‘All our vendors basically tell us that it’s becoming more and more difficult for them to maintain lead times, to be able to build products. … So basically, we try to make sure that we are more clever than our competitors and make the right choice and place the orders with the right momentum,’ says Eric Nowak, president of Arrow Electronics’ global enterprise computing solutions business.
However, Eric Nowak, president of Arrow Electronics’ global enterprise computing solutions business, told CRN in a wide-ranging discussion about distribution that the impact from those macroeconomic factors actually matters less than many believe.
“If you’re investing and you’re in the sweet spot, then basically the 2 [percent] or 3 percent plus or minus of the economy doesn’t matter compared to the 20-plus-percent growth that you have in the cloud or in some other space,” Nowak said. “The growth in IT is so superior to the macroeconomic decrease that it makes no difference.”
[Related: IT Distributors Warn Memory Shortages, Supply Chain Strains Impacting The Channel]
Even so, there’s no escaping the impact of the current memory and storage device shortage, Nowak said.
“All our vendors basically tell us that it’s becoming more and more difficult for them to maintain lead times, to be able to build products,” he said. “Internally, we have a manufacturing business, AIS [Arrow Intelligent Solutions]. And yes, we are seeing the SSD and memory shortage. So basically, we try to make sure that we are more clever than our competitors and make the right choice and place the orders with the right momentum.”
Nowak, who met with CRN at the recently concluded Global Technology Distribution Council (GTDC) Summit in Oceanside, Calif., also provided an update on the search for a new CEO following last year’s departure of Sean Kerins.
Here is more of CRN’s conversation with Nowak.
In terms of macroeconomic issues’ impacts on distribution, what are some of the big things you and Arrow are seeing?
I will give you my usual answer. In this IT world that is pretty immature, macroeconomic conditions don’t really matter if you’re doing the right things. If you’re investing and you’re in the sweet spot, then basically the 2 [percent] or 3 percent plus or minus of the economy doesn’t matter compared to the 20-plus-percent growth that you have in the cloud or in some other space. The growth in IT is so superior to the macroeconomic decrease that it makes no difference. Having said that, for the traditional IT business it’s true that basically we are in a situation where in Europe, some of the countries are struggling, but quite frankly, we at Arrow don’t see it. Once again, we are in a business that is growing, whatever the case. So basically, if the economy is good, people are investing. If it’s not good, people are investing to be more efficient, more productive. People understand that they need to go to cloud and AI. So they are investing massively here. They understand that before they do this, they need to make sure that the infrastructure is basically ready to go and have to invest. So that doesn’t make a big difference for us.
Let’s turn the question around a bit. How are those factors impacting your customers? I ask because we’re looking at a big issue right now, the memory shortage.
It’s a different story. We haven’t seen an impact yet. We are in the enterprise market. We don’t sell PCs. We don’t sell small stuff. We are 75 percent cloud services and software. So we have a small hardware business, 25 percent. It’s not really small, but we’re mostly in the enterprise. We do storage and so on. So basically, it’s not the same as broadline distribution whatsoever. So we haven’t seen the impact yet, but all our vendors basically tell us that it’s becoming more and more difficult for them to maintain lead times, to be able to build products. Internally, we have a manufacturing business, AIS [Arrow Intelligent Solutions]. And yes, we are seeing the SSD and memory shortage. So basically, we try to make sure that we are more clever than our competitors and make the right choice and place the orders with the right momentum. But it’s tough, absolutely.
Manufacturers are telling their partners that order validities of 30 days are no longer possible.
Absolutely, there is an impact on the timing and the ability to produce. There is an impact on the price. And for sure, the proposals we are making now are valid for one week, not one month. The validity is strongly tied on the prices.
How does the pricing validity issue impact your AIS business?
We need to fight against everyone so we have the supply. And at the moment, we do not have any certainty. So basically, we place an order for disk or memory. The providers don’t give us a lead time. They do what they can, and we take the goods when they come. We are taking a lot of orders in advance, and we see customers placing their orders in advance because they understand the lead times will be higher than expected. They understand also that very probably, as the year goes on, it will be worse and worse. So proportionally, we see more hardware orders at the moment than software orders. Basically, people need to place both. They first start with the hardware, and hope that the delivery will be shorter.
Are you proactively reaching out to your partners to tell them to place orders early?
