Gates/Arrow Builds Federal Presence, Partnerships

By Richard McCaffery, Staff WriterSince executives at Gates/Arrow Distributing Inc. lured Tim Collins away from a Washington-based reseller last fall, the company's new vice president of sales has added mass and focus to his division's government presence."They wanted to turn it up an octave," Collins said. So far, Collins has more than doubled the Greenville, S.C.-based company's government staff from 11 to 24, and put six of the new employees in Washington. Three work exclusively with major vendor partners Compaq Computer Corp., Hewlett-Packard Co. and IBM Corp., and the other three work with systems integrators and resellers. Gates' government sales have nearly doubled since last year, and Collins expects the unit to be profitable. Gates/Arrow Distributing is a division of Arrow Electronics Inc., the world's largest distributor of electronic components and computer products to government and commercial clients. Arrow sells everything from semiconductors to desktop computers and peripherals from more than 600 suppliers. Gates/Arrow Distributing sells computer systems, software and peripherals in the United States and Canada. On top of the hiring push, Gates/Arrow received a General Services Administration schedule in July that it will manage on behalf of resellers. The move, which many distributors avoid because they do not want to give the impression they are working directly with end users, should open up government opportunities for resellers that do not maintain their own GSA schedules, Collins said. "It gives manufacturers the ability to access value-added resellers in all regions of the United States," Collins said. "It gives them a vehicle to close business." He stressed that Gates is not doing business directly with end users through the schedule. "This is an accommodation for the reseller," he said. Collins is waiting to see how the government division, which does not have a formal name, performed in its first month of holding a GSA schedule. The company has 50 government resellers, but none have signed on to use the schedule yet, according to Collins. Products from four vendors, Hewlett-Packard, IBM, ViewSonic Corp. and ATI Technologies Inc., are available via the schedule.Arrow Electronics had sales of $8.3 billion last year, up 8 percent from sales of $7.7 billion the year before. But it is a tough time to be a distributor. Computer prices have fallen, the supply of electronic components continues to outstrip demand, and competition is fierce. Arrow's net income slipped from $204 million in 1997 to $146 million in 1998. In fact, the company's net income has decreased for two years as a result of lower operating income and increased interest payments. For the quarter that ended June 30, Arrow reported income of $32 million, minus a one-time charge, on sales of $2.3 billion. That compares with income of $36 million and sales of $2 billion from the same quarter a year ago. Despite the year-over-year slip, second quarter income topped first quarter income, a feat the company has not accomplished since the fourth quarter of 1997, according to Stephen Kaufman, Arrow's chairman and chief executive. The company's stock is trading around $20 a share. It has climbed steadily since February, when it was trading at less than $15. Gates/Arrow's net income for the first six months of 1999 was $60 million on sales of $4.5 billion, compared to income of $78 million on sales of $4 billion from the same period last year.Collins said the company does not break out government revenue for Gates/Arrow, so he would not estimate what percent of the division's sales go to federal, state and local government resellers. He did say the government division has nearly doubled its revenue since last year, and he expects the division will be profitable. It also made a profit last year.The company sells a full line of computer products but focuses on products in the mid- to high range, such as IBM's high-end servers and Compaq's Alpha line of products. More than 50 percent of the company's sales fall into this category.Gates' reseller customers include Government Technology Services Inc., Chantilly, Va., where Collins formerly served as vice president of product marketing; Federal Data Corp., Bethesda, Md.; and Intelligent Decisions Inc. of Chantilly, Va.Arrow has made two other major moves in the last two months. On July 6, the company outlined a restructuring to place Gates/Arrow along with several subsidiaries under the umbrella of the Arrow North American Computer Products Group. And on July 21 Gates announced Hitachi Data Systems, a division of Hitachi America Ltd. of Tarrytown, N.Y., had picked Gates/Arrow as a distribution partner.It is the first time Hitachi Data Systems has partnered with a distributor to sell its storage products, according to Phil Townsend, director of channel marketing at Hitachi Data Systems North America. Other partners selected include Tech Data Corp. of Clearwater, Fla., and Wyle Electronics of Irvine, Calif. Hitachi plans to stick with three distributors as it attempts to boost its reseller base from five companies to 350 by the end of April 2000. "The key driving force for moving to a two-tier [distribution system] is we want to expand coverage from the Fortune 500 companies to the Fortune 2500, and also start to address the more solution oriented needs of the customer," Townsend said. "The best way to do that is to leverage partnerships with the channel."The Hitachi deal does not extend to government resellers at this point, but both sides are interested in pursuing it, Townsend said. "We are always looking for partnerships that offer value in vertical niches," he said. "Government is a very important niche."The consolidation should give Gates' resellers a single point of contact for questions regarding computer products purchases in North America, thus improving efficiency and customer satisfaction, said Mike Long, president of Arrow North America Computer Products.XXXSPLITXXX- Greenville, S.C. Distribution of computer products and services in the United States and Canada $8.3 billion