Good day, ladies and gentlemen, and welcome to the Arrow Electronics, Inc. First Quarter Earnings Conference Call. My name is Francine, and I'm your operator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today, Ms. Greer Aviv. Ma'am, you may proceed.

Thank you, Francine. Good afternoon, everyone, and welcome to the Arrow Electronics' first quarter conference call. I'm Greer Aviv, Manager of Arrow's Investor Relations program, and I will be serving as the 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 Mike Long, Chairman, President and Chief Executive Officer; Paul Reilly, Executive Vice President, Finance and Operations, and Chief Financial Officer; Andy Bryant, President, Global ECS; and Peter Kong, President, Global Components. By now you should have all received a copy of our earnings release. If not, you can access our release on the Investor Relations section of our website. I would also like to point out that we issued a CFO commentary that has been posted to the Investor Relations section of our website, that should be used as a complement to the earnings release. You can access the copy of our earnings reconciliation for the first quarter in our press release or 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 a few 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 introduce our Chairman, President and CEO, Mike Long.

Thank you, Greer, and thanks to all of you for taking the time to join us today. Our growth strategy and the related momentum we built throughout the second half of 2009 and 2010 have carried over into the first quarter of 2011, with the Arrow team generating the strongest first quarter results in our history. Revenue and earnings per share came in well ahead of our expectations, driven by strength in both of our business segments and in each region around the globe. We're focused on accelerating the growth in our core business, which can be seen in the impressive pro forma growth rate of 12% in Q1. This terrific growth was driven by contributions from all regions and businesses and underscores the importance of our role in the supply chain as an industry leader. Our margins continue to rebound with gross margin showing substantial year-over-year improvement, while operating income growth once again substantially outpaced the growth in sales. Importantly, our returns this quarter demonstrate our unwavering commitment to creating shareholder value. Return on working capital increased 240 basis points year-over-year to almost 32%, and return on invested capital increased 190 basis points to 14%. In Global Components, we saw an exceptional performance in all of our regions. With our core business showing very robust growth trends well ahead of normal seasonality. Our recent acquisitions have complemented the quarter and are also driving growth in new markets and product sets. We're excited about the opportunities that lay ahead for Global Components and would expect to continue to outgrow the market with a strong start we've had so far in 2011. Our ECS segment also had a strong quarter, with sales in line with the high end of normal seasonality. We saw exceptional year-over-year growth in industry-standard servers, storage and…

Thanks, Mike. First quarter sales of $5.2 billion were slightly above our expectations that represent an increase of 23% year-over-year. Pro forma for acquisitions and excluding foreign exchange, sales were up 10% year-over-year. Operating income growth once again outpaced sales growth, increasing more than 2x faster than sales on a year-on-year basis. Our consolidated gross profit margin was 13.8%, an increase of 110 basis points year-over-year, with 70 basis points coming from acquisitions and the remaining increase coming from organic growth and mix. Operating expenses as a percentage of sales increased 20 basis points year-over-year. And on an absolute dollar basis, operating expenses increased 27% year-over-year. Both measures primarily driven by recent acquisitions. Pro forma for acquisitions, operating expenses were up only 5% year-over-year, well below our pro forma sales growth of 12%, and operating expenses as a percentage of sales would be 8.5% net of acquisitions. Operating income was $234.7 million, an increase of 54% year-over-year. In the first quarter, we continued to demonstrate the leverage inherent in our business model as operating income growth outpaced sales growth by more than 2x year-over-year. Operating income as a percentage of sales increased 90 basis points year-over-year entirely driven by our legacy business. Our effective tax rate for the quarter was 30.4% and for modeling purposes, you should assume that our tax rate for the next few quarters will be between 30% and 31%. Net income was $146 million, an increase of 58% year-over-year. And earnings per share were $1.27 and $1.24 on a basic and diluted basis, respectively. Our working capital needs were lower than the year-ago period and therefore, we used only $180 million in cash from operations compared to a use of $282 million in the first quarter of 2010. On a trailing 12-month basis, we generated $323…

Thank you, Paul. Francine, please open up the call to questions at this time.

[Operator Instructions] Our first question comes from the line of Jim Suva from Citi.

