We downgrade our recommendation on Brightpoint Inc. (CELL) to Neutral based on our assessment that global economic volatility may result in demand fluctuations for mobile devices, which in turn will affect the company’s future financial results.
Brightpoint announced robust financial results for the third quarter of 2011 and management has provided a strong financial outlook. This was primarily due to galloping demand for smartphones and tablets throughout the world.
We believe the long-term business fundamentals of Brightpoint remain attrcative buoyed by the growing demand for high-end pocket digital assistances globally. New distribution agreements coupled with effective cost control strategies are likely to pave the way for Brightpoint’s future earnings growth. However, recent trends of consolidation among telecom carriers may become a potential negative catalyst for the company.
During the third quarter of 2011, Brightpoint managed 27.272 million wireless devices, up 9% 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. The company entered into agreements with large telecom equipment and services corporations, such as Research In Motion Ltd. (RIMM), HTC Corp, and Nokia Corp. (NOK), for the distribution of handheld devices.
Despite providing excellent third-quarter results, we remain concerned about the company’s top-line fluctuations. Singapore facility will not achieve operational efficiency any time soon. Foreign currency exchange rate fluctuations may also adversely impact the company’s financials going forward. Moreover, the global economy is still not completely out of the woods. This may continue to impact the company’s top line.
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