艾睿电子 (ARW) 2026年第三季度业绩电话会：创纪录营收与第四季度展望

核心要点

• 艾睿电子（Arrow Electronics）公布2026财年第三季度营收达到创纪录的107亿美元，同比增长39%；Non-GAAP摊薄每股收益（EPS）同比增长158%，达到创纪录的6.22美元。
• 得益于出货量增加、生产力提升举措及经营杠杆效应，Non-GAAP营业利润增至4.36亿美元，营业利润率同比扩大130个基点至4.1%。
• 全球元器件业务营收达79亿美元，环比增长8%。订单出货比（Book-to-bill）持续显著高于1，在手积压订单已排至2027年年中。
• 全球企业计算解决方案（ECS）营收同比增长29%至28亿美元。开票额（Billings）增长14%至59亿美元，计算、存储、安全、云及混合云产品需求表现全面向好。
• 管理层指引2026财年第四季度营收为115.5亿至121.5亿美元，Non-GAAP摊薄每股收益为7.00至7.20美元。
• 存货环比增加14亿美元至73亿美元，其中包括约6亿美元与艾睿智能解决方案（Arrow Intelligent Solutions）项目相关的存货，计划在后续季度发货。

关键财务数据

业务与运营表现

全球元器件业务

全球元器件业务实现营收79亿美元，较上一季度增加5.77亿美元，环比增长8%。Non-GAAP营业利润环比增长4%至4.13亿美元。营业利润率为5.2%，环比下降20个基点，但同比提升160个基点。

管理层表示，各地区、终端市场及客户群体的需求均呈现普遍增长。订单出货比持续显著高于1，交付周期在本季度有所延长，积压订单继续增加并排至2027年年中。不过，交付周期仍远低于此前的历史峰值水平。

互连、被动元件和机电（IP&E）产品销售额连续第三个季度突破10亿美元。美洲地区的环比增长主要由航空航天与国防、工业、交通运输以及计算领域带动；欧洲、中东和非洲（EMEA）地区受益于航空航天与国防及网络业务；亚洲地区的增长则由工业、网络和交通运输领域驱动。

管理层指出，部分品类（尤其是存储芯片）产能受限引发价格上涨，对营收和利润金额构成支撑。第三季度元器件业务的营收增长主要由价格上涨驱动，但由于大多数供应商提价已在第三季度生效，公司预计第四季度的环比增长将主要来自出货量增加。

全球企业计算解决方案（ECS）

全球ECS营收同比增长29%至28亿美元（按固定汇率计算增长30%）。开票额达59亿美元，增长14%。Non-GAAP营业利润增长53%至9900万美元，营业利润率扩大60个基点至3.6%。

强劲的市场需求、良好的供货状况、客户准备就绪以及积压订单加速转化共同提振了业绩。管理层还通报了与一家超越分销合作模式（beyond-distribution）伙伴的两项表现欠佳的多年期合同进展：其中一项已终止，另一项已完成重组。

计算解决方案、商业应用、存储、安全、云及混合云领域的需求持续保持向好态势。管理层认为这与AI部署及更广泛的基础设施现代化升级密切相关。

预计第四季度ECS业务中的硬件占比将有所提升。管理层表示，由于硬件收入多按总额法确认，该业务组合将压低财报中按净销售额计算的营业利润率。不过，预计按开票额计算的利润率将同比基本保持平稳。

增值服务与营运资金

上一财年，增值服务占艾睿电子营业利润的约30%。管理层预计2026财年该占比将有所下降，原因是核心元器件业务及其他板块增长迅猛，而非增值服务本身表现不佳。

在环比增加的14亿美元存货中，约有6亿美元与艾睿智能解决方案（Arrow Intelligent Solutions）相关。该业务致力于为客户构建并测试小批量、多品种的计算与存储系统。管理层表示，该部分存货主要用于支持预计在未来数个季度发货的大额订单。