The question I have is, when we look at your improvement and rebound in gross margins and I tend to look at it on a year-over-year basis given the mix shift of things. Should we continue to expect, I guess, June to come down maybe by 10 or 20 basis points because of the mix shift due to higher computing? Or should we expect the gross margins improvement even to continue to improve quarter-over-quarter? Then I'd likely have a follow up. The reason why I asked this is it's been a long time since we've been in a normal operating environment, and I'm just trying to get a better feel for your profitability and swings between the different quarters from a gross margin perspective.

Jim, I'll start off with we would expect that computer products will pick up in the second quarter and have a bit of an alteration just because of mix. We're not seeing anything on the competitive side right now that changes our journey on the gross margin line with the transformation we're trying to put in to the services and other high-margin products. But mix changes for the near term will still have a small impact on the margin. I'll let Paul go through some of the details of that for you.

You're right on about the fact that mix change will continue to impact us in the second quarter. As you know, while it may be a trend down in GP percent because of the Global ECS business, you'll also know that, that's a business that has a very small requirement for working capital. So while we may sacrifice 10 or 20 basis points in GP, we'll also get an uplift in returns on working capital. So as we've spoken about over the long term, we recognize that each business is a little bit different, a little bit unique, and we try to manage those businesses to maximize profitability, cash flow and return. So there's always that trade off. As Mike mentioned, we've seen some very good improvement in the gross profit. Even now in our core business, and we expect that to continue as we move forward throughout this year.

And then I have a quick follow up, we know that your company traditionally has had 2 main segments, the Components and the computer products. It seems like you're doing a lot more initiative or efforts on these additional services that you are talking about for higher value added and higher margins. Can you let us know today about how much of your business is in that and maybe in a year from now or some milestones of what we can look forward to for these new additional efforts that you're taking the business down a new strategic area, which has higher profitability?

Right. Well, Jim, we'd like to have something to be able to tell you on Investor Day, so I'm not going to give you all the details right now because that's something that we already have keyed up for our presentation. But I will tell you that what we expect to see is a very strong year-over-year growth. So to your point of what will it be like a year from now, I think our growth forecast for that business are between 15% and 20% top line growth year-over-year, which you know is a great opportunity for us to accelerate Arrow, Inc. But we're still in the early days but we'll give you more details on that at Investor Day. So if we could just ask for your patience on that for another month or so, we'd appreciate it.

Our next question comes from the line of Craig Hettenbach from Goldman Sachs.

Mike, if you can follow on the comments about above average growth in Components, anything you could add by geography, product or technology would be helpful. And then the systems business, just what you as the backdrop for IT spending today and as we go through the year.

Okay. I'll start off and give you a little bit around Components. In North America, we saw strong growth and our backlog heading into this quarter is very solid. We expect sales to still track above normal seasonality and that was flat to minus 3% quarter-on-quarter in the Americas. We think we'll be above that. The big markets that we've seen in North America really have been the lighting business year-over-year is way up followed by alternative energy, and then really aerospace in a sense has continued to grow for us. In Europe, we're expecting more of an in-line market. We saw some solid growth from the vertical market. Again, lighting was growing and automotive was up more than 30% year-over-year, and aerospace and military was up about 15% on a year-over-year basis. So again, some strong markets, some strong internal manufacturing benefit. In Asia Pac, we saw strong performance in a number of verticals including transportation, automotive again and lighting. And our passive, electromechanical sales in the region increased more than 50% year-over-year and that was really good news as we've had expansion in there. And we do expect to be in line with normal seasonality in Asia Pac. As far as IT spending, the first quarter for the ECS business was very strong. The year kicked off well and sales, as you know, were in the high end of normal seasonality and really, a terrific year-over-year improvement in margins also. There was what I would say impressive growth for the first time in industry-standard servers and storage and services continued to grow for us also. Virtualization is still growing, security is up at least 16% and networking was up about 24%. So we're pretty optimistic about the start of the computer products business and really think we're positioned well to capture really the next wave of IT spending growth. And we still believe sales will be above normal seasonality going into the next quarter. Did that help you?

Very much. Then if I could just follow up with Paul, just on the cap allocation front, a lot of M&A of late, you guys have also been buying back stock. Can you talk about the strategy as we move forward and then any thoughts around dividend as well?

