Good day, ladies and gentlemen, and welcome to the Arrow Electronics Fourth Quarter and Year-End 2015 Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Steve O'Brien. You may proceed.

Thanks, Derek. Good day, and welcome to the Arrow Electronics Fourth Quarter and Year-End 2015 Conference Call. And I'm Steve O'Brien, Director of Arrow's Investor Relations program. 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, Chief Operating Officer, Global Components and Global Enterprise Computing Solutions; Andy King, President, Global Components; and Sean Kerins, President, Global Enterprise Computing Solutions. As a reminder, you can access our earnings release at investor.arrow.com along with the CFO commentary, the non-GAAP earnings reconciliation and webcast of this call. We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period. I will now hand the call over to our Chairman, President and CEO, Mike Long.

Thanks, Steve, and thanks to all of you for taking the time to join us today. We delivered record fourth quarter results, completing a year of strong performance in 2015. We executed well on our organic strategic initiatives. We continued to deliver best-in-class financial performance, and we returned substantial capital to our shareholders. For the full year of 2015, we delivered an 8% increase in sales and operating income and an 11% increase in earnings per share, adjusted for changes in foreign currency. For the second consecutive year, we achieved record sales, gross profit and earnings per share on an absolute dollar basis despite currency headwinds. In global components, we advanced our value-added services through our investments in our design and engineering capabilities. These capabilities are allowing us to deliver increasing value to both our customers and our suppliers. In enterprise computing solutions, our unique focus on selling comprehensive solutions has allowed us to further differentiate our value-added distribution business from the competition. Our suppliers and customers value our solutions-driven approach and continue to reward us with more business as a result. We're continuing our challenge and -- continuing to challenge our business leaders to uphold our current rapid pace of evolution. Our strategic roadmap for success in 2016 will include advancing our leadership in IoT and providing the engineering services and support that are integral for our customers to bring new compelling products rapidly to the market. We continue to capitalize on cross-selling and lead-generation opportunities for our global components and enterprise computing solutions businesses, afforded by IoT and cloud. The opportunity for our 2 businesses to work together has never been greater. We're expanding adjacent market opportunities, including the public sector and e-commerce, and we have the opportunity to engage the next generation of inventors before their ideas…

Thanks, Mike. Fourth quarter sales of $6.75 billion grew 6% year-over-year. Sales adjusted for acquisitions and changes in foreign currencies grew 4% year-over-year. Overall, sales were above the high end of our prior guidance range. In global components, sales of $3.67 billion grew 6% year-over-year, adjusted for changes in foreign currencies. Adjusted for acquisitions and changes in foreign currencies, global components sales were approximately flat year-over-year. In the Americas, sales declined 4% year-over-year. Americas core sales were flat with the third quarter. In Europe, sales adjusted for acquisitions and changes in foreign currencies increased significantly again this quarter, advancing 12% year-over-year, the fourth quarter in a row of double-digit constant currency growth. We experienced strength across the entire continent. Sequentially, core sales in Europe were down 3% year-over-year -- I'm sorry, down 3% quarter-over-quarter. Sales in Asia grew 6% year-over-year and declined 4% year-over-year, adjusted for acquisitions and changes in foreign currencies. Core sales in Asia grew 2% quarter-over-quarter, which was better than our expectations. Global components fourth quarter book-to-bill was 1.05, which is above the 3 prior years' fourth quarter. Through the first 4 weeks of the first quarter, our book-to-bill remains above parity. Global components backlog also grew slightly in the fourth quarter, whereas we normally experience a sequential decline. We believe this suggests a solid foundation for our business as a whole in the short term. Fourth quarter enterprise computing solutions sales were $3.08 billion, up 10% year-over-year. For the full year 2015, ECS billings grew 9% year-over-year, adjusted for acquisitions and changes in foreign currencies. And ECS billings growth in the fourth quarter accelerated up to 11% year-over-year. In the Americas, sales grew 11% year-over-year and grew 5% adjusted for acquisitions and changes in foreign currencies. Sales for our core ECS Americas distribution business grew 50%…

Thank you, Paul. Derek, could you please give the instructions and open up the call to questions at this time?

