Brightpoint optimistic on solid revenue: But Wall Street punishes stock on earnings

Brightpoint Inc. racked up enviable revenues and profits in the fourth quarter and all of 2007 and gave optimistic projections for the current year in its earnings report.
But Wall Street had expected substantially higher earnings-per-share, sending the handset distribution firm’s stock down more than 6%.
Still, Brightpoint’s outlook for 2008 is bullish and analysts took advantage of the company’s earnings call to gauge the strength of the global handset market from the distributor’s perspective. Brightpoint obliged and suggested that Motorola Inc. would regain its footing.
Brightpoint reported that fourth-quarter revenue reached $1.6 billion, up 141% from year-ago quarter. Operating income reached $14.2 million, up 42% from $10 million in the year-ago quarter. The distributor shipped 27 million devices in the final three months of 2007.
Revenue for the entire year reached $4.3 billion, up 77% over the prior year. Net income was $47.4 million, up from $35.6 million in 2006. Nearly 83 million devices were shipped by Brightpoint in 2007, up 55% over 2006.
Brightpoint’s acquisition of CellStar brought in Motorola’s domestic distribution business, company executives said. The firm also added HTC Corp.’s portfolio to its international distribution network. The firm said it had extended its current agreement with Nokia Corp. in the U.S. through the end of this year.
Analysts on the earnings call clearly sought any signs that global handset demand might be slackening, given the economic slowdown now underway. But Brightpoint’s CEO Bob Laikin reiterated his bullish estimate for the coming year and said that “cell phones are becoming kind of a recession-proof product.”
Laikin said that, globally, first-quarter units shipped were expected to be down 5% to 10% on seasonality. For the year, however, Laikin said he expected to handle more than 100 million devices out of a global sell-in forecast of 1.25 billion to 1.35 billion units. Upgrades to 3G devices will drive the replacement cycle, Laikin said. Global subscriber growth is still dependent on new customers in China and India, as well as certain Latin American and African markets, the Brightpoint CEO said.
Analysts homed in on Brightpoint’s two largest customers, Nokia and Motorola, and the company’s executives delivered a little color that, in context of recent events, could be viewed as positive, but contradictory.
Of devices handled in the fourth quarter, 29% were Nokia units, while 24% were Motorola units, Brightpoint executives said.
The latter might be cause for concern due to Motorola’s well-known travails and steep loss of global market share, but Laikin told analysts that “as Motorola goes into the next product cycle, they will take market share right back