Sure. So you're right, we completed during the first quarter the $200 million stock buyback authorization that we've had from last year with our board, and we acquired those shares for an average price of less than $30. We've also announced that we do have authorization from the board to acquire another $50 million, and we'll continue to have that dialogue on a pretty regular basis. What we're trying to do is to get the right balance between organic growth because we see that we've done a great job on that and the leverage on our business is spectacular around that. We're also trying to get good organic M&A growth, and we've seen that also both from the impact of acquisitions which are tracking the plan and delivering what we want. But also because they're creating new market opportunities for us, markets that we hadn't been in. So effectively creating the size of the pie or increasing the size of D10 that we can go after. Then obviously, an efficient way is the third thing of returning capital to our shareholders. So we're trying to get that right balance. We still see that there's tremendous opportunity for growth. So when we look at it, it's probably number one and number two, and we'll continue to evaluate longer term what we do around returning shareholder value, whether it be through buyback or dividend. But no real change at this point in time, over the next couple of months, on our view on how we'll deploy capital.

Our next question comes from the line of Matt Sheerin from Stifel, Nicolaus. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Just wanted to follow up on the comments regarding the Component business. Can you talk about the impact of Japan both from your Japanese supplier standpoint, orders that you're seeing from customers? And then also, have you seen any impact or uptick in orders in other Components as customers may be concerned about or wanting to build some inventory?

Sure. Matt, as you heard from the prepared remarks, the Global Components business had an excellent first quarter and sales grew above normal seasonality really gaining more than 20% compared to last year. We had a stronger-than-expected March, and we believe we may have seen some pull-in of inventory by some of our larger customers due to the recent Japan situation, although nothing that had a material impact on the quarter. And so far looking forward, we haven't seen any unusual changes in our bookings or backlogs. Book to bill remains slightly above one in all regions. And as we look to Q2 and beyond, the real visibility from our suppliers on the Japan situation is low. And at this moment, we don't expect major impact for the most part of Q2. And as always, we're working real close with our customers and suppliers to manage any potential shortages on any affected products. I think this story will unfold a little bit over the next month or so, and we'll clearly keep our customers and you guys updated with any change we could possibly see. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: And has that order uptick, Mike, continued into April related to Japan, do you think?

It really -- our belief is it did not. And we saw, as I said in March, a slight increase. However, most of the customers that I have spoke with since that time, and we've been relatively busy on the supplier front and on the customer front, said that inventories within our customers are at a manageable level coupled with our inventories. Most people believe they're protected as good as they can be right now given the uncertainties around some of the chemicals and the wafers that could have an impact more towards the second half of the year. So we've worked hard to alleviate any panic that we can and really tried to keep the situation down to the affected components and not have it have a major impact on the overall market. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. And then your own inventories were up about 8% or 9% sequentially. Did you build any inventory? Was that a lot of that related to the Richardson acquisition?

About $150 million, I believe, was related to Nu Horizons and to Richardson. As you know, Nu Horizons came in early in the first quarter and Richardson came in with a month left. So that's where the growth of our inventories were and we believe our inventories are actually in line with the second quarter forecast we've put out there. Matthew Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. And just one quick last question if I may, just regarding your expenses, regarding Nu Horizons and Richardson. How much expense do you expect to take out of the business over the next few quarters? How much is left in terms of integrations?

For Richardson, Matt, it's very, very small insignificant amount. That whole acquisition is built upon sale synergies and very little around integration. So the integration that's taking place is in logistics and that has a minimal expense impact. The Nu Horizons we'll really start to accelerate on that towards the second -- end of the second quarter and really will accelerate more so into the third and fourth quarter. And our targets there are probably, I would say, round numbers about $10 million.

Our next question comes from the line of William Stein from Crédit Suisse. William Stein - Crédit Suisse AG: At the risk of sounding argumentative, I want to dig into Japan a little bit. So very strong results in Components with a stronger outlook, bookings ticking up in March and extending into April. One of the very strong markets you highlighted is automotive, which people naturally link to Japan. So really the question is, how can you give investors the comfort that none of the strengths that you're seeing in the bookings and shipments, perhaps that came in at the end of March and that you see in the backlog today are linked to the desire to ensure supply? In other words, something that could roll over and go the other way later?