[Operator Instructions] And your first question will be from the line of Matt Sheerin, Stifel.

Just a question on the overall gross margin. And Paul, I know that mix plays a role here, but you're down, I think, 40 basis points year-over-year. You're going through a quarter where typically, mix works in your favor and you see margins expand because of components, and you're guiding more seasonal on the computing side. But just trying to figure out the trajectory of margins. And is pricing pressure playing a role at all on the components side of things?

Thanks, Matt, for the question. As we look at this, there's a lot more to our results than just components and computing. There's a lot more to mix than what we really talk about. I expect that we'll see margin to rebound in the first quarter, similarly to what we see in the seasonal first quarter trend in the past. So when I look at it, it's really mix, whether it's acquisitions, a little bit geographies. But we're not seeing any dramatic change to indicate that we're coming under GP pressure.

Okay, so it's more mix-related. Okay. And just bigger picture, given the semiconductor consolidation going on, a lot of your vendors are -- they've announced deals, where we're starting to see some of these deals close. So it would seem like you're going to have a more concentrated revenue exposure to a handful of vendors when this consolidation is all said and done. How does this set up for Arrow? Is that a positive? Is that a negative in terms of leverage with your suppliers?

Well, Matt, this is Mike. So far, it has been good for us because the acquisitions have brought us new products and new product lines that we didn't have before. So in essence, Arrow now has more things to sell than we had to sell before, which will allow us to expand our market. The second thing about it, which is usually unknown, is as they do their integration, most of the way we deal with our suppliers can be electronic and those types of things. So we will actually gain some efficiencies of dealing with some less people also, which is not a relatively known sort of benefit, but you get that because of the scale and volume of that supplier. So so far, we have seen this work in our favor, and we expect even the other ones we're hearing about to continue to work in our favor for some time here. I just wanted to -- also, when you're talking about mix for the first quarter, it was mix and acquisitions. So I want to make sure that you take away the acquisition piece because I only heard you say the mix. But it's hard these days, given the way we've been performing in the business, to buy an acquisition that is immediately better than the numbers that we have on there. And so we have a couple of them we still have some work to do, and I think that's where Paul's alluding we'll have some of that done into the first quarter.

Okay. Well, then sort of in line with that -- and I know some of the deals have been on components and some computing. And given, really, what we're looking at is sort of low if not no growth this year on the components side, are you confident that you can get to that 5%-plus margin target for the full year?

Yes, we're working towards that. In fact, if you look at the guidance in the first quarter and take that on a year-over-year basis, you'll see that we are looking for some increase right away in the first quarter.

Your next question will be from the line of Jim Suva, Citigroup.

You mentioned strength in this quarter coming from security and software. Can you help us understand the economics behind those type of transactions, like the recurring nature of them versus onetime in nature for them? And can we extrapolate sustainability coming from that or some lumpiness? And then my follow-up question is on seasonality. I believe there was a comment made on the prepared remarks about thus far, in January, the book-to-bill was above 1. I was just curious. I kind of assume that might be normal. Is the book-to-bill above normal, in line with normal, slightly below normal? How does that compare to normal?

Yes. So far, what we've seen, Jim, is our book-to-bill above 1, as we've said, and that is a little bit higher than last year and, I would say, just a tick better than in line if we were to take it year-over-year and look at it. That's one of the reasons for the strong guide so far. We're seeing those bookings hit the backlog, and we're seeing the backlog grow. So right now, we're feeling fairly confident going into the new year. I'll have Sean talk to you about the software economics and how that works out.

Certainly. Thanks, Mike. Jim, you have correctly surmised that we are aggressively pursuing our software-based solution strategy. Just as you point out, things like security, also analytics and Big Data, certainly what I call the software-defined or hybrid cloud data center of the future, we think are all pretty good demand trends that we're well positioned to participate in. Specifically to your question, and this is part of our approach to cloud, is we view our strategy in cloud as really all about propelling our software-based solution strategy versus just cloud for cloud's sake. And what I mean by that, software is all about choice. Customers may want to buy software in a traditional fashion, or they might want to buy it on a subscription basis, and our job is to bring that choice to the market. As we do that, we make ourselves really sticky by building basically a recurring revenue business model. So software is a key to our solution strategy and certainly going to be good from an annuity perspective going forward.

