Arrow Electronics CEO Michael Long has opened up on the rationale behind the sale of its IT asset dispositional (ITAD), revealing that it became harder to make it profitable as the market evolved.
Arrow announced that it would be axing its ITAD business last month, branding it "not sustainable".
On an earnings call transcribed by Seeking Alpha, Long talked investors through the changing dynamics in the business.
"If you remember when we got it, it was a business that really benefited customers to get rid of their old assets and we could refurbish to sell those in other marketplaces," he explained.
"It used to work via a profit share programme with those customers. What it's evolved into is customers having a warehouse full of products and wanting one cash cheque for them, and over the 10-year period that we had this business, those retail prices that you would charge for it became readily available on the internet.
"It became harder and harder to make a profit from the buy to sell. We really did see this coming and put some things into place to help that. But it became very clear that this value proposition for the customers was less interesting to them than when it started, and we didn't see the benefits going forward in our strategy."
Long (pictured) added that Arrow's wind down of the ITAD business, along with its "$130m cost optimisation programme", will allow Arrow to focus on next-generation technology such as artificial intelligence, industrial automation and smart cities.
The CEO was speaking as Arrow reported a sales decline for its Q2 period ending 29 June 2019 of one per cent, to $7.39bn.
Revenue in Arrow ECS, its enterprise IT division, declined two per cent to $2.07bn, and dropped three per cent in Europe.
However, Long said that he expects the distributor to bounce back soon, particularly if steps are taken to improve uncertainty in the global economy.
"We do expect that we are bouncing on the bottom right now," he said.
"Our belief is we are seeing some of the worst of it at this point, pending big declines in the economy and one region or another that we don't see.
"If there were a huge decline in the economy in China, obviously our gross margin would go up, volume would go down. If you had a huge disaster in Europe, you'd have a little bit of the opposite effect.
But if you take a look at past downturns, in 2009, I think margins went down about 300 basis points. And this time, we're sitting there a lot less than that. We actually believe the snapback will be quicker."
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