Good day and welcome to the Arrow Electronics Conference Call to discuss the First Quarter Earnings. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over Greer Aviv. Please go ahead.

Good morning everyone and welcome to the Arrow Electronics first quarter conference call. I am Greer Aviv, Manager of Arrow's Investor Relations Program and I will be serving as a moderator on today's call. If you would like to access today's call via webcast, please visit our Investor Relations website at www.arrow.com/investor and click on the webcast icon. With us on the call today are Bill Mitchell, Chairman and Chief Executive Officer; Mike Long, President and Chief Operating Officer; and Paul Reilly, Senior Vice President and Chief Financial Officer. By now, you should have all received the copy of our earnings release. If not, you could access our release on the Investor Relations Section of our website. Before we get started, I would like to review Arrow's Safe Harbor statement. Some of the comments to be made on today's call may include forward-looking statements, including statements addressing future financial results. These statements are subject to a number of risks and uncertainties that could cause actual results or facts to differ materially from such statements for a variety of reasons. Detailed information about these risks is included in Arrow's SEC filings. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. As a reminder to members of the press, you are in a listen-only mode on this call. But please feel free to contact us after today's call with any questions you may have. At this time, I would like to turn the call over to our Chairman and CEO, Bill Mitchell.

Thanks Greer and thanks to all of you for taking the time to join us this morning. We executed well in the first quarter despite the persistent backdrop of global economic uncertainty and turbulence, where sales and earnings per share inline with our expectations. Cash flow generation was again a bright spot in the first quarter, as we generated more than $230 million in cash flow from operations, marking our 10th consecutive quarter of positive cash flow generation. Our continued focus on expense control was evident this quarter, as we achieved our targeted level of cost reductions which enabled us to reduce expenses at a faster rate than the decline in sales. I am really proud of our employees who have continued to remain focused during these challenging times which in turn allow us to lower our operating expenses to sales to a record low first quarter level. Working capital management remains excellent with working capital of sales declining more than 200 basis points year-over-year. We performed well in the face of a turbulent economic environment, we cannot ignore the fact that economies around the world are still struggling with recessionary conditions and this will continue to have an impact on our global business in the second quarter. Europe continues to trail North America and the economic climate in that region is being hardest hit. Asia Pac appears to be fairing better although not at the levels we have seen in the past. Our visibility remains extremely limited and as we told you in early February, we are not yet prepared to call it bottom. We remain committed to our strategic initiatives to create profitable, sustainable growth by entering new geographies and new markets by expanding our products, service and solution sets to ensure we touch every region, every end…

Thanks Bill. Our enterprise computing solutions segment performed well in the seasonally slow first quarter with sales of $1.1 billion inline with the midpoint of our expectations. The decrease in global ECS sales for the first quarter of 2009 was primarily due to the impact of a stronger U.S. dollar and weakness in the majority of our product lines offset in part by the LOGIX acquisition. By a product type, we saw year-over-year decreases in almost all categories with the exception of services; which is a reflection of the challenging macroeconomic environment and IT spending slowdown. While our Server business remains under pressure, we have seen a sequential improvement in our high-end industry standards server lines. We continue to see the integration of LOGIX and Europe going well as sales in this region came in ahead of expectations due to strong performance in the UK and Southern Europe. Our strategy of geographic diversification is paying off as we are gaining share in Europe and outperforming our peers in the region. As further evidence of our success in integrating LOGIX, we have achieved our targeted level of synergies from this acquisition and I would like congratulate our team on a job well done. Our ECS North America business also had a good quarter. As solid gross profit performance and expense control led to a 70 basis point or more than 20% improvement in operating margin year-over-year; while operating margin was flat sequentially compared to the seasonally stronger fourth quarter level. Looking ahead to the second quarter, we remain cautious as corporate IT spending on enterprise products is highly scrutinized. Companies are looking for less than 12 months ROI on major projects and we are seeing a reduction in original requirement side on server and storage; with some projects being delayed as…