What I would tell you is, typically, when people are attempting to capture inventory in an allocation mode or in a case of a manufacturer running into parts problem, you see your book to bill skyrocket and demand comes in at a much faster pace than you can get your product out the door. And what you do is you end up building exceptional backlog during that time that at a later date could be shut off, so to speak. We did not see that phenomenon, we did not see bookings increase as a result of Japan, coupled with, we didn't see our backlog days go way out. And then thirdly, we have not seen an increase of cancellations on the order and the backlogs we have in-house. So when you start to explode that by supplier and even affected suppliers, that gives you a fairly good comfort level that what you're seeing is really de minimis at this point in time. William Stein - Crédit Suisse AG: Okay. And then a follow up or frankly, a little bit unrelated question. Can you remind us of the margin targets in the 2 segments and what the key levers are to get from where you are today to those levels. I think, in particular, in systems you're still operating, if my model is updated, I think fairly well below the target levels, so a lot of leverage or something left there. And then on the systems side, I think you're closer, but if you can -- pardon me, on the Components side, I think you're closer maybe at the low end. Can you just remind us of that?

So while Greer is getting us the information because that's something also included in our Investor Day presentation, the low end of the range for Components was 5.5% and we're at 5.9%. I know Peter Kong's on the phone call and he's trying to figure out how he's going to get to 6% quickly. So thanks for helping us with setting goals and objectives for him. And that is exclusive of the impact of acquisitions and the value-added areas. So when you look at it, you'll see that our operating income percent in Components in the core businesses in North America are ahead of plan. In Europe, are within the range of the plan and in Asia also are right at the plan levels. So we feel we're in good shape there. And it's a battle to make sure that we get more uplift in revs for leverage, it's a battle to make sure we get more GP. And as always, we want to make sure that we have expense control containment simply because of the fact, as we demonstrated in the first quarter, it's something we want to do. So yes, the actual target was 5.3% to 6.6% for Components; and in ECS, it's 4.3% to 5%. So when we look at it, ECS on a sustainable basis in North America we're right at that low end of the target over a 12-month period time. European business is not at it and that's simply because of the fact that it's not as mature organizationally as our North American business. Laurent Sadoun and his team are doing a nice job of pushing that forward, and we're constantly looking for ways of being smart about how we spend our dollars. As an example, Laurent has a nice shared service center that he's looking to expand, and he's able to get greater efficiencies there. That's an area where we can do that type of thing. So there's lots of levers we're pulling to get there, and we think we're going to get there. Of course, as you know, our return on invested capital is well ahead of the low end of our target, so these lower margin businesses still have a very nice return which drive shareholder value also. William Stein - Crédit Suisse AG: So nothing has changed in the margin targets then and the key to getting the European systems part of your business to the higher, let's say, the targeted margin range is really a matter of leverage more than anything else just revenue growth?

Well, not just revenue growth, I would say also better organizational structure around expenses. And that's within our control.

Our next question comes from the line of Amit Passi. [UBS Investment Bank]

Mike, just a question for you. Can you give us a sense of the supply chain today in terms of lead times maybe across your major product categories, and any Components that you believe are still in shortage or has the supply chain largely now sort of normalized?

Sure. Overall, I would say lead times are at a near normal historical level and haven't had any meaningful changes at this point in time. We believe that going forward that the supply chain is continuing to operate pretty efficient. But we're seeing lead times in the range of 10 to 20 weeks at this point in time, about 15 weeks on average and really in line with last quarter. For me, if lead times at an average hit something like 12 weeks, I consider that a normal balance. We've seen some extension past that in certain passive components and on the electromechanical side and some on the power side. But for the most part, the vast majority of the semiconductors have been closer to the near normal than they had been prior to the end of last year.

Great. And then just a follow up on the situation in Japan again, and I apologize for belaboring the issue here. It's been about 6 weeks I guess since the earthquake happened. I'm just curious, as you talk to suppliers and customers, is there any greater visibility today than it was 6 weeks ago, are things still highly uncertain? Just any commentary around that.

I believe there are some of the suppliers that have solved the chemical issue by switching to some different chemicals in their processes depending upon their technology. There's a couple of manufacturers that have found alternative ways to keep their fab going. The most uncertain piece I believe right now really is around the wafers and how the wafers will end up going into the second half of the year. Most manufacturers right now are taking steps to correct anything that or any problems that were caused by the earthquake and most feel that they will minimize any problems that they have. I think the collective issue as more information comes out will be just what technology and will that have any impact on the entire supply chain. But at this point in time, we still feel comfortable going into the second quarter. And again, we will continue to update our website as more comes out around Japan. And obviously, you'll be able to check that on a daily, weekly basis whatever you choose.