No, it’s very well known in the industry that there are shortages, with SSDs first and now memory.
What about hard drives? Western Digital is telling its customers that its hard drive capacity is already sold for this year and next.
Yes, some of our suppliers have already made their supply for the year.
You said that 75 percent of your business is cloud services and software. Have tariffs, shortages or price increases caused your channel partners to shift any business from hardware toward more cloud and software?
Of course it’s tough. But basically, as long as we need hardware to run the software, they will be obliged to buy some hardware. You may argue that they have the choice to go to the cloud, which they do for part of it. That’s why our cloud business has been growing at 30 percent-plus every year for years and years, and it continues to do so. And so basically there are some shifts, but there is still a need for more hardware and more storage. Hardware comes with cloud and AI. The cloud move is a hybrid one, so you still need some hardware. And for AI, you need to redo your infrastructure. Not everything will go to the cloud. So basically, we see the infrastructure business is growing nicely. It’s driven by the hybrid cloud model and the AI.
Are you seeing any opposite movement, repatriation from the cloud to on-premises?
No. There are probably some examples. But basically, we are a distributor. So our market is mostly midmarket. It’s small and medium-size enterprise, not the big guys. So it could be that one or two big guys have decided to remove some part of the workload from the cloud, but that’s mostly the big guys, maybe. I have no idea on the amplitude. But the midmarket businesses don’t come back.
What are some of the biggest issues that your channel partner customers are facing, and what is Arrow doing to help mitigate them?
For the legacy partners, their biggest issue is to make their journey to the cloud. Basically, they need to completely change their business model. They need to change the way they work. They need to change what they are doing with their customers. What we are doing is basically everything around the platform. We are providing a platform that allows every partner to do whatever they need to manage their subscriptions in the cloud, including the deployment, the management, the orchestration, and so on. These guys cannot develop their own platform. They cannot scale. They cannot connect directly to 10 or 15 suppliers. They need to have solutions to complete what they are selling to their customers. Customers want complete solutions. So we are also bringing to our platform some managed services partners can use to complement their own services. So basically, we are trying to help them build their own solutions in the cloud. The platform is AI-enabled. It’s just a question of scale. We can do it because we have thousands of partners on the platform. They cannot because they don’t have the scale.
Do you still see any partners resisting that move?
Some partners may choose to stay in the infrastructure business. They know, once again, not everything will go to the cloud, and so you still have some people that will need to install security stuff, networking stuff, compute and storage. And so some partners continue to focus on what they know, meaning the infrastructure and on-site. … Nobody is buying a new solution now in the midmarket for on-prem, so they need to go to the cloud.
What else is Arrow doing to address channel partners’ issues?
We need to continue to invest massively in our platforms. This is a big investment that we are doing. We need to help and enable the channel, the partners, and it’s a lot of work to make sure that we have the enablement in place. And one of the issues that we have is balance because basically it’s not easy to find the right talent today to do all the migrations from on-prem or to do this AI stuff. Finding the right talent is tough.
What is Arrow doing in terms of helping partners transition to an AI focus in their business? Are you doing a lot of evangelizing, explaining to partners that they need to do it, or do you focus on helping them do it?
Both. So first, we are building an AI offering on our platform the same as we did some years ago when we built our cloud offering so we try to convince new players to be on our platform and so that we can promote and sell this. And we are selling all the AI offers of all [important] vendors: IBM, AWS, Microsoft and so on. And then we are building agentic capabilities on the platform so that the partners are using our platform don’t have to develop their own solutions. They can use the platform, and the platform is already AI-enabled. And that is very important for scale. We can do it because we know that hundreds and thousands of partners will come to the platform, and we can spend the time, the resources, the money to develop it. Most of the partners do not have the capabilities, the competencies and the time.
Is there anything you think we need to know about Arrow and your business?
Once again, I believe we have a very unique positioning. We are multinational, basically Europe and North America. You can find with us everything you need to build your cloud, AI, on-prem and off-prem infrastructures, which is very rare. We only offer complex enterprise solutions. No PCs. So unique positioning, focusing on the midmarket.
Last question. What is the latest in terms of Arrow’s search for a new CEO to replace Sean Kerins?
We are currently in the process. We are interviewing candidates and selecting candidates. There is no date in mind, but we’re going forward.