Thanks Mike. As reflected in our earnings release, there are a number of items that impact the comparability of our results with those in the trailing quarter and the first quarter of last year. I will review our results excluding these items to give you a better sense of our operating performance. As always, the operating information we provide to you should be used as a compliment to our GAAP numbers. For a complete reconciliation between our GAAP and non-GAAP results, please refer to our earnings release with the earnings reconciliation slide at the end of the webcast presentation. First quarter sales of $3.4 billion were ahead of the midpoint of our expectations and represent a decrease of 15% year-over-year and a decrease of 16% on a sequential basis. Pro forma for LOGIX excluding the impact of foreign exchange, sales declined by 14% year-over-year and 16% sequentially. There were 65 shipping days for the first quarter of 2009 and 64 shipping days for the first quarter of 2008. Global enterprise computing solutions sales decreased by 3% year-over-year, and 35% sequentially to $1.1 billion in a seasonally slow first quarter and we're inline with the midpoint of our guidance. Pro-forma to include the acquisition of LOGIX, excluding the impact of foreign exchange, sales were down 11% year-over-year and declined 34% sequentially. The first quarter for ECS was all about execution on expense control, gross profit enhancement and balance sheet management. Our operating LOGIX reached 20 basis points year-over-year despite the challenging environment as our focus on expense reduction drove operating expenses down 17% year-over-year and 22% sequentially all on a pro forma basis. Gross margin increased 30 basis points on a year-over-year and on a sequential basis as product mix had a positive impact this quarter. Focus management of working capital…

Thanks Paul. Our leading market position geographic and customer diversification and financial strength are all assets that will enable us to emerge from this downturn in a stronger position. Additionally, we will continue to invest in our sales force to drive revenue while our global ERP implementation will allow us to optimize our operating model. Overall, we executed well in a challenging marketplace. We performed inline with our expectations and delivered on our commitment to reduce expenses substantially. More than 175 million in cost savings and operating efficiencies that we have identified and committed to through these actions will provide a catalyst for long-term growth when the market demand recovers. We will continue to manage our company prudently to protect the financial strength of our company; while still selectively investing in ERP, vertical markets, new geographies and people with selective acquisitions as a strategic accelerator. We believe we have the right strategies in place and we have the right team in place to move forward with these strategies. As we have demonstrated on a consistent basis, we will continue to generate cash flow through all parts of the cycle and in periods of declining demand our cash flow generation is even stronger, enabling us to self-fund all of our strategic initiatives. We are diligently focused on the future and long-term health of Arrow, to ensure we remain on top on the world that emerges from this global economic crisis. However; for the first three months of the year the macroeconomic environment is continued to be under pressure and this will continue to have an impact on both our global components and global ECS business in the second quarter. Our visibility remains extremely limited and we are not prepared to call a bottom yet. While we are continually monitoring our leading…

Thank you, Bill. Please open up the call to questions at this time.

Thank you. (Operator Instructions). We will go first to Jim Suva with Citi.

Great. Thanks very much, a question on the profitability. If I do the math backwards, it looks like operating margins are going to be approximately 2.3% for the June quarter. That would be about the lowest profitability that Arrow has had since 2002. Can you confirm if my math is right on that? And then secondarily, it seems like September I know we don't want to guide too far ahead, but September very, very rarely is up and accordingly I can't help but thinking are we looking that June may not even be the low for Arrow's profitability even considering the cost cutting those?

Hey Jim, it's Paul. First starting with the operating income percent; you are in the neighborhood of where operating income percent could be in the second quarter. The thing that we need to keep in mind is that the business, the mix of the business has changed which impacts comparability when you go back to earlier parts of this decade. So we have as bigger and larger more robust Asia Pac business. And we also now have a European computer products business which also has a lower operating income percent which we didn't have earlier in this decade. And finally with that said we also now have the European investment which we know can pay off in long-term. So, when you make that comparison as you might be doing to the earlier parts of this decade, you need to factor those things in. I would point out, even with that lower operating income percent we have higher returns on working capital and higher returns on invested capitals than the period of time you're referring to. So, while we recognized operating income percentage coming down, we are driving more cash and better investment returns. As it relates to Q3, it's tough really to call because visibility is so limited, but one thing we've always said is that cyclicality out ways seasonality. So if there was to be a broad recovery in the world's economies it could be very different. If it was too worsen, it could be different also. So hope that answers your question.