Non-GAAP营运资金回报率同比提升10.6个百分点至22.6%，Non-GAAP投入资本回报率同比提升7.8个百分点至15.1%。

管理层业绩指引

管理层预计ECS业务将受益于正常的第四季度季节性旺季效应（历来为其表现最强的季度）。元器件业务方面，业绩指引的前提是增长主要来自出货量增加，而非存储芯片或供应商的进一步提价。

风险与关注重点

• 部分领域（尤其是存储芯片）产能受限导致交付周期延长并限制了供货能力。管理层表示，若有额外存货可用，艾睿电子本可以实现更高的销售额。
• 随着艾睿电子为客户后续发货备货系统，存货大幅攀升。这是导致第三季度出现4.41亿美元经营性现金净流出的主要原因。
• 应收账款周转天数（DSO）和应付账款周转天数（DPO）同比均增加约100天。管理层将其归因于供应链服务业务，在该业务中，尽管被描述为轻营运资金模式，但艾睿电子仍负责结算应收和应付账款。
• 尽管管理层预计按开票额计算的利润率将同比大致保持稳定，但ECS业务中更高的硬件占比预计将对财报中按净销售额计算的营业利润率构成压力。
• 随着大众市场需求复苏，交付周期正在延长，不过管理层表示，当前状况仍远未达到疫情期间普遍严重短缺的程度。

分析师问答环节要点

存储芯片定价与供应：管理层表示，第三季度元器件业务的大部分营收增长来自价格上涨，尤其是存储芯片。第四季度展望假设几乎没有额外的提价效益，主要由出货量驱动。市场需求依然强劲，但受限的产品供货能力制约了潜在销售额。

渠道库存与交付周期：管理层指出，机器人、自动化、电源、交通运输、航空航天与国防等大众市场品类的复苏呈现广泛特征。供应商持续向艾睿电子提供管理层认为合理的库存份额，目前并未发现供应商针对特定技术或终端市场扣留产品的迹象。

ECS利润率解读：管理层强调，按开票额计算的利润率能更好地衡量ECS的基础业务表现，因为软硬件比例结构会实质性影响财报中的净营收和营业利润率。第四季度按开票额计算的利润率预计将同比相对持平。

管理层变动：在艾睿电子工作22年后，ECS总裁Eric Nowak计划退休。他将留任该职位至年底，并担任顾问直至2027年第一季度。Rodney Clark定于11月9日加入艾睿电子，并于1月1日正式出任ECS总裁。

业绩电话会完整纪要

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完整财报电话会议逐字稿

管理层陈述

Operator

Good day, and welcome to the Arrow Electronics Third Quarter 2026 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Michael Nelson, Arrow's Vice President of Investor Relations. Please go ahead.

Michael Nelson

Thank you, operator. I'd like to welcome everyone to the Arrow Electronics Third Quarter 2026 Earnings Conference Call.

Joining me on the call today is our Interim Chief Executive Officer, Bill Austen; our Chief Financial Officer, Raj Agrawal; our President of Global Components, Rick Marano; and our President of Global Enterprise Computing Solutions; Eric Nowak.

During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, plans and projections regarding future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including due to the risk factors and other factors described in this quarter's associated earnings release in our most recent annual report on Form 10-K and other filings with the SEC. We undertake no obligation to update publicly or revise any of the forward-looking statements as a result of new information or future events. You can access our earnings release at investor.arrow.com, along with a replay of this call. We've also posted a slide presentation on this website to accompany our prepared remarks and encourage you to reference these slides during this webcast.

As a reminder, some of the figures we will discuss on today's call are non-GAAP measures, which are not intended to be a substitute for our GAAP results. We've reconciled these non-GAAP measures to the most directly comparable GAAP financial measures in the accompanying slide presentation. Following our prepared remarks today, Bill, Raj, Rick and Eric will be available to take your questions.

I'll now hand the call over to our Interim CEO, Bill Austen.

