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WIKI ANALYSIS
Corporate Profile and Strategy
Brightpoint, Inc. (CELL) is a leader in global distribution of wireless devices and the provision of customized logistic services to wireless equipment manufacturers and carriers. In 2006, the company handled nearly 56 million wireless devices as it continues its global expansion initiatives. Brightpoint has strategic arrangements with many of the leading handset manufacturers and wireless carriers, including Vodafone, Virgin Mobile, Alltel, AT&T, Motorola, Samsung, Orange, T-Mobile, LG, Nokia and Kyocera. The company serves over 25,000 customers in 25 different countries. Brightpoint reports in two different segments: Distributions (92.1% of third quarter 2007 revenue), and Logistic services (7.9%).
Investment Thesis
Brightpoint's impetus for continued financial improvement remains its diversity, as the company provides a full range of distribution and logistics services and it expands on a global basis to emerging markets. While overall top-line revenue growth is likely to remain strong, the company's tight operating margin condition limits investments in new business endeavors. However, management continues to seek new initiatives including customer handling of handsets, in particular PDA's, data and 3G wireless devices. The following provides some highlights to be considered:
Demand for wireless devices throughout the world is expected to remain healthy for the next several years. This will facilitate the organic growth of Brightpoint's traditional handset distribution business. During the third quarter of fiscal 2007, the company managed 22 million of wireless devices, up 75% year-over-year. According to industry sources, the mobile industry grew by 17% year-over-year during this period as the company business is highly correlated with overall handset growth projections. The company is now projecting to handle 110 million 115 million of wireless devices in fiscal 2008. If achieved, this will represent 8%-9% share in global mobile handset distribution market.
Brightpoint's gradual removal of the slow moving inventory levels in the Asia-Pacific region fostered improved financial conditions. The total amount of slow moving inventory was $14 million at the end of the third quarter, down from $34.4 million at the end of the previous quarter. This generated $108 million cash from operations. The company is expecting to deplete aged inventory by the end of 2007.
The acquisition of CellStar's U.S. and the Miami-based Latin American operations expanded the company's product offerings, as well as broadened its operations in South America. Brightpoint's recent acquisition of Dangaard Telecom of Denmark is a significant move towards improving the company's market share, geographic presence, and product offerings. Mobile handset manufacturers are looking for large entities that will be able to manage an array of distribution logistic assignments on a global basis. The combined entity has become the largest wireless device distributor and logistic operator in the industry. As a result of these acquisitions, the company is now serving over 25,000 customers in 25 different countries.
On July 31, 2007, Brightpoint syndicated an amendment to its global credit agreement that has increased the loan available under the secured revolving credit facility from $240 million to $300 million. This will enable the company to more effectively deploy funds to expand its global operations.
Brightpoint increased its presence in the Middle East market of Dubai and the Asia-Pacific market of Singapore. Significant growth of the distribution business in Singapore was one of the reasons for the 86% year-over-year total revenue growth during the third quarter 2007. Presently the company is quickly improving its market share in the emerging markets of India and China. In addition, high-margin logistic services agreement with T-Mobile in the U.S. market is expected to boost overall performance in future reporting periods.
During the reported quarter, Brightpoint entered into a series of logistics arrangements, includng Vetaphone in New Zealand & Asia-Pacific, Open Mobile in Puerto Rico & Latin America, Motorola and its affiliates in the U.S., Airtel in India, and TeliaSonera in Finland. In addition, Brightpoint expanded its agreement with High Tech Computer of Taiwan to provide global distribution channels and customized logistic services for the company.
In a strategic move, to diversify its operations, Brightpoint launched a program to provide call center customer support, emission management services, and activation services to support the Dell mobile broadband and voice service activities. The company will also manage customer registration and wireless subscription activation services for Dell.
Brightpoint witnessed meaningful gross margin improvement during the third quarter of 2007. Gross margin was 6.6% in the reported quarter up 13.8% compared to the prior-year quarter. Gross margin for the major logistic services segment improved by 12.8% in the same quarter. This was primarily due to improved operating efficiency and increased cost leverage of infrastructure over higher volumes in the American region.
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