Our next question comes from the line of Scott Craig from Bank of America.

Paul, when you're looking in the Components business, if operating profit was to continue to go up and maybe you guys even at some point revise your operating profit guidance or targets there. How much improvement do you think would come from say, gross margin versus getting operating expense leverage? And then a question for Mike with regards to filling in some of your product portfolio in ECS on either regional or global basis, is there anything in particular you guys feel you need, you have to add on the ECS side of the business?

Well, as you know, Scott, especially on the ECS side, we have gone into the unified communications business. We believe that, that business has legs. We believe there's more around the services portfolio that we can add. We certainly believe that there's more work to be done around the cloud and software as a service. And we'll continue to hone in on products that fall within the data center that have an impact on the cloud. And what's interesting is that, people are building out their private clouds, we are already a large supplier to those types of customers and that will have a positive impact on the core business. But all in all, we've put some stakes in the ground and we'll continue to build out the service and revenue opportunities there. On the Components side, we have been in the reverse logistics business. We find that business attractive to us, as well as services that we put around Components and also built out some engineering services that make our OEM customers more efficient in how they do design. So there's still a lot of places to go in technology to increase the value with the company and increase the value to our shareholders. And we're taking or making a concerted effort to get into those. So 5 years down the road, customers are going to want to deal with Arrow, given all the different service avenues we have.

Scott, on the margin profile for the Components business, there are still 20s and 30s of basis points of margin left to go at a minimum, gross profit margin in that business if you ask me. And then we'd still always believe that there's opportunities to do, to be a little bit more efficient from a cost point of view. And we've talked about whether its Europe, whether it's Asia now that they're getting up to size and scale. So I still think also there's more room there in 20s and 30s of basis points for the entire segment. So I still think we have a good ways to go. We're about in the midpoint of the range of our targets for that segment and that's without the impact of acquisitions. So we feel we can continue to push it forward to get to that upper end of that range and have it be sustainable over the long term.

Our next question comes from the line of Brian Alexander from Raymond James. Brian Alexander - Raymond James & Associates, Inc.: Mike, appreciate the comments earlier on book to bill and backlog not spiking, but you did beat the high end of your Components sales guidance by about 3.5%. You haven't done that actually in the last 5 years and many of your suppliers are reporting closer to in-line results. So if you didn't materially benefit from pull forward, why do you suppose your sales were well above your internal expectations? Was it driven by market share gain and is that why gross margin in the Components business was up 20 basis points sequentially versus normally in the first quarter, I think you're up more than that? Just trying to put things together.

Right. Well, we did see, Brian, some nice spikes in different technologies. We do believe there were some market share growth overall for the business, which is good news. Part of that from the expansion of our product portfolio over the last year that we've seen. And again, I did highlight lighting as being a high-growth area. The automotive area had an impact and the reason for that is there's just more and more electronics going into automobiles. Our industrial segment was also very strong and as you know, that's something that was sort of plaguing the business over the last several years in terms of growth. But we've really seen a return of core manufacturers increasing their performance over the last couple of quarters. Now that they have their factories more efficient and in line with what's happening overall. I also believe, Brian, that there is an amount of business right now where electronics are in another expansion mode, getting into markets that really didn't exist before, especially around alternative energy and a lot of those businesses were just in start-up mode last year that have gone to more production. And I think that will help it grow. The other interesting thing that is going on, as you know, the business over the last 5 years, there's been quite a run, if you will, out of the U.S. and somewhat less in Europe to Asia Pac for manufacturing and we've seen business transfers slowing out of the U.S. at a rapid pace. And while people have talked about sluggish growth, if you will, in the U.S. that has been caused because there's been business going out the other end. And I believe the underlying growth in the U.S. has been strong but there's been a strong transfer of business out and we've actually seen that slow now for a couple of quarters. I'm pretty bullish on what will happen in the U.S. over time giving that manufacturers really are finding their footprint. Brian Alexander - Raymond James & Associates, Inc.: That's interesting. Just a follow up on the acquisitions. I realized a lot of the deals you've done like Converge, Intechra, Richardson and Shared have better margin profiles than your existing business and there's a couple that may be in line or lower like Nu Ho [Nu Horizons] and Diasa. So you showed on a pro forma basis, the acquisitions are collectively helping gross margins by about 70 basis points in the first quarter, but they actually hurt operating margins by about 10 basis point. Is that temporary? Do you expect the collection of acquisitions you've done to drive consolidated operating margins higher? And if so, by roughly how much and over what time frame?