William Austen

Thank you, Michael, and good morning, everyone. We appreciate you joining us for a discussion of our third quarter 2026 results. I would like to start by recognizing our global teams for their continued dedication and disciplined execution. Their commitment to supporting our customers and suppliers has been instrumental in driving another quarter of excellent performance.

Beginning on Slide 3, we delivered another quarter of strong results with record total revenue and EPS. Total revenue of $10.7 billion increased 39% year-over-year while non-GAAP operating margin expanded 130 basis points year-over-year to 4.1%. Strong revenue growth and positive operating leverage resulted in non-GAAP diluted EPS of $6.22, representing a significant year-over-year earnings growth of 158%.

Our strong performance this quarter was fueled by 4 key drivers that contributed meaningfully to our performance. First, focused execution across the business, including effective management of expenses and working capital, while serving strong customer demand. Second, positive operating leverage resulting in meaningful year-over-year margin improvement. Third, sustained unit volume demand combined with pockets of limited capacity resulted in increased benefit from price inflation. And fourth, continued contribution of higher-margin value-added services.

From a segment perspective, both Global Components and Global ECS contributed to our strong performance. Our global components demand remains strong and broad-based across geographies, verticals and customers and our leading indicators continue to give us confidence in the durability of demand and the sustainability of growth. Book-to-bill ratios remain well above parity, while our backlog continues to build into mid-2027, improving our visibility.

We have also seen lead times gradually extend but remain lower than a pervasive shortage environment. ECS posted a strong quarter, exceeding expectations through a combination of robust customer demand and improved backlog conversion, demand continues to build across key technology categories, including AI, cloud, cybersecurity and hybrid infrastructure, driving healthy growth in our billings and backlog.

Turning to Slide 4. Arrow remains well positioned to deliver long-term growth. We've discussed 4 pillars of our investment thesis over the past several quarters, and we continue to execute in these areas to further drive strength in our business model to solidify our competitive positioning. First, Arrow maintains a strong position across its 6 large and growing core end markets: industrial, transportation, aerospace and defense, medical, consumer electronics and data centers. Each of these markets is supported by an attractive secular demand trends that continue to create growth opportunities.

Second, our differentiated capabilities continue to drive profitable growth as we expand into higher-margin value-added services. Third, Arrow's combination of global components and ECS creates a diversified business model that provides financial flexibility. I'd like to spend a moment here on ECS and highlight the progress we have made against our strategy to become the leading aggregator of AI and hybrid cloud solutions for the mid-market.

Central to this strategy is our highly scalable, value-added model, which provides technology suppliers with significant reach while expanding access and capabilities for our channel partners. Arrow's scale is especially important because it allows us to connect the world's leading technology providers with channel partners and end customers as demand continues to grow for AI, cloud, cybersecurity and hybrid infrastructure solutions.

The ongoing build-out of AI is driving customers to modernize their technology environments. Customers are investing in additional compute, storage, networking and cybersecurity capabilities to support growing data and performance requirements while also expanding their use of cloud-based solutions. For Arrow, these trends are being driven primarily by mid-market and enterprise customers, who are increasingly deploying hybrid environments that blend cloud adoption with upgrades to their on-premise infrastructure.

As a result, we're seeing healthy demand across the core technologies that underpin AI readiness, digital transformation and long-term IT modernization. We're seeing continued validation of our strategy through recognition from some of the industry's most important players, including NetApp, where we were recognized as the North America Distributor of the Year for 2026, reflecting the strength of our partnership and success driving growth across the channel.

HPE where we extended our partnership through the addition of distribution rights for the Juniper product lines across North America and select EMEA markets, further enhancing our ability to deliver HPE's full portfolio to channel partners. IBM, where we expanded our long-standing relationship through additional distribution coverage across 7 additional countries in EMEA, increasing our reach and scale with this strategic supplier. Oracle, where we were recognized as the Global Cloud Distributor of the Year, reflecting accelerated Oracle Cloud adoption through partner recruitment, technical enablement and joint go-to-market initiatives. And finally, IDC, where we were recognized as a Cloud Platform Leader reflecting ArrowSphere's differentiated cloud life cycle management capabilities reinforced by recent Microsoft and AWS Distributor of the Year recognitions.

