The year 2000 marked the first full year of recovery and expansion after three long years of the most severe recession in the history of our industry. This first year of the 21st century was characterized
by strong demand, long lead times for components, and constrained supplies, which led to firm prices and a rapid acceleration in our sales and earnings.
You may recall from previous letters that even during the 1997-1999 downturn, we continued to make significant investments in information technology, warehousing and logistics, new value-added and
supply chain management services, and training and development programs for our employees. Those investments served us exceedingly well in 2000. This unwavering focus on enhancing our capabilities and capacities allowed us to respond effectively to our customers’ growing demands and changing needs and positioned us to take full advantage of the industry upturn that occurred in 2000.
As a result of the industry growth and our expanded services, consolidated sales grew by nearly 40 percent to $13 billion, compared to $9.3 billion in 1999. Increased margins and operating efficiencies resulted in net earnings of $358 million, compared to $124 million in 1999. Our earnings per share climbed to $3.62—more than 75 percent above our prior peak in 1995, while our return on average equity rose to 21 percent, just above the 20.6 percent we saw at the peak of the last cycle. While favorable market conditions fueled much of this year’s performance, our growth and our return to our shareholders outpaced the industry.
Despite the challenges we faced during the previous downturn, we vigorously pursued our strategy of investing in services and technologies that support our customers’ need for faster and more efficient design, materials management, and manufacturing support. As a result, today we are much more than a provider of parts and products. We have become the knowledge, information technology, and supply chain management services provider to more than 200,000 customers around the globe. From product conception and design, to materials planning and management, to the factory floor, Arrow provides essential services that help our customers develop and manufacture their products.
Leading Provider of Products and Services
From the first time we gave a customer direct access to our MIS system in 1979, to our first EDI transaction in 1989, to our industry-leading Internet capabilities of today, Arrow has led the industry in system-to-system connections and electronic transactions. This past year, more than a third of the revenue in our Arrow Americas Components businesses was generated from transactions on our e-compassTM system, an on-line computer-to-computer connection for forecasting, inventory pipelining, ordering, and scheduling product deliveries. Our arrow.com PRO-Series suite of supply chain tools provides real-time and direct access to the inventory and ordering functions on Arrow’s host computer system. To provide greater access to our knowledge of component technology and availability, we successfully pilot tested a new web-based service for assessing components for performance, pricing, and procurement risk early in the design phase, and we began rolling it out to customers late in the year.
While developing our e-commerce capabilities, we continued to expand our warehousing, logistics, and value-added capabilities. The strength of our European business led to the opening of our first
Pan-European automated distribution facility in Venlo, the Netherlands. With the increased demand for programmable logic devices, Arrow value-added centers around the globe programmed more than 125 million components last year. To respond to the growing need for these services in the Asia/Pacific region, we began construction on a second programming center in Malaysia.
Building the Industry’s Strongest Global Network
While we experienced significant organic growth in each region, we continued to acquire companies to expand our presence in growing markets and customer segments. Extending our reach to Israel, we acquired a majority interest in Rapac Electronics Ltd. Our acquisition of Tekelec in Southern Europe and Jakob Hatteland Electronics in the Nordic countries significantly increased the scale and scope of our businesses in those regions.
In the Americas, we strengthened our presence in Mexico by acquiring a majority interest in Dicopel S.A. de C.V. Our acquisition of the Wyle components and systems divisions of the VEBA Electronics Group increased our design capabilities and the size of our computer products customer and supplier base in North America. In the fall, MOCA, formerly the open computing alliance subsidiary of Merisel, Inc., joined our North American Computer Products line-up of mid-range computing companies. Focused solely on Sun Microsystems enterprise solutions, MOCA offers the full range of Sun platforms, servers, workstations, and associated software products and services.
With these acquisitions worldwide, we now serve customers and suppliers in every major segment and in every market in which they choose to do business.
Changing Leadership and Continuing Traditions
This past year marked a transition in leadership as Stephen P. Kaufman stepped down after 14 years as CEO, and Francis M. Scricco, formerly President and Chief Operating Officer, was elected Chief Executive Officer. Fran joined Arrow in the fall of 1997 as Executive Vice President and Chief Operating Officer with responsibility for Arrow’s North American Operations. In 1999, with his appointment to President, his responsibilities were expanded to include responsibility for the day-to-day management of Arrow businesses worldwide, and in July he became only the fourth CEO since the birth of the modern-day Arrow in 1967. Steve will remain active as our Chairman, but on a less than full-time basis. The inside back cover of this report captures some notable moments from Steve’s years at Arrow’s helm.
In 1994, Arrow’s management team was challenged to aim to become a $10 billion global company by the year 2000. Our worldwide team of more than 12,000 employees not only met, but also surpassed that objective. As result of their efforts, Fortune magazine has for the fourth time recognized Arrow Electronics on its list of America’s most admired companies.
While we celebrate our past accomplishments, Arrow has never been a company to rest on its laurels. Meeting with our senior leaders around the world, Fran Scricco has already outlined his vision for Arrow for the next decade. That vision is to become the universally recognized first-choice and essential provider of products and services for the fast-growing electronics industry.
Our industry has always been subject to dramatic and sometimes painful business cycles, and, while we are pleased by the favorable market conditions of 2000 and our strong financial performance throughout the year, we must always be ready for the inevitable repeat of this cyclical pattern. Our response will be as it has been for the past 35 years: We will continue to invest in additional capacity, broader capabilities, and expanded services to give our customers greater access to our knowledge, supply chain expertise, and information and e-commerce technology, and continue our tradition of providing superior service to more than 200,000 customers and 600 suppliers around the world.
Our products and services play an essential–although often invisible–role in the manufacture of so many products that are a critical part of our everyday lives. This year’s annual report is a tribute to the discovery, the support, the innovation, and the knowledge of the Arrow employees around the world who make that possible.