What I'll do is I'll take a first stab for you, Brian. Remember, Nu Horizons did come in and Nu Horizons was not operating at what we believe was an optimal place for that business and we're only one quarter into the results of that. We also had Richardson come in with only a month of activity in the business. So those 2 businesses alone skewed our results some. We did have a geographic expansion into Spain and Portugal with Diasa and again, that was in December. So we still have some working out to do, if you will, with those businesses. But when you consider the higher margins, for example, Intechra and the reverse logistics businesses that's growing, we do expect more. But businesses like that have a little bit higher cost of sales, as well as a higher return. So there will be some explanation on our part over the next couple of quarters around it. And I'll let Paul give you some of the actual numbers and input on that right now.

Right. So the math is right, it was about flattish, maybe 10%, a 10 basis point decline in the consolidated results because acquisitions delivering to the returns targets, delivering to earnings per share. We do think over time, the operating income percent will trend up. Both as we better manage the businesses, which we've demonstrated we can do, as well as get them integrated, as well as we create rate of scale and scope of the services that we have in the revenue dollars that we're generating. So we're very confident over the long term that those operating income margins will be ahead of our legacy business and the returns combined with earnings per share growth will create shareholder value. Brian Alexander - Raymond James & Associates, Inc.: Just any sense of magnitude therefore, are we talking 10 basis points or 30 or 40?

Well, keep in mind that you just look at this quarter as an example and you look at Arrow, Inc., the acquisitions that we're talking about were less than 10% of revenues, right? So that means you have to get a lot more growth in those businesses before they can impact Arrow, Inc.'s overall margins at the operating income level. So it will take time, as I say, but we have a plan in place that will accelerate growth in those areas compared to our other businesses. And it would be 10s and 20s of basis points as we move forward, and then we get the size and scale and the measure will be more than that.

Our next question comes from the line of Shawn Harrison from Longbow Research.

Just 2 brief questions. The low-end handset business in Asia, I guess with your biggest customers there, is that what's driving the better expectations into the second quarter? Is there something else that you're seeing in the market that would lead to a sequential rebound in that business other than say seasonality?

Well, for sure, the low-end handset business for us is off and has been off, but coupled with our core business having an exceptional growth quarter, and we have now seen that for a couple of quarters and -- which is great because that business growing faster has put off better results for us just given the mix of business. We would certainly welcome the low-end handset market to come back because that does generate shareholder returns. But even without that, the core business is growing at substantial rates right now. We have seen good growth in automotive, we've seen it in lighting and we do believe that we will eventually get a rebound in the mobile handset market as the year progresses.

Okay. And then my follow-up question is just the year-over-year growth you saw in industry-standard servers. Do you think some of that was more company-specific? Or are you seeing kind of now I guess a resurgence in industry server or standard server demand that you're going to see continue throughout 2011?

Well, for us, we saw a fair amount of rebound, not only in industry standard, but also in proprietary servers up for the quarter. And I believe as long as the cloud continues to be built out, it should be a good robust year for IT spending. The storage business, which augments that, was also up and software, especially security software had another good quarter and given everything we've been reading in the paper these days about what's going on with people hacking in, my guess is that business has a lot of legs to it. So really, when you look at the overall IT spending business, whether it's services, software, storage and even servers, it's nice to see a rebound in servers because that tells us some of the larger projects are back out there and the monies getting spent.

Our next question comes from the line of Brendan Furlong from Miller Tabak. Brendan Furlong - Miller Tabak + Co., LLC: Question on your Asia Component business excluding the media tech, possible media tech impact in Q2. What you're seeing out of your Asia Component business, if you could?

