Market analysis

The EMS sector performed well in Q4'13 compared to Q3'13 with average revenue growth of 17% (for companies in this analysis). Days inventory also decreased an average of six days QoQ, clearly indicating an uptick in demand. While revenue improved, margins declined for most of the companies on a sequential basis due to higher cost-of-goods-sold and operating expenses. Year-over-year, gross margins improved by 1.5%.

Arrow Electronics reported Q4'13 net income of US$134.8mn, or US$1.32 per share, compared with net income of US$174.7mn, or US$1.62 per share on a diluted basis in Q4’12. Q4'13 sales of US$6.15bn increased 14% from prior year sales of US$5.40bn. Sales in the Asia-Pacific region increased 9% YoY, with significant contribution from China. Global Enterprise Computing Solutions (“ECS”) led the strong growth in overall revenue with Q4'13 sales of US$2.72bn, an increase of 23% YoY. Improved profitability was also realised due to significant margin improvement. Arrow’s net income for 2013 was US$399.4mn, or US$3.85 per share on a diluted basis, compared with net income of US$506.3mn, or US$4.56 per share in 2012.

Flextronics’ net sales were US$7.2bn in Q4’13, higher than the company’s previous revenue guidance of US$6.5bn to US$6.9bn. The company’s adjusted earnings per diluted share of US$0.26 in Q4'13 was also higher than the company’s prior guidance of US$0.21-$0.25. The increase in revenue was propelled by a 57% increase in the High Velocity Solutions segment.

Flextronics adjusted operating income increased US$28mn or 18% sequentially to US$187mn. GAAP operating income of US$174mn increased US$24mn from US$150mn in the prior quarter.

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Scott Adams
Global leader
Computers & networking
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