We downgrade our recommendation on
) to Underperform based on two reasons - (1) loss of a major client
of the company's high-margin Logistics segment in the U.S. (2)
broader global macro-economic volatility. The company reported
mixed financial results for the first quarter of 2012. Revenue
surpassed the Zacks Consensus Estimate, but earnings per share fell
significantly below it.
In the previous quarter, gross margin, operating margin, and net
margin dropped 1.5%, 0.5%, and 0.6% year over year, respectively.
Meanwhile, management was forced to revise its financial outlook
downward twice for fiscal 2012 in the last two months due to the
negative developments already mentioned. Recent consolidation trend
among wireless operators may become a long-term negative for the
company. The market has become intensely competitive and we do not
find any near-term catalyst for Brightpoint.
Precipitous fluctuations in the global macro-economic conditions
are a major cause of concern for Brightpoint. Global economic
volatility may result in demand fluctuations for mobile devices,
which in turn, will affect the company's future financial results.
The situation is most severe in the European region, where several
countries are facing sovereign debt crisis. Brightpoint's European
operation was volatile for the last couple of years. Current debt
crisis may further worsen the company's future financial results.
Brightpoint has a solid global customer base. Management
continues to seek new operational initiatives that foster improved
customer handling of handsets, in particular PDA's, data cards and
3G wireless devices.The company entered into agreements with large
telecom equipment and services corporations, such as
Research In Motion Ltd.
), HTC Corp,
), for the distribution of handheld devices.
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