The next question is from the line of Shawn Harrison, Longbow Research.

Several months ago, you did us a big favor and gave us kind of your mix of ECS sales in terms of software, storage, et cetera. I was wondering if we can get an update on that to see how it's changed coming into 2016 and then also, I guess, a comment on the first quarter being maybe down a little bit more than seasonally for ECS, if there's anything into that other than shift in mix.

I'll take that piece first, and then I'll give you the numbers. I'm fairly surprised that you would indicate that it's down because we're showing our guide, if we counted it right, to be up about 9% year-over-year, and I don't think the market's growing that fast. So my guess is there might be something wrong with the seasonal numbers that we have in there or you have in there, but we're looking at that as a pretty strong start. On a billing basis, software is about 40%, storage is now about 25%, services are about 15%, and servers are about 15%, networking is approximately 5%. So hopefully, that gives you a better view into what you're looking at when we talk about solutions, why we might be seeing a little bit different growth rates.

That's very helpful, Mike. And then 2 brief follow-ups. Last quarter, it was mentioned $40 million of cost takeout. Wondering how much of that's been realized to date. And also, have you bought back any stock here during January, early February?

Okay, I'm going to let Paul answer those for you.

Sure. So I'll go reverse order. We had hit our limit on the spend on the buyback, so we have not bought back any shares yet in the first quarter as a starting point. And then the other question, to be honest, [indiscernible]

[indiscernible]

[indiscernible] Thanks. I actually had it at the tip of my tongue, and I forgot the question. So we probably got about a $10 million annual run rate savings in the fourth quarter, so that's like $2.5 million. We think we'll be able to accelerate that so that we'll probably be 75% full bore by the end of the second quarter and full bore by the end of the third quarter.

The next question will come from the line of Brian Alexander, Raymond James.

Just wanted to go back to Matt's question on profitability in the components business. So it sounds like you're comfortable with hitting 5% or better margins in the first quarter, and that's generally the high watermark for the year. So I wasn't sure, Mike, if you are also comfortable in getting to 5% margins in the components business for the full year. And if you are, how much are the cost savings contributing to that versus gross margin improvement?

Well, first off, Brian, we had a pretty good quarter in Asia. We're seeing some growth in Asia. We had a big acquisition in Asia, and most of that is what really pushed it down. We do expect, as things start to normalize over the first quarter, we'll be closer to the 5% and in the 5% mark. Really, it's been -- it was geographic mix and acquisition totally that changed the trajectory of our number, and we fully expect that to correct itself. We didn't see anything in the numbers to suggest that the profits would be sort of worse than what we had, and it was purely sales-driven. Frankly, a way to make it easy for us is if the economy in the U.S. turned around, we would very easily be there. But we're not seeing the same kind of growth rates out of North America, so we have to sort of do it the old-fashioned way, got it out in the other regions and get them more productive than they were, and that's what we're doing.

Okay. And then just maybe a follow-up on Europe. Very strong growth again in both businesses, up 12% in components and 22% in computing, obviously, outpacing the market. So just your thoughts on sustaining growth in 2016 as you go up against double-digit growth comparisons in 2015. And just overall, how do you explain the very strong performance in light of the sluggish macro that we see over in Europe?

Well, the first thing is the comps will get tougher, but we're pretty confident going into the year, and we're pretty confident going into Q1, as you can see by the guidance there. Really, on the computing side, we've moved away from selling individual products to really trying to guide towards the entire solution. It's a more efficient sale. It's what our customers want. It requires a little bit higher engineering costs on our part, but so far, it really gives better customer service and satisfaction. And we think as a result of that, we're getting more around software security, virtualization and infrastructure. The security piece has grown something like 28%. I mean, it's a pretty good launch for us. So really, we're playing right into what the CIOs' problems are out there, and Sean and his team have done a good job to move the business that direction. On the components side, as you know, it's been a little bit more of a grind, a little bit more of a -- I guess I'll use one of Andy's terms now that he's retiring, sort of a tractor pull between everybody really looking for the growth. And where we're confident this year is we have seen some of these mergers bringing us the new products that we didn't have before. And the nice thing about the new products that are coming in is that they're largely engineering-based products, so there will be a higher GP associated with that. The second piece to that, Brian, is we've seen our design wins this year grow in the quarter something like 24%. And if you remember how we track that over time, we usually see those start to pay off some 6 to 8 months later from that initial design. But we've now seen a couple of quarters of the design wins creeping up, which is also good for our margin because those products sell at a higher margin than does commodity. So all in all, there's some good things right now working in the favor of our business, and those are things that we think can help us continue to grow despite what's going on in the sluggish market.