Yeah, thanks. Thank you very much.

We'll go next to Brian Alexander with Raymond James.

Thank you very much. Can you just talk about gross margins in the components business specifically? One; how much were they down sequentially? Two, how much of that decline would you attribute to mix versus competitive pricing? And then the third part of that is why do you think you're suffering along with your major competitor from what seems to be an intensified competitive environment given that the industry is fairly consolidated at least in the matured geographies, it just seems unusual relative to historical cycles.

Brian, this is Mike. I heard two questions in there, so I'll take the first one. One with the why and then I'll let Paul get into to the detail. One of the things that happened to distributors when visibility gets poor is that supplier or a customer start to purchase on a shorter term basis and you're not seeing the entire year's with the forecasted demand like you see when the market is robust or when manufacturing is just tooling along. So what happens is the buyers are looking for shipments that will go within two weeks to say the next 30 days. And at that point, you typically don't have the same pricing advantages that you have when you are managing a flow of supply and demand into a customer and actually managing the supply chain. And the activity has shown that we have been getting more booked ship type business and more business that has less visibility and coupled with the fact you're not seeing the entire requirement usually makes those orders more competitive. So hopefully that gives you a backdrop of what you see in this kind of market. And with that, I'll let Paul to talk about the decline.

Thanks Mike. It's pretty interesting because when you look at North America components and our Asia components businesses, in fact they saw very modest gross profit declines sequentially. I am talking about 10 or 20 basis points, so not significant pressure there. Where we did see some pressure is in Europe components, now once again we're not talking about hundreds of basis points of decline there, so it was ahead of what we saw in North America and in Asia Pac. When we peel that back; we see that certain regions like the UK and the Nordic area are not under significant pressure. Now one thesis is that the UK entered the economic recession faster than other countries almost they came to North America, so we're probably at the same place economically so less GP pressure there. Where we did see GP pressure was to a larger extent was in Central Europe where they entered the downturn laid up and you read the same information we all read that's publicly produced about the rate of decline recessionary pressure in Germany. So I think when I look at it Brian, we try to ramp it up, we're seeing 10s and 20s of basis points of pressure and GP sequentially in the component's business, but we're seeing a change in mix with Asia Pac being down a lot less than the two businesses in North America and Europe and with Germany sliding at a faster pace than North America. As you know, Germany is our biggest business in Europe and one of our most profitable businesses.

Just a quick follow up for Mike. Is this pattern similar to what you've seen in historical cycles and would you expect the gross margins to rebound to prior levels when visibility improves or is this a new plateau we should be thinking about?

Brian I would not anticipate that this is a new plateau because as the customers are looking to get product over the long haul, their demands need to be filled. And today you have really a couple of things working against this. One is customers are reducing their own inventories and that's making orders a little more precious than maybe they are in the normal flow of the business which creates the competition that you're talking about. We did see exactly the same phenomena in the 2000 decline. However, as you know at that point in time, it was geared largely toward our Internet business and the Internet companies and companies that we're supplying the backbones for the computer systems. This time we're seeing it a little more widespread and as Paul had indicated before, Germany being one of our largest and most profitable regions in Europe as the effect starts to happen there, you do see a change in mix. And we fully would expect things to return back to a normal state as the economy does turn for us.

Okay, great. Good luck in your new role Mike and best wishes to you Bill. Thanks.

Thanks.

Thanks.

We'll go next to Matt Sheerin with Thomas Weisel Partners.

