Brightpoint Downgraded to Neutral

We downgraded our recommendation on Brightpoint Inc. (CELL) to Neutral based-on two reasons, which include (1) loss of a major client of the company’s high-margin Logistics segment in the U.S. (2) an anticipated stronger than normal weak seasonality by management. The fourth quarter of 2011 financial results easily surpassed the Zacks Consensus Estimates. However, management was forced to downward revise twice its financial outlook for fiscal 2012 in the last 50 days due to the two above mentioned negative developments.

Nevertheless, we believe the long-term business prospect of Brightpoint remains intriguing buoyed by the growing demand for smartphones and tablets globally. Newly won distribution contracts coupled with effective cost control strategies are likely to pave the way for Brightpoint’s future growth. The stock price plummeted 31% in the last year, which may provide a cushion for further downslide. We also believe the termination of the proposed merger between AT&T Inc. (T - Analyst Report) and T-Mobile USA is a major relief for Brightpoint as this deal had the potential to place the company’s high-margin logistic businesses in danger.

The impetus for continued financial improvement remains Brightpoint’s diversity, as the company provides a full range of sales & distribution, logistics, and activation services while expanding on a global basis. The company enhanced its portfolio of product offerings for customers, while developing new sales channels for its suppliers.

During the fourth quarter of 2011, Brightpoint managed 30.71 million wireless handsets (including 0.8 million tablets), up 9% year over year. For fiscal 2011, thecompany supplied 112.2 million wireless devices, up 14% year over year. This outstanding performance was primarily attributable to a massive growth of the Distribution business supported by the increasing demand for smartphones and tablets, which have higher average selling price and an improvement in supply-chain management system.