And the next question will be from the line of Mark Delaney, Goldman Sachs.

On the last call, Arrow talked about, in the month of September, that there was a drop in the bookings within components, and obviously, with the 1.05 book-to-bill, you turned that around. Is that delta, I mean, is that all just company-specific execution? Or are there any areas where macro trends have gotten a little bit better incrementally versus what you were seeing during the prior quarter?

We were not sure where it was going when we were in the third quarter. We knew what our numbers were sort of telling us, but there was a fair amount of bad news coming out of the suppliers. And what we've noted is sort of the bad news that came out of the suppliers hasn't been as bad as was originally indicated. And I think what we've seen are some of the biggest, largest supply chain customers have a pause, but underneath that, we've seen pretty steady growth. The second area that we've seen, just like everybody else, has been some of the traditional industrial accounts haven't been growing like they used to. But we've seen some increase in lighting, aerospace and defense, transportation. And basically, some of our alternative energy verticals have sort of picked up the tab. So this sort IoT piece right now is starting to play out a little bit, and we think the growth is going to be coming from a few nontraditional places over the next year.

That's very helpful. And then for a follow-up question, I wanted to just dig in a little bit more on the comment about the proprietary server refreshes. Maybe just help us how much the percentage of revenue those refreshes we're adding? I mean, is it a couple of percent to ECS revenue? And then is there some sort of point in time where, just given that that's a product refresh, that we should have in mind that that goes away?

Sean, do you want to take the refresh question?

Yes, good question. It truly is attributed to our performance in Q4. I don't think that that recurring cycle goes away because remember, in the high-end server market, we still see a lot of mission-critical workloads and applications that were made on-premise. And so that means we get to participate in and support that refresh cycle as it reoccurs over time. So I don’t see it going away, but obviously, there's ebb and flow to its contribution to our revenue.

It's interesting if you think about it. It's -- what I would say -- as I gave you the numbers at about 15% of the business and you think of the growth rates over time, servers have still sort of held their own. And whether it's proprietary or standard servers, this really hasn't changed that much, and we've seen proprietary make a big comeback. But think about it, it's not really unusual. We've seen proprietary servers pick up in the December time frame almost every year for the last several years, so I would expect it to continue. And if it's not at the same rate, that'll be okay because, frankly, they're not the most profitable items anymore, but it's still a good sale for us.

The next question will be from the line of William Stein, SunTrust.

Defying a little bit what we're seeing in the rest of semis, it seems like you've posted 2 quarters of what appear to be negative year-over-year organic growth, and you're guiding for year-over-year positive growth next quarter. It's a little bit better than what we've seen through the rest of semis. And I'm hoping you can talk a little bit about why you think you're seeing better performance than your suppliers overall. And then I do have a follow-up.

I think it can be as simple as sort of customer base expansion. When you look at where our suppliers focus their direct businesses, they're on a very limited number of very large-type accounts. And so when those accounts sort of sneeze, some of the suppliers really get the flu. And what we've been seeing is if you take some of the opportunities that are coming in from the acquisitions, some of the opportunities that will come in from the design work that was done over the last couple of quarters that hadn't panned out or had been pushed out for whatever reason, we actually see that coming in. We've got Asia that's forecasting pretty good. We've got Europe that's still forecasting well. And for the first time, we see the Americas started coming in with some growth in the first quarter. So when you add it up, it looks pretty good for us overall. But it's really sort of what I would say more products to sell, more design wins and more customers, and that's really how we're getting it.

Got it. And the next one is a bit out of the ordinary, so bear with me for a moment. But I believe Arrow has a Super Bowl commercial this year. And can you confirm that and help us understand the strategy behind that marketing spend given your traditional customer base, I think, is very well sort of a B2B model? I don’t think of this as a consumer business. Maybe help us understand that.