Yes, thank you. So just following up on the first two questions regarding margins, your EPS guidance was wide again and certainly appreciates the lack of visibility. But what drives EPS to the high or low end? Is it just a function of volumes or mix as you say because you are looking at gross margin pressure because not just only on competitive pricing but also Asia doing better? So what makes up the components to get you to the high end or to the low end of that EPS guidance?

Hey Matt, it's Paul. And you summarized it pretty well. So you'd be welcome to implement this at any time you want. But in fact a significant amount of it is going to be driven by in fact the top level, because we're pretty close to delivering already in the first quarter, what we said we would on the cost savings. So we don't have lot of hard heavy lifting to get that completed. So we'll be driven principally by top line though as we've talked a bit about we're a little bit nervous about what's going to continue going on in Europe. Just later to this economic recession which was a positive for them in the first three quarters of 2008 but they are accelerating it right now.

Okay. And I know EMS is still both large in volumes as company is still a good part of your business. Are you -- do you see any sense as that's coming back at all and this just generally speaking are you still seeing some inventory over hangout customers?

This is Mike. I would say right now that the EMS uptick that we're seeing is primarily in Asia and primarily around 3G, although we don't play a huge part in that with the EMS companies as a corporation in total. We still see the EMS companies are remaining relatively flat in North America. We did see things continuing to deteriorate in Europe, and if you go back to Asia the broad customer base appears to have stabilized some and a big change that we do see is from the low end handsets if you will to 3G. Overall, if you take the EMS companies, we are not predicting any major change in that business over the second quarter.

Okay. And just lastly on the competitive pricing picture; are you getting any support at all from the semiconductor and component suppliers? And have their margin profile or the rebate profile changed that all with your suppliers over the last quarter or so?

In terms of the profile or model of the business, I would say, no we have not seen any change from the suppliers or how they act. There's two sides of the business on this. What we have seen is an increase in design activity across the board and we believe that is good news for us. Design win activity generates a higher margin for us because we do the work with the customers to design product sent for their billing material. As those sales come online that also drives our gross margin. And again in a market like we have today, those spot buys are different than our normal flow of business. If you go the computer products side what we have seen is a stabilization of the rebates and those rebates getting negotiated every quarter very collaboratively with our suppliers. And it is not in their best interest to have a weak distribution network on either of the computer side or the component side. So I have seen our suppliers being very flexible.

Okay. Thanks very much.

We'll go next to William Stein with Credit Suisse.

Great, thanks guys. I'm wondering if you can help us to understand how much of the stabilization we're seeing in Asia is coming from demand versus perhaps you're taking share from some much smaller much well capitalized distributors that might be either be just be less able to operate or going in the business?

What I would tell you is that Asia is remaining competitive. And again there are two phenomena's happening with us. One is that we have been strong in the low end handsets and that had helped to propel our sales through Q1. We have been expanding our account base in indigenous China and we have seen benefit from that. We do believe that we will continue to see some benefit from our increased account base in Asia and we do believe that there will be a decline in the low end handsets and we think that will be offsetting. So for one point, I would say that we will be gaining share in the overall market but of course we'll lose a little share because of the decline in handsets and we think that they will offset each other for Q2.

Okay. And then just another follow-up. I understand visibility is very limited today. We previously been talked about $2 EPS number for calendar '09 that the company back that on the last quarter conference call, I'm wondering if you have any comments on revenue on EPS for the full year despite limited visibility?

Hey, Will its Paul. You are right, visibility is very limited. So it's difficult for us to even think about the second half of this year at this point in time. We're very much focused on tracking all the indicators that we can to try to see what the headwinds may or may not be like, but it's still tough right now. Just as a reminder though, remember that the $2 per share number was a decline that was going to be broadly about 10% also there was an expectation that we wouldn't be in a world recession. In fact today, we're talking about declines in the component businesses and North America and Europe that are 20% plus. And in Asia Pac as Mike mentioned, we're really doing well with the low end handsets. If you strip that out, we are seeing declines in Asia Pac also but not at the same level as I mentioned for Europe or for North American components. And then in ECS business we are seeing 10% plus at point in time. So dynamics are very different from what we were modeling as you go forward. So it's tough to call a full year number at this point and time, but we're working hard to make sure that we deliver what we commit to each and every quarter.

