as a percentage of sales to 11.9%, from 9.1% in the year-ago quarter, hence the decision to further trim payroll.
"Our components businesses are continuing to experience sequentially declining sales as electronic equipment OEMs and contract manufacturers, particularly in the communications and networking segments, are still ordering at greatly reduced rates in order to work off their own inventories of components and finished products," Scricco said, in a statement.
Arrow said it will take a one-time reorganization charge during the third quarter and expects that the cost-cutting actions will help reduce its expenses by $100 million. It is also reviewing its Internet investments and may reduce the book value of the unit.
"These actions, while difficult, are necessary to appropriately structure and size our company to match our current level of business," Scricco said.