Yes, it's an interesting thing, but if you look at the ads and where they've been, whether it's been the work with the SAM car, the SAM car itself brought us a fair number of new customers around automotive. We've seen some IoT opportunities come outside of that specific advertising. And what's interesting is customers -- it's probably a bigger education for customers that already know us and now know that we've got engineering capabilities and we can help with solutions. You couple that with -- if you look at the markets that those ads will run, they're also in markets where we're strong and there's big customer base, and so those are not nationwide ads that are going to run. So everything is really thought through. We've been at it, as you know, some of you know, now for 3 years, where we've been placing ads at certain sporting events and things like that. And I'm quite comfortable that we're happy with the returns we're getting on them.

The next question will be from the line of Steven Fox, Cross Research.

First question, just looking at the year-on-year growth for sales and profits. I mean, this is a little nitpicky since you had such a good quarter, but sales were up 4%, excluding acquisitions, currencies, and profits were flat year-over-year. So can you just explain the difference there? I assume some of this would be acquisitions. And how quickly before you sort of see profits and sales grow at similar rates again?

I'm going to let Paul take it because he's bravely digging through [indiscernible].

You're right. He probably didn't expect that question.

Yes, I think that, Steve, there's a couple of ways we're looking at this, right? We keep talking about the fact that we're taking actions to extend our customer reach, our geography reach, and we're making investments in the business at the same time. So I think that's one thing to keep in mind as you look at this, that we are getting really best-in-class financial performance by any measure as we move forward. So we feel that we can selectively maybe temper down a little bit the traditional leverage we've gotten in sales so that we can make the investments, and they don’t always match up region by region. So I would say that's the high-level explanation of what we're seeing around the pace of growth top line versus the pace of growth at operating income.

Okay, that's helpful. And then just a big picture question. Mike, I think in your prepared remarks, you talked about the 2 businesses working more together because of some of the cloud and IoT. Can you just give a couple examples of how that's going to work and what you foresee in terms of whether that's sales leverage, profit leverage, both?

Yes, I'll give you one that's coming up on Sunday. Every one of the scoreboards that you see in an NFL stadium, they have LED lighting. They have components in them. And at the same time, every one of those scoreboards has a Big Data center that sits up there that grabs data. So while the game is going on, they can put that -- all the new stats and everything that you see, plus replays and everything else. That's a perfect example where there are 2 sales for 1 project. So if you can put your teams together, you're in much better shape than if you try to leave things separate. That's about the easiest, I think, example that I could give you off the top of my head right now where that works. So any activity that would have a data center and would have a component device that would go with it, we either have customers or no customers that we bring into these deals and try to work with them to make sure that they're profitable, and we can bring the entire strength of our business to our customers at one time.

Great. That's helpful. And should we assume that Paul's going to be prominently featured in the Super Bowl commercial on Sunday?

Yes. As you know, we'll have him wear a hat. But other than that, we'll be good.

Your next question will be from the line of Louis Miscioscia, CLSA.

Could you just help us, I guess, bridge the linearity or the thinking or the comments that you got back from last quarter, when you brought numbers down to obviously, this quarter, not materially overachieving but sort of getting back to where we were for fourth quarter numbers? So it's almost as if maybe the third quarter was a big anomaly. Or how would you describe it for us?

I would describe that we saw a big drop-off in the third quarter, in the last couple of weeks of that quarter. And that is something that was different than what we normally see. What we normally see is at the end of the third quarter, you start to see a build going into the fourth quarter. And I think I said at that time, that drop-off was enough to garner our attention. And then you couple it with what the manufacturers were saying, and it looked like we were in for a bit of a malaise, if you will. What was interesting to us is that our backlog was building, and then things sort of pushed out. So what we took was everything we had in our current forecast, and we didn't account for a lot of new products coming into the quarter and going to our customers. And I think what we ended up seeing was not as big a drop, and it looks like those last 2 quarters were just an anomaly in the data that was coming in, and I guess we were just being overly conservative. And that's really what it was. Although, even if we were to forecast it under normal circumstances, we wouldn't have forecasted a strong quarter as we actually just saw.