Okay, great. Thank you.

We'll go next to Steven Fox with CLSA (ph).

Hi good morning. Just a little bit more on Asia; I was just curious given the sharp swings in demand and going all the way back to the fall then down and then up in the last few months. Is there any hint from when you look at customer orders that may be there's some double ordering going on in the supply chain given such a rapid change in prospects?

Steve I had seen no indication of double ordering and if you think about it, double ordering typically takes place during times of allocation. When hard to get buyers sometimes especially in Asia will double up the orders and then go back and cancel the order on the guide and ship second if you will. The supply chain has been very good through this downturn. We still believe that lead times or as to low to mid level of where they have been in the past. Product flow is still good. If the market was to take a dramatic up turn, that's when we may see that activity and to be honest with you that be a problem that I'd welcome today. But I don't see that all right now.

Thanks. And then just reverse of that; are you having any stocking issues, how do you feel about your customer service at this point with the orders that are coming in and they're increasing have you had any stock out or anything like that?

So far we have seen the best-on-time deliveries that we have seen in years actually. Our supply chain again has been very good with our customer base, our supply chain has been very good with the suppliers despite the visibility we have not seen many or many customers that all get into trouble at this point in time. And again that's what's creating the spot buys that everybody is getting excited about and wants to book.

Got it. Thank you very much.

We'll go next to Shawn Harrison with Longbow Research.

Hi. A first question just ask with you is kind of the linearity you're going to see in the June quarter? If you extrapolated the run rate you've seen here in April, where would that put you in terms of the guidance for the global components business?

Well that's a good question to ask because each region has different linearity to it. So I guess the question you may be tracking -- and may be looking to say is are we overly conservative for Q2? Are we overly aggressive for Q2? And we'll call it just the way we see it right now. So while its not as heavily weighted to the June month as our computer products business, there is always a surge in every last month of every quarter in the components business also. So I would say that we gave it our best shot on guidance and on both on sales and EPS with not over conservatism or over aggressiveness.

Okay. So suffice to say if you didn't see a big June quarter or June month or June uptick, you'd still be within the guidance range?

Oh yeah. We would expect it to be like that, yes.

Okay. And then second just on the final cost savings, I believe it was stated 92% of the actions have been completed, but in terms of an incremental dollar amount moving into the June quarter, what should we look to model in? Is the majority of that targeted towards the global components business?

When I look at the second quarter, we should see an uplift in expense savings of $4 to $6 million. We did a little bit better in the first quarter than we thought we would. And by conversing we have increased spending on ERP as you roll that out. And yes it is more heavily weighted towards components, but our colleagues in ECS also are working very hard to make sure that they deliver on cost savings, expense savings, rational approach in that business. And in fact one of the things we're really excited about is the LOGIX folks delivered on all their commitments from a synergies point view. So that's a real positive indication for us that they are very much on board and pushing hard to make sure that they are part of the team.

Okay. And then a final question. Given the savings that you're going to generate, when demand eventually recovers, how many of these are permanent knowing that a lot of it was tied to head count reductions and just focusing on discretionary spending and other items of the same type?

Yeah this is Mike, I'll start and then Paul will have some comments on this one also. We're down right now about a 1000 people from where we were before and we believe that as we roll out ERP those savings are permanent. One of the strategies we had during this downturn was to attempt to protect our sales and marketing folks as much as we can, because as we said before, the design activity at our customer base continues to be high. We don't believe there has been a reduction of accounts that we need to service although their volumes are lower than what they were before. So that work load remains heavy. We didn't still if you will furloughs which were two weeks over the course of the year for employees to take off without pay. And what I might add around that was... that was driven by the employee base. We went out and asked our employee base what is that we can do to save money and that was one of their responses to help protect the sales force that we would come out this stronger than we went in. I also believe that when sales are down, your fixed cost around your sales force goes up and as the sales start to go up, this furlough will not be needed and there will be a partial offset in that. So I'll let Paul add some comments to this.

