(CELL) Brightpoint Remains Neutral

We maintain our Neutral recommendation on Brightpoint Inc. (CELL) following the ongoing consolidation trend in the U.S telecom industry. If the proposed acquisition of T-Mobile USA by AT&T (T) gets regulatory approval then we believe Brightpoint may lose one of its prime customers T-Mobile. Loss of T-mobile may significantly reduce both the top line and bottom line of the company.

Logistic service is a high-margin business for Brightpoint and T-Mobile is a major customer of this segment. From a financial standpoint, gross margin and operating margin of Brightpoint still remain in the single digits. Under this scenario, we believe deletion of T-Mobile USA from the clientele will be a major blow to the company. The stock price of Brightpoint plunged 39% during the last four months after this news surfaced. Nevertheless, massive growth of smartphones and tablets may help Brightpoint to sustain its long-term growth.

During the first quarter of 2011, Brightpoint managed 27.243 million wireless devises, up 21% year over year. Management predicted that for fiscal 2011, the company will supply wireless devices within the range of 111 million – 114 million, up 12% – 15% year over year. Distribution average selling price was $200, up 29% year over year, depicting favorable product-mix toward costlier smartphones.

Recently, Brightpoint has bought a 23% stake in Intcomex Inc., a leading provider of IT products in Latin America and the Carribean region. Brightpoint paid $15 million in cash for the acquisition. However, as per the deal, Intcomex will be allowed to sell its products through Brightpoint’s dealers.This mutual relationship between Brightpoint and Intcomex will benefit Brightpoint in two ways. Firstly, controlling a 23% stake will allow Brightpoint to be present in Intcomex’s board of directors. Secondly, it will allow Brightpoint to access the Latin American and the Caribbean markets where Intcomex is well positioned for more than 20 years. Currently, Intcomex holds a chain of approximately 44,000 resellers, retailers and customers across Latin America and the Caribbean region.

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