Okay, that's all helpful. And then on the ECS side, obviously, the Americas was a very nice quarter, up 5% after taking out acquisitions and FX. That seems to be well above the market. I mean, it depends which slice of the market, obviously, we're referring to. But some vendors have actually seen material down revenue. So could you just describe what you think the market did in the Americas or the U.S. and then how you outperformed that?

Well, what I would tell you is there were some really interesting drivers when you think about it, and it was primarily around the software front. We saw security software up pretty significant. We saw infrastructure software up pretty significant. And while it wasn't better growth than Europe, the proprietary server business was up in North America. So there was what I would say one of those quarters that everything sort of hit at once for us, and it really -- it was sort of a welcome deal. But these guys are really working hard at a complete solution for the customers, and that's pulling some of the other sales that we might have otherwise missed if we were really just focusing on individual products like storage or a server or something like that. So we're in pretty good shape with the way we attack the market. The other interesting thing is, as you know, North America has been in place longer than Europe, and we just -- Europe is still really in its infancy for us when you consider it's been, I think, less than 6 years that we took to build that up to a viable powerhouse. And we are now 40 years in a row to increase earnings out of Europe for the computer business. So I know sometimes that when you look back at things, they get bigger, but the truth is Europe has not had a hiccup now almost since inception. We've seen pretty much back-to-back great years for that long, and we do expect that to run. And there's also a good chance that Europe will learn and grow to where we get into the same profitability levels and the same sort of levels that we see in North America as we move to the sort of the next stage of that solution. So all in all, we're still pretty bullish on that business.

The next question will be from the line of Ananda Baruah, Brean Capital.

Kind of just real quickly, Andy, it's been great working with you over the years. We'll definitely miss it. No doubt about it. I guess just 2 questions for me if I could. The first is a follow-up to Steve's question with regards to the 2 businesses working together. Do you have -- I would love to hear to what extent you guys have sales force integrated or how you're getting to market across the 2 businesses to identify the opportunity? And I guess what else may exist with regards to opportunities going forward or in the future that you may not be in a position to identify yet but you may be in a position to identify kind of going forward? And I have a quick follow-up.

Yes. The big areas are when you think of IoT and then you think of the data and the data that needs to be -- something needs to be made out of it, so a company can use that to decide how they're going to grow, what products they need. Another example is you have an air-conditioner on top of a building, and instead of a service guy going out there all the time, wouldn't it be great if you got all of the particulars of what's going on with that air-conditioner over the Internet so that you could send somebody out there for pre-maintenance? That requires a system behind it to do that, too, and it requires more cloud work. It requires more data center work and higher levels of transaction. But then on the other side, you've got an appliance that's built with semiconductors and lighting devices and everything else. So it really doesn't matter. You could take into account your automobile, and in the future, they might be able to download information off of your automobile about the next maintenance stop. All of this stuff is going to require data center work. It's going to require servers. It's going to require software. And by the way, it's going to require security software. And then on the other side, it's going to require a lot of chips, and it's going to require passive components. So the more and the higher level we can get into the sales, the more sticky it is for us and the more we can help customers with a total solution. But it also changes a little bit about how we -- who we call on and how we call on them. And hopefully, that gives you a little bit of a guidepost of what's going on.

It does. That's really helpful. And do you feel that...

And what I'm going to add is there's not very many companies in the world that will be able to bring that type of a solution to a customer or even benefit our suppliers in the future.

Do you feel -- what did you put in place to be able to identify and capture the types of dynamics? Have you had to retrain some folks in a particular way? Just kind of we look across the businesses, do you feel like -- to the degree you have, do you feel like that the training is complete yet? Or where in that process might you be?

Well, since the opportunities are in their infancy, the training is in its infancy, too. The first step that we had to do was just get the 2 groups to talk to each other. And I don't mean to be flippant about it, but that's really where you have to start. And then you got to start by market, and you've got to get salespeople to see the full opportunity and then sort of bring in their brother or sister with them into that account. And right now, we're doing account training and those types of things between the groups. But we are nowhere near where we'll need to be in the future, but we're certainly not behind the curve of where we need to be today. So hopefully, that defines that for you.