Yeah, it's a very interesting question because we've been able to go back and look at past technology cycles if you will. And in fact we're better positioned today with head count than we were in the past. So I read that to say that every time we come out of a downturn, we are more efficient and more effective. A way of example if you look at revenue dollars in Europe in Q1, that comparable in revenue dollars back in Q3 of 2005 and the head count were down 13%, so that's not we squeezed 13% more out just that we're 13% more efficient now. If you look at North American components business, in fact the comparability period goes back to 2003 and we're down 21% in head count. So we're able to demonstrate that we come out each of these down cycles whether technology, whether they are recessionary, where we're more efficient and more effective, we don't add those costs back at the same pace that the GP dollars grow. So that's an important measure for us. Also in learning you may recall that we talked about some of the investments we made to reduce costs and as an example we're sitting in our... us together sitting in our teleconference room today where we're using technology to make sure that we don't have to travel as much. And that's really a permanent savings. We invested in better video equipments to do video conferences and it's paying off. I mean it's hard to get into this room; we had to pull right to that to get some timing here. But that's a permanent savings. So I think folks are learning how to do more with less now and they'll maintain that attitude. So it's I'll just put the number on it and say 50% is permanent or 60% but we know we do a better job every time there is a down cycle in making sure we make some of those cost savings permanent.

Hey thanks a lot. And that was very insightful.

And we'll take our last question from Brendan Furlong with Miller Tabak.

Good afternoon, gentlemen. How are you? A couple of quick questions, if I could just circle back on the you said Asia will be to able and Q2 will be below normal, because of the weaker cell phone, low end cell phone. Can you give us some clarity on that or its just like an over inventory build of immediate attack during Q1 or it's a kind of giving back in Q2 or what's going on that low end handsets for China? Thanks.

Well, we did see a increase in low end handsets for the quarter. We did get a reduction in demand for Q2 that we can see so far. We believe that is real, we believe that there is a switch going on in that business. And having said that, the way that Asia has positioned itself for us has been continuing to expand the account base and we have seen a slowing or decline if it will across all of Asia but we have seen an increase in the China account base and we know that that's going to help us in Q2.

Okay. And kind of unrelated issue then the... if you look at the mix issues that impacted the component gross margins for the quarter, those puts and takes obviously this coming quarter with U.S. most stable the East going down and Asia kind of a mix slightly lower but it should help your mix some extent. What flat gross margins in the component business be kind of virtual looking as sequential?

Well, an interesting question. I think what we would expected to see is the same type of trends by region that we saw in the first quarter. So there would still be pressures of 20 basis points give or take in Asia Pac and North America. We could see more than that but actually some more by mix in Europe than anything else. So that's by region as I think out loud, we'll see the European business come down but there are less shipping days in North America, we'll see that come down a bit and we don't expect to see Asia Pac really come down which we're talking about a change in mix there. So I mean what I kind of roll it up, I do think there would be continued gross profit pressure in the components business, but principally driven by some mix more than anything else.

Understood. And then my last question would be on the SG&A the OpEx line. The... you mentioned some previous call I was talking about the SG&A, ERP spending up in June offsetting, it's a right way to look at it as its offsetting the $5 to $6 million you're saying in costs that you're getting in June?

Yeah, that's about right.

Okay. Perfect. Thank you very much.

And that concludes our question-and-answer session. I would like to turn things back to our speakers' for any closing remarks.

Thank you. Before ending today's call, for those participating in today's webcast, we will quickly scroll through the slide representing our webcast that contain a reconciliation between GAAP and adjusted results. This reconciliation is also included in our earnings release and both the release in this presentation that will be available on our website. I would like to thank all of you for taking the time to participate in our call this morning. If you have any questions about the information presented today, please feel free to contact Paul, Mike or myself. Thank you and have a nice day.

Thank you. That concludes today's conference call. We thank you for your participation.