ARROW ELECTRONICS, INC.

Arrow Electronics, Inc. sources and engineers technology for manufacturers, service providers, and users of enterprise computing solutions, operating in the electronic components and enterprise computing solutions distribution industry. The company maintains over 140 sales facilities and 39 distribution and value-added centers, serving over 85 countries. The company has operations in each of the three largest electronics markets: the Americas, EMEA, and the Asia/Pacific regions.

The company operates in a highly competitive environment against other large multinational and national electronic components and enterprise computing solutions distributors, as well as numerous smaller, specialized competitors. The company also faces competition from its suppliers and from companies entering logistics, catalog distribution, e-commerce, design services, and supply chain services markets. The company believes it is well equipped to compete due to its comprehensive product and service offerings, highly skilled work force, and global distribution network.

Arrow generates revenue by distributing electronic components to OEMs and EMS providers through its global components segment and by providing enterprise computing solutions to VARs and MSPs through its global ECS segment. Substantially all sales are made on an order-by-order basis, rather than through long-term sales contracts. The company also generates fee-based revenue through supply chain services, engineering and design services, and integration services.

The global components segment markets and distributes electronic components, enabled by value-added capabilities and services. Within this segment for 2025, sales of approximately 72% consist of semiconductor products and related services; approximately 16% consist of IP&E products; approximately 7% consist of computing and memory; and approximately 5% consist of other products and services. The global ECS segment is a leading value-added provider of comprehensive computing solutions and services, with a portfolio including datacenter, cloud, security, and analytics solutions. Within this segment for 2025, sales of approximately 27% consist of software applications, 25% consist of storage, 15% consist of security, 14% consist of compute, 5% consist of data intelligence, 5% consist of networking, and 9% consist of other products and services.

In 2025, approximately 70% of the company's sales were from global components, and approximately 30% of the company's sales were from global ECS. The company's global ECS segment supports customers through ArrowSphere, a software and cloud marketplace and management platform. Additionally, global ECS partners with certain suppliers through strategic outsourcing agreements, which consist of certain non-cancellable multi-year purchase obligations.

On October 31, 2024, the company announced a multi-year restructuring plan (the Operating Expense Efficiency Plan) designed to improve operational efficiency. The company expects to incur pre-tax restructuring charges of approximately $200.0 million ¹ under the Plan. As of December 31, 2025, $156.4 million ² has been incurred. The company repurchased 1.3 million ³ shares of common stock for $149.9 million ⁴ in 2025 under its share repurchase program. During 2025, the company recorded a $99.0 million ⁵ gain on the sale of an investment in certain equity securities. The company repaid in full the $350.0 million ⁶ principal amount of its 4.00% notes due April 2025.

Consolidated sales for 2025 were $30,852,935,000 ⁷, compared to $27,923,324,000 ⁸ in 2024, an increase of 10.5% ⁹. Net income attributable to shareholders was $571,266,000 ¹⁰ in 2025, compared to $392,074,000 ¹¹ in 2024. Diluted earnings per share attributable to shareholders was $10.93 ¹² in 2025, compared to $7.29 ¹³ in 2024. Gross profit margin was 11.2% ¹⁴ in 2025, compared to 11.8% ¹⁵ in 2024. Operating income was $822,223,000 ¹⁶ in 2025, compared to $768,557,000 ¹⁷ in 2024.

The company expects to substantially complete the Operating Expense Efficiency Plan by the end of fiscal year 2026. Under the Plan, the company anticipates incurring pre-tax restructuring charges of approximately $200.0 million ¹⁸, which is an increase of $15.0 million ¹⁹ compared to the original estimate of $185.0 million ²⁰. The company currently expects to incur approximately $100.0 million ²¹ of employee severance and other personnel cash expenditures; approximately $65.0 million ²² of non-cash asset impairments, inventory write-downs and foreign currency translation adjustment write-offs; and approximately $35.0 million ²³ of other related cash expenditures.

The company anticipates that demand for components will continue to gradually increase, aided by the market focus on AI technology. Within global ECS, the company has entered into certain non-cancellable multi-year purchase obligations through 2032, designating it as the exclusive partner for certain products. Heading into 2026, the company is continuing to adapt to best service these obligations and is committed to focusing on optimizing, enhancing and scaling these offerings. The company is anticipating there could be additional losses in the coming quarters on certain agreements.

As a result of the Operating Expense Efficiency Plan, the company expects to reduce annual operating expenses by approximately $90.0 million ²⁴ to $100.0 million ²⁵ by the end of fiscal year 2026. The company's global components gross profit margins decreased during 2025 due to regional mix shifting toward the Asia/Pacific region and changes in customer and product mix. Global ECS gross profit margins decreased due to $18.3 million ²⁶ in net losses related to underperformance of certain non-cancellable multi-year purchase obligations and a shift in sales mix.

The company expects capital expenditures to be approximately $100.0 million ²⁷ for fiscal year 2026. The company's committed and undrawn liquidity stands at over $2.5 billion ²⁸ in addition to $306.5 million ²⁹ of cash on hand as of December 31, 2025. As of December 31, 2025, approximately $172.9 million ³⁰ remained available for repurchase under the share repurchase program.

The company's global business continues to face uncertainty around ongoing developments related to U.S. and foreign tariff policies and is continuing to evaluate and further implement mitigating actions. The company cannot currently predict whether the trend of marginal increases in revenue and cost of sales due to price increases will continue or how it may impact future quarters due to geopolitical and economic uncertainty. The company also faces uncertainty from the cyclical nature of the semiconductor industry, which historically has experienced fluctuations in product supply and demand.

The company faces material risks from its reliance on a limited number of suppliers, as sales from one supplier accounted for approximately 8% ³¹ of consolidated sales in 2025, and distributor agreements are typically cancellable at any time or on short notice. The company's non-U.S. sales represented approximately 66% ³² of sales in 2025, exposing it to risks from international trade disputes, tariffs, and currency fluctuations. The company recorded net losses of $18.3 million ³³ in 2025 due to lower demand and profit expectations on certain non-cancellable multi-year purchase obligations within global ECS, and anticipates there could be additional losses in the coming quarters. The company's global components segment experienced a cyclical downturn, and sales of semiconductor products represented approximately 50% ³⁴ of consolidated sales in 2025, making the company vulnerable to industry fluctuations. The company's subsidiaries in China were temporarily added to the BIS Entity List in October 2025, which had an adverse impact on operating results for the fourth quarter of 2025.

Management's message emphasizes the company's strategic initiatives, including shifting toward higher-margin value-added services in global components and enabling customer cloud-based solutions through ArrowSphere in global ECS. The company is focused on efficient deployment and reallocation of working capital investments to maximize margins as the market recovery progresses. Management notes that while leading indicators are incrementally improving, the company cannot currently predict whether this trend will continue due to geopolitical and economic uncertainty. The company is committed to focusing on optimizing, enhancing and scaling its non-cancellable multi-year purchase obligations within global ECS.