Yes, it does. That's great. I appreciate it. And then just a quick follow-up for me. You mentioned in the prepared remarks that, I believe this was the context that you meant to convey, that exposure to the smaller industrial companies and customers actually is helping you in the current market dynamic to back you up. I was just wondering, first of all, could you clarify that? Did I hear that correctly? And secondarily, if that is the case, could you just sort of walk through why that actually is the case? Why does it help you in this current market dynamic?

Yes, I think that a lot of people, when they hear the Internet of Things, that is almost like you heard the cloud in the beginning, right? And so what you're seeing now is on the computer side, we have seen a lot of different types of resellers that have started up, whether they're in the cloud-borne resellers or whether they're security resellers. But what I would say, it is resellers that have not sold a server and really don't particularly care about selling the server but then want to work in the cloud, then conversely -- and these guys are smaller because the guys that were making money on hardware and were putting some software on top of it are now trying you migrate to where they can do the entire solution. And the other guys that are in there now operating on certain pieces of that solution are what we call new, but they're smaller, and you still have to pay attention to them. Same thing goes in the marketplace now. We're seeing more appliance-type builds for a single type of application. And we just talked about whether it's digital signage or whether it's something to do with automotive or whether or not it's the air-conditioner on the roof of your building, but all of that requires hardware. So there's a lot of individual engineers that are out there working on things today that are starting to come to life. That's where I think the new customer base is going to grow up into the future. And they're also going to service these industrial accounts that maybe don't quite get the software piece of it. And that's what's really missing on the semiconductor side, is that software integration, and that's right where we're going to be.

Your next question will be from the line of Sherri Scribner, Deutsche Bank.

I wanted to ask about the margins in the enterprise computing solutions segment. Over the past 3 years, you've seen operating margin expansion in that segment, and I assume it's related to your mix of business in software and services that you've talked about, but maybe also, there's some cost-cutting in that number. I was hoping you could give us a little more detail on whether it's mix or cost-cutting.

No. Our costs have gone up every year because we're growing the business overall, but it is principally around services and software.

Okay. And do you expect that to continue to see operating margin leverage going forward? So should we expect those margins to continue to trend upward based on the mix?

Yes, it's going to be -- it's going to trend based on growth rates, and right now, software growth rates aren't really slowing down all that much. In fact, we've just gone out of our mix that I shared with you. And if those mix rates continue, yes, we'll see it continue to improve. The biggest opportunity we have is to get Europe up to North America-type operating margins, and we don't see that piece slowing down for us anytime soon, so you will see that the improvement. And I would say that over time, you'll see a little leveling in North America because for us, that's starting to be mature as we've been doing that for a few years. But again, we just exited the year at almost a $200 million run rate of terrific cloud sales now that Sean has put together. And that's going to work out to be a good business for us, too. So the more things that we can touch, the more things that we can service and the more things that we can integrate, the better off we're going to be.

Okay, great. And then I wanted to ask a big picture question. Mike, I think at the beginning of your prepared comments, you mentioned that your view is that things don't meaningfully change for the economy. And it sounds like, at least for the next quarter, you guys are pretty confident, based on your bookings, on what you're hearing from customers. So I think there's a view out there that potentially, at least the U.S. market, could slow considerably. Are you getting any sense of that from any of your customers? Or are you still generally pretty positive?

Right now, we're pretty positive on the first quarter. On the components side, we're pretty positive. As you know, there's a natural decline on the computer products side, but that is still up almost 9% year-over-year, and so we're seeing the solution hold in North America. My current view is that things are not getting worse at this point, and if there's stabilization, which we sort of believe there is right now, so stabilization, that'll work in our favor because then you're not taking 2 steps forward and 1 step back. It's just you continue to better the situation or the hand that you're being dealt.

And at this time, ladies and gentlemen, we have no further questions in queue. I'd like to turn the conference back over to Mr. Steve O'Brien for any closing remarks.

Thank you, Derek. In closing, I will review Arrow's safe harbor statement. Some of the comments 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. If you have any questions about the information presented today, please feel free to contact me. Thank you for your interest in Arrow Electronics, and have a nice day.

Ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.