Okay. Well, the core business itself, as I alluded to before, was up about 18% year-over-year. There was good performance really for us in China, Taiwan, Korea and the ASEAN region. Sequentially, the business was up, as you know, about 7%. But we also saw strong performance again in transportation, automotive and lighting. Remember, transportation is more than just automobile. Our classification is really anything with wheels can fall into our transportation segment and that's helped fuel our passive, electromechanical business that was really up more than 50% year-over-year. So an increased product mix for us also helps the gross margin and also helps the returns out of Asia. So I couldn't be more pleased with the Asia team in what they're doing to drive product expansion right now for us in the market because that helps solidify our position there. Brendan Furlong - Miller Tabak + Co., LLC: And then on the -- you're obviously exposed to industrial end markets, you say there have rebounded. A lot of the industrial companies that have reported so far this earning season have pointed to a rebound or things picking up, particularly in the last 2 weeks of March. I'm just curious if you're seeing that flow-through to your U.S. and Europe industrial-related businesses?

Yes, we have and I've been out talking to several of our OEM customers and they've been very bullish, which is interesting that our March picked up a little bit, as we had indicated. When we went back and looked at it, we tried to look at what types of customers that went to. And it's really caused us to agree with what you've just said that the OEM manufacturing customer really in the Midwest has woke up, and we're seeing good results. Brendan Furlong - Miller Tabak + Co., LLC: My last question is for Paul. The assumption that gross margins will tick down seasonally a little bit. The big bump up in SG&A then for the June quarter, if you could just walk us through maybe where that's coming from and obviously, the acquisition impact there, too?

Sure. So as I said, my expectations were that we would see a trend down because of mix of about 10 to 20 basis points in seasonally in the second quarter, and I'd expect also there'll be a trend down in operating expense percent also in the second quarter. So that we would be flattish to down a little bit in operating income percent no more than what you'd see seasonally. So I don't see that as anything unusual other than a change in mix. From a dollar perspective point of view, what we'd expect to see, the biggest acquisition impact for us in the expense line would be from Richardson, which was only in for 1 month in Q1. We'll obviously have it for all 3 months. That's about $11 million increase in SG&A between Q1 and Q2. So that will drive the vast majority of any expense increase other than normal variable cost associated with higher sales.

Our next question comes from the line of Sherri Scribner from Deutsche Bank.

I just wanted to get your thoughts at a higher level. The guidance for fiscal 2Q you're expecting a little bit ahead of normal seasonality. It sounds like in the Components business, some of that's coming from North America. I just wanted to get a sense if you think the market is growing faster, if you think your gaining share or is that related to the mix of business that you have?

Right now, our belief is that we are seeing again sort of a resurgence. We've seen aerospace and defense continuing to be strong now year-over-year. The medical industry is growing. We've seen an uptick in the medical industry. Alternative energy for us has been good growth and lighting has been good growth as it continues to be a bigger part of the product segment that exists in the marketplace today. Those things together a couple of good news for us because aerospace was not as robust last year as it is this year. Lighting, while the growth rates are not as high as they were when the product was first introduced, they are up substantially and especially if you look at Europe, the lighting industry is up or were up in the 37% range. Asia Pac is ticking the 20% range and North America is still at 12%. So there's good growth in all of those markets. So we've seen a real rebound of electronics across the entire continuum of customers that we deal with right now.

Okay, that's helpful. And then, Paul, just a clarification really on the share buybacks in the commentary you said that you used the remaining $33 million of the buyback. But when you look at the cash flow statement it looks like it's -- you spent about $46 million, so I'm trying to understand that difference. Did you pull it? Did you use some of that additional $50 million that's authorized? Or I'm trying to understand that.

Sure, Sherri. No, we haven't used any of the $50 million authorization that was approved by the board after the window closed in Q1 for us. So that's full blow [ph] that we can use going forward for the rest of the year. The difference is the exercise of stock options where you can return shares to pay the tax piece of it. So versus getting gross shares, you can get net shares. So that's the difference.

And we have a question from the line of Lou Miscioscia from Collins Stewart.

Okay, great. Just wondered if you might want to update the last May prediction of about 5% IT growth, especially after obviously starting off with a pretty good quarter here?

Yes, it'd be kind of hard not to do that, but we haven't seen enough information yet going into the second half of the year. My guess is we will, it's not my guess, we'll be giving you a new update when we do the Investor Day. But really, we've added some product lines to our portfolio that have helped us grow, and we still have some sorting out to do of how much is coming from that, is that normal growth but how much that will impact us for the rest of the year. And so there's going to be a difference I believe this year in what the market is going to grow and what we're going to grow, but I do believe we will outpace the market growth all through the year.