These achievements highlight the strength of ECS' value proposition underpinned by our expanding ecosystem and category leadership, our deepening strategic supplier relationships our growing exposure to high-growth technologies. ECS continues to be uniquely positioned as a critical enabler of technology adoption and we remain confident in our ability to drive long-term growth and value creation for this segment in the years ahead.

Turning back now to our investment thesis. Fourth and finally, our capital allocation priorities remain unchanged. We are focused on maximizing long-term shareholder value by deploying capital towards opportunities that offer attractive long-term risk-adjusted returns while maintaining our investment-grade rating.

Turning to Slide 5. Our strong third quarter performance reflects the continued momentum and strong operational execution across the business. We remain focused on expanding our portfolio of solutions and capabilities across both global components and ECS to higher-margin value-added services. We are confident these offerings will deepen customer engagement, broaden our market opportunities and drive sustainable growth. We are equally committed to delivering profitable growth and driving positive operating leverage through disciplined execution and effective financial management. We're encouraged by the strength across our business and are excited about the opportunities ahead as we continue executing our strategy to deliver sustainable long-term shareholder value.

With that, I'll turn it over to Raj to discuss our financial performance in more detail.

Rajesh Agrawal

Thanks, Bill. On Slide 6, sales for the third quarter increased $3 billion year-over-year to $10.7 billion, representing a record level and up 39% versus prior year. Third quarter consolidated non-GAAP gross margin as a percent of sales was 10.8%, flat versus the prior year. Our third quarter non-GAAP operating expenses increased $104 million year-over-year to $719 million, primarily driven by variable costs. Importantly, non-GAAP OpEx as a percent of gross profit declined 11.6 percentage points year-over-year to 62.3%. We remain focused on disciplined profitable growth and our improved operational efficiency is driving substantial operating leverage in the business model.

In the third quarter, non-GAAP operating income increased $219 million year-over-year to $436 million. Non-GAAP operating margin rate expanded 130 basis points year-over-year to 4.1% of sales. Interest and other expense was $40 million in the third quarter as we benefited from lower average debt levels throughout the quarter, and our non-GAAP effective tax rate was 19% as we benefited from a tax settlement. Finally, non-GAAP diluted EPS for the third quarter increased 158% year-over-year to $6.22, a record EPS for Arrow. This was above our guidance range driven by a number of factors primarily favorable sales volume and operational leverage from our productivity initiatives, along with lower interest expense and the aforementioned tax settlement.

Turning to Slide 7. Let's take a closer look at our global components business. Global components sales increased $577 million sequentially to $7.9 billion in the quarter, above our guidance range at up 8% versus prior quarter. Global Components non-GAAP operating income increased $16 million sequentially to $413 million, up 4% from the prior quarter. Non-GAAP operating margin declined 20 basis points sequentially to 5.2% and was up 160 basis points versus the prior year and well ahead of expectations. Our strong results reflect continued momentum across the business. Our growth remains broad-based, spanning geographies, end markets and customer segments, reinforcing our confidence that demand is being driven by a diverse and healthy set of underlying factors.

First, book-to-bill ratios remain well above parity. Second, lead times extended further during the quarter, though they remain well below prior peak levels. Third, our backlog continued to build and now extends into the middle of 2027, providing us with greater visibility and supporting our view that demand remains durable. Lastly, interconnect, passive and electromechanical components or IP&E, continues to grow, surpassing $1 billion in sales for the third consecutive quarter. These leading indicators strengthen our confidence in both the sustainability of current growth trends and the underlying health of the market. Importantly, demand trends remained resilient from a unit volume perspective, demonstrating continued stability in end market consumption.

