In a move to expand its Internet of Things (IoT) capabilities, Arrow Electronics Inc. (NYSE:ARW) recently announced entering into a definitive agreement to buy a product engineering and software services company — eInfochips.
The companies did not disclose the transaction value, but according to The Economic Times, the deal is valued at Rs 1,800 crore, which, as per yesterday’s currency exchange rate, amounts to approximately $284 million. The transaction is anticipated to close by the end of January.
About eInfochips
Founded in 1994 and headquartered at San Jose, eInfochips is one of the largest design and managed services companies in the world. The company is specialized in chip designing for products and IoT solutions. Currently, it has more than 1,500 employees across its offices in India, the United States and Japan.
eInfochips has clients across various industries, including retail, industrial automation, healthcare, and aerospace. Per the company’s website, 60% of its revenues come from Fortune 500 companies and 80% from solutions based on connected devices.
Rationale Behind the Acquisition
The acquisition of eInfochips will not only broaden Arrow Electronics’ IoT capabilities but will also add a large skilled talent pool. Michael J. Long, chairman, president, and chief executive officer of Arrow Electronics noted, “Upon close of this acquisition, eInfochips advances our IoT strategy, expands our offerings, and moves us into the rapidly growing IoT services market. As a result, we will deliver complex and connected IoT solutions and technologies across multiple cloud platforms.”
Apart from this, the acquisition will be accretive to the electronic parts distributor’s top and bottom lines, as according to Livemint, eInfochips generates annualized revenues of more than Rs 500 crore and Rs 100 crore profits.
Arrow Electronics has outperformed the industry to which it belongs to in the last one year. The stock has gained 11.3%, while the industry lost 2.2% of its value in the said period.
Bottom Line
We believe the latest acquisition will help Arrow Electronics as it pursues opportunities in the ever-growing IoT space. Given the consistently rising number of connected products making way into our everyday lives, IoT is poised to grow strongly. This buyout provides the company with some key capabilities to cater to this huge opportunity.
Arrow carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are NVIDIA Corporation (NASDAQ:NVDA) , Micron Technology, Inc. (NASDAQ:MU) and STMicroelectronics N.V. (NYSE:STM) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term expected earnings per share growth rates for NVIDIA, Micron and STMicroelectronics are 10.3%, 10% and 5%, respectively.
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Arrow Electronics, Inc. (ARW): Free Stock Analysis Report
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