Okay. And then on the possibility of new areas, can you give us any kind of comment on what you're seeing in desktop virtualization and just on the enterprise and small, medium business, PC refresh that's been going on for a little while now?

Sure. I'm going to pass that one over to Andy Bryant because he's much closer to what's going on there.

Well, we do see some of the VDI activity because we're a big provider of virtualization software from VMware. And so that, of course, is the sale of a thin client versus a PC. I think that's what you're alluding to. And that's going along pretty good. But we also see the PC refresh and the server refresh equally strong. And as Mike mentioned, our industry-standard server business you'll notice that it's up over 30%, and then you'll notice our virtualization business is up over 30%. They're kind of tracking hand-in-hand because not all the virtualization software is going on an existing server, many of these installations are new servers. So overall, we see both segments strong.

Okay, great. And just a quick follow up to all that. Obviously, you gave us nice growth number for storage and industry-standard servers, could you possibly give us that for proprietary servers and also enterprise PCs?

Well, if we take proprietary servers for us, year-over-year that was up about 22%. So there was a fair amount of growth in proprietary and it's something that we saw happen in Europe. North America also for the first time in a long time really broke growth in the first quarter and that lends a lot of credibility to do build-out that is going on there right now. Overall, when you get to PCs, we don't really participate and that market doesn't have a major effect on what's happening with our business.

Your next question comes from the line of Ananda Baruah from Brean Murray. Ananda Baruah - Brean Murray, Carret & Co., LLC: I guess one for Mike and for Andy. I guess, in the Enterprise, have you guys yet started to see any shift in the competitive dynamics now that, I guess, more and more folks, more distribution vendors there are beginning in their own way to target your segment of the Enterprise. And I guess just a follow on to that is, what types of services and I guess in partnership, whether it's cloud services or sort of anything else traded you guys, can you come up with a figure necessary for success over the next 5 years now that seemingly it's going to be a bit of a more competitive marketplace?

Yes, I'll take your first one on competition. I think there's a difference of where products go and one of the interesting phenomenon has been, as I alluded to before, industry-standard servers were up 43% year-over-year, a little bit north of that number. But what we are finding is where there's complexity in industry-standard servers, that falls right into the sweet spot of the business that we have built. And we're finding more and more industry-standard servers where there's complexity, those customers are coming to Arrow, and we think that is good news for our model. Essentially, you could go back a couple of years and there was some thoughts that this business would have to live solely on proprietary servers to survive and we have found that not to be true, especially given the build-out of the cloud these days, the software that's needed to go, the virtualization of these products, the security software that is required and the storage requirements that go along with it, all play data center and all play complexity and that's right where our sweet spot is. I'll let Andy answer your second question.

Yes, just quickly, I think about the cloud, there's 2 plays for our VAR base. One is, I call it a cloud builder, which is our VAR base helping end users build-out their private cloud. And then there's the emerging opportunity for ECS to help our resellers become cloud value-added resellers and that is more the public hybrid cloud scenarios. So I think it's safe to say we're in the sweet spot of the cloud builder model with our line card and the way that companies are building out their private cloud. And the cloud reseller model is emerging, and you'll see us rollout more and more managed services in that space to help our resellers move up the food chain and become more effective in reselling cloud services. Ananda Baruah - Brean Murray, Carret & Co., LLC: And then just one follow-on clarification for me. Did you guys say that it was European proprietary service that was a bit stronger than North American proprietary?

Yes, we did. Europe was much stronger than North America.

And we have a follow-up question from the line of Amitabh Passi. [UBS Investment Bank]

Mike, just a clarification. When you refer to lighting, is that mainly your LED lighting business? And then can you give us a sense of how big that business is today and maybe just how it splits geographically?

Yes, what I can tell you is that's a fast-growing product line for us. We saw Europe come a little later than Asia Pac and North America. So the growth rates are faster there. As far as individual sales because we have a limited line card, we don't give out the numbers only because it would conflict possibly with what one of our manufacturers would say.

Okay. We're out of time for questions. Thank you for joining us today. If you have any questions about the information presented today, please feel free to contact Paul, Mike Taunton or myself. Thank you, and have a nice day.

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect, and have a great day.