However, pockets of limited capacity are leading to price inflation with certain component categories, most notably memory. Higher prices are benefiting both revenue and profit dollars. In addition to product distribution, our value-added capabilities remain an important differentiator. Customers continue to leverage our supply chain services, engineering and design and integration services to navigate an increasingly complex environment. These higher value engagements not only deepen customer relationships, but also contribute meaningfully to profitability and reinforce the strategic role we play across the electronics ecosystem.

Taking a closer look at each of the regions. In the Americas, sequential sales growth was broad-based highlighted the strength in aerospace and defense, industrial, transportation and computing. In EMEA, the market was underpinned by sequential strength in aerospace and defense and networking. And finally, in Asia, sequential growth was driven by industrial, networking and transportation.

Turning to Slide 8 and our global ECS business. In the third quarter, global ECS sales increased $619 million year-over-year to $2.8 billion, above our guidance range and up 29% versus the prior year, or up 30% year-over-year on a constant currency basis. Total ECS billings were $5.9 billion, up 14% year-over-year. Third quarter non-GAAP operating income increased $34 million year-over-year to $99 million, up 53% from the prior year. Non-GAAP operating margin increased 60 basis points year-over-year to 3.6%.

Our third quarter results significantly exceeded expectations, driven by strong demand and our ability to convert a larger percentage of backlog into revenue Strong execution across the organization, combined with product availability and customer readiness enabled us to accelerate backlog conversion and deliver results ahead of expectations. We also made important progress on 2 underperforming multiyear contracts with one of our beyond distribution partners. We terminated one contract, which we discussed last quarter, as well as successfully restructured another key contract with the same partner this quarter. The result of both of these actions put the business on a healthier trajectory and has created a stronger foundation for future growth and profitability.

We are encouraged by the early results and believe these actions better align the business with our long-term strategic objectives. Demand trends remained favorable with investments in AI and broader infrastructure modernization continuing to shape technology spending. Consistent with these trends, we delivered year-over-year growth across nearly every major area of strategic focus within the business, including compute solutions, business applications, storage, security and cloud and hybrid cloud offerings. As organizations continue to modernize their environment and prepare for the next wave of AI-driven adoption, we believe Arrow remains well positioned to help customers navigate that transition while driving profitable growth across the business.

Turning to the balance sheet on Slide 9. Net working capital grew sequentially in the third quarter by approximately $900 million ending the quarter at $7.7 billion. Inventory grew sequentially by $1.4 billion, ending the third quarter at $7.3 billion. Nearly half of the inventory build was related to data center activity within our Arrow Intelligence Solutions. In this offering, we're helping to design, build and test the compute and storage infrastructure needed to run AI workloads. And this value-added service is a margin-accretive business for Arrow.

As we continue to experience robust demand, we will strategically invest in inventory that is needed to support our customers. Importantly, our investments are driving attractive returns and the financial metrics that we monitor continue to illustrate a healthy business profile. Non-GAAP return on working capital increased 10.6 percentage points year-over-year, finishing the third quarter at 22.6%, likewise, non-GAAP return on invested capital increased 7.8 percentage points year-over-year, finishing at 15.1%. Working capital as a percent of sales finished the third quarter at approximately 18% and our cash conversion finished at 78 days.

Cash flow used for operating activities in the third quarter was $441 million. On a year-to-date basis, cash flow generated from operating activities was $577 million. Gross balance sheet debt at the end of the third quarter grew sequentially by $581 million and declined year-over-year by $378 million, finishing at $2.8 billion. Overall, our lower debt levels, along with increased profitability have improved our adjusted leverage ratio by overturn the past 12 months to 1.9x, which provides us with increased financial flexibility. Finally, we repurchased $93 million in shares in the third quarter.

Now turning to Q4 guidance on Slide 10. We expect sales for the fourth quarter to be between $11.55 billion and $12.15 billion, representing an increase of 36% year-over-year at the midpoint of the range. We expect global components sales to be between $8.15 billion and $8.55 billion, representing sequential growth of 5% at the midpoint. Enterprise computing solutions should benefit from typical fourth quarter seasonality, which historically has been the strongest quarter of the year. We expect sales to be between $3.4 billion and $3.6 billion, which is up 22% year-over-year at the midpoint.

We're estimating a tax rate in the range of 23% to 25% and interest expense of approximately $50 million. Our non-GAAP diluted earnings per share is expected to be between $7 and $7.20. Details about the impact of changes in foreign currencies can be found in our earnings release.

I'd like to offer some additional color on both of our segments. In Global Components, the sequential growth in our outlook is expected to be driven primarily by unit volume as the majority of supplier price increases took effect in the third quarter. Overall, the business remains healthy, supported by a more favorable geographic mix, continued mass market momentum, contributions from value-added services and ongoing leverage from our productivity initiatives. In ECS, we expect hardware to represent a larger portion of revenue in the fourth quarter, which will drive a higher mix of sales recognized on a gross basis as we've seen throughout the year.

We expect margins on a billings basis to be relatively unchanged from the prior year, demonstrating the resilience of the overall business. Altogether, our focused execution and financial discipline across the business position us to continue to build momentum against our strategic priorities while enhancing operating leverage and supporting long-term earnings growth.

With that, I'll now turn the call back over to Bill for closing remarks.

William Austen

Thanks, Raj. Turning to Slide 11. As we look ahead, we remain focused on disciplined execution, building on the operational momentum we have established and further improving the quality of our growth. Arrow remains uniquely positioned at the intersection of several powerful secular growth trends. In Global Components continued investment in artificial intelligence, aerospace and defense, industrial automation, and the broader digitization of the mass market continues to create opportunities across our portfolio. We are increasingly seeing these trends expand beyond early adopters and large customers into a much broader base of enterprises and industrial customers.

At the same time, in ECS, as AI deployments continue to expand, customers are investing to modernize their technology stacks. Demand remains strong for compute, storage, networking, cybersecurity and cloud solutions as organizations build the infrastructure required to support increasingly sophisticated workloads. The quality of growth across Arrow continues to improve. We are benefiting from a healthier mix of customers, geographies and value-added services, while strong execution is driving positive operating leverage throughout the business. As a result, we are not only delivering growth but doing so in a way that strengthens profitability and positions us for sustained performance.

We are proud of the progress we have made, confident in the path ahead and remain focused on delivering sustainable long-term value for all of our stakeholders.

Finally, I'd like to share some recent leadership changes. After 22 years with Arrow, ECS President, Eric Nowak, has announced his plans to retire. He will remain in his role through the end of the year and will then serve as an adviser until the end of Q1 2027. I want to thank Eric for his exceptional leadership and many contributions to Arrow over the years.

We're pleased to welcome Rodney Clark who will join Arrow on November 9 and will succeed Eric as President of ECS effective January 1. Rodney brings significant global leadership experience across the commercial channel and technology sectors having spent his career working closely with suppliers and customers. We look forward to welcoming Rodney as we continue to build on the success of ECS, deepen customer relationships and execute our strategic priorities.

Also, we're excited to welcome [ Anuj Gore ] as our Chief Information and Technology Officer effective November 9. Anuj brings extensive experience leading IT organizations and business transformations through prior senior leadership roles overseeing significant technology investments, acquisition integrations and AI frameworks. I would also like to thank Rami Levy, our Chief Strategy Officer, for her interim leadership of our global IT organization during this transition.

With that, Raj, Rick, Eric and I would be happy to take your questions. Operator, please open the call for questions.

Operator

[Operator Instructions] Your first question comes from the line of Will Stein with Truist Securities.

分析师问答

Aidan Wilson

It's Aidan on for Will. I was wondering if you could discuss the impact that memory prices had maybe in both segments, please?

William Austen

Go ahead, Raj.

Rajesh Agrawal

Yes. For the third quarter, memory prices were certainly up quite a bit. Most of our revenue growth in the components business was driven by price increases. -- in the third quarter. We have not assumed a lot in terms of memory price increases or other things in the fourth quarter. That's primarily unit volume driven.

Having said that, the demand environment continues to be extremely strong. If we had gotten our hands on more product, we would have sold more. And so the environment itself is very, very strong. We feel very good about where things are. And that's what we've assumed at this stage.

Aidan Wilson

Great. And then if I could sneak in another one. Could you maybe quantify how much the value-added services are contributing to profitability today?

William Austen

Well, for last year, they contributed about 30% of our operating profit as a company this year because we've had so much growth in the rest of the company and in our core components business that number is going to be lower than it was last year. We haven't quantified it yet, but it's certainly going to be drifting lower, not because it's not performing well, but primarily because everything else is growing so much this year. So it's still a significant contributor to our bottom line.

Aidan Wilson

Awesome.

Operator

Your next question comes from the line of Ruplu Bhattacharya from Bank of America.

Ruplu Bhattacharya

My first question relates to working capital. Raj, a couple of things. The inventory was up $1.4 billion sequentially. You mentioned Arrow Intelligence Solutions, and you said something about building compute and storage. Can you just kind of describe what that business is? Is this a manufacturing business? What are the margins in that business? And how big is it from a revenue standpoint?

And the second question I have on working capital is if we look at Slide 9, it looks like DSO and DPO both have increased about 100 days year-on-year. So what -- is it that you're having to give more payment terms, extended payment terms to clients? Or is this related to supply chain services business? If you can just kind of explain or describe what's happening with the DSOs and the DPOs. And I have a follow-up.

Rajesh Agrawal

Yes. Maybe I can start with the -- you want to start Bill?

William Austen

Ruplu, this is Bill. On the AIS, what we call Arrow Intelligent Solutions, that's AIS. That's what we've talked about in the past. It's part of our value-added services, and that's where we build specific appliances that are low volume, high mix for customers. So we have got business with lots of customers building rack storage compute racks. And the inventory is up because we have large orders in the pipeline that didn't ship within the quarter and they're just going to ship within the next quarters. We need to bring that inventory in ahead of time so that we can build it, test it and then ship it. So that's all going to go through. And of the $1.4 billion of inventory, about $600 million of that would have been related to AIS.

Yes. And I'll let Raj answer the other part of the question?

Rajesh Agrawal

Yes. And the second part of your question, Ruplu. You're right, the DSOs and DPOs are up about 100 days year-on-year. That's been primarily driven by our supply chain services offering. Just as a reminder, that's a working capital-light offering that we have, but we are settling AR and AP in that business. And so you will see those things ballooning out. So nothing different than we've been calling out every call. So it's the same factors that are driving it. So nothing unusual there.

Ruplu Bhattacharya

Okay. Can I ask a follow-up on margins, specifically for the ECS segment margins. The fourth quarter is typically a strong quarter. And when we look year-on-year, mean it typically has good growth. I mean you get into the 6 handle in terms of operating margins. You made a point that this year, you're going to have more hardware versus software and services. So how does that impact -- was there any -- is there anything to keep in mind as we model out operating margin for ECS in the fourth quarter?

Rajesh Agrawal

Yes. Yes. Let me start and then, Eric, please feel free to add in. The margins for ECS, the net sales are driven by more hardware sales, as we had mentioned. And so that does depress reported margins on a net sales basis, but you also have to look at billings based margins, Ruplu, in that business in particular, because the mix can change quite a bit between hardware and software, that has a direct impact to net sales reported margins. But billings base margins in the third quarter were up actually year-over-year, and then in the fourth quarter, we see billings base margins being relatively flat year-on-year. And so that's a great indicator of the true health of the performance of that business. So the business is firing on all cylinders.

Yes, you're right. Net sales margins have historically been above 6% in the fourth quarter. But -- and we're implying something that's lower than that in this fourth quarter, but nothing has really changed there, and we're actually doing very well in the business. Eric, do you want to add anything to that?

Eric Nowak

Yes, exactly as Raj described, it's difficult for us to basically manage the mix of the business. We had much more hardware sales in Q3. It will be the same in Q4 because our suppliers are very efficient in our ability to ship hardware. And that's why, basically, on a net sales basis, the margins are down. But on a billings basis, which is what we are looking for, it's -- but it's flat. So basically, it's on track.

Operator

Your next question comes from the line of Melissa Fairbanks with Raymond James.

Melissa Dailey Fairbanks

Doing well. Drinking from the firehose, it feels like. But -- yes, congrats on the results, and I know it's extremely difficult to model these businesses. Raj, I think, in answering, I think it was Will Stein's question, the first question, you mentioned if you had been able to get more inventory, you could have shipped more through and I know what we've heard from some of your supplier partners over the past couple of weeks is that lead times are extending, channel inventories are probably at record lows in Asia, in particular, starting to come down in Europe. U.S. is a little bit higher.

But just wondering what you are seeing in terms of lead times, channel inventories, availability, your ability to meet end market demand?

Rajesh Agrawal

Melissa, maybe I'll give it to Rick Marano. He's the expert here, and so I [indiscernible] let him speak to it.

Richard Marano

Yes. Melissa, I guess I'd answer the question this way, overall. We've talked about this in the past. We've talked about the recovery and how the recovery has gradually come along. And if you think about it through that lens, as what we call the mass market customer base comes back and continues to come back. They come back to lead times that are expanding as well. And as lead times expand, obviously, our ability to turn inventory or get inventory becomes a little bit more constrained. It doesn't mean in any way, shape or form, that we believe that we're not getting our fair share of inventory.

What we're seeing is the contribution of a market that's recovering, lead times are expanding and those converging just means it gets more difficult to get inventory in when we want to get inventory in. What I would say is this is look at it from a perspective of the health of the market overall, and take outside of it, look outside the traditional verticals to which we look at, if you expand it and look at areas like robotics or automation or power, things of that nature, all those segments are coming back, and they're coming back strong and they're coming back globally as well.

So it's a nice healthy recovery. It continues to cover, Lead times continue to expand, but lead times have not expanded like we saw in the COVID period in any way, shape or form yet. So it's -- of course, we can get more inventory, we could turn more inventory, but we are getting a fair amount of inventory, and it's reflective of what we see in our bookings and our backlog out in future quarters.

Melissa Dailey Fairbanks

Okay. That's super helpful. Maybe as a follow-up, you mentioned some of these end markets where there are higher value end markets like in aerospace and defense and some of the industrial automation, robotics, all of those types of areas. Are you starting to see any behavior on behalf of the suppliers where they're going to hold more internally and not push inventory out to distributors like what we saw during the COVID times? Or is this still -- were still business as usual? It's just extended lead times?

Richard Marano

I think it's business as usual and extended lead times. And I think, quite honestly, that's reflective of what we're seeing, Melissa, when we look out in time, and Bill and Raj both talked about visibility as we move out into the first half of '27. And that visibility is reflective of a recovery across the BaaS market and these vertical markets as well. So I don't, in any way, shape or form see suppliers in any way, not giving us product based off the end market or technology.

William Austen

Yes. No, Melissa, our backlogs and our -- if you look at our sales sequentially in some of the markets that Rick talked about, robotics power conversion, energy, automation, Sequentially, these are increasing rapidly on a -- from a sales basis, and our backlog is increasing in those categories as well. So we see this as a very broad-based cycle, if you will, beyond just storage and compute, transportation, aerospace and defense. We're now starting to see the mass market coming back with a lot of momentum.

Melissa Dailey Fairbanks

Great. Keep up the good work, guys.

William Austen

Thanks, Melissa.

Operator

There are no further questions at this time. I will now turn the call back to Bill Austen for closing remarks.

William Austen

Thank you. Thank you, everyone, for joining today, and I look forward to speaking with all of you soon. I also want to take a moment to thank all of my Arrow colleagues for delivering an excellent result in Q3, and I'm really looking forward to Q4. Have a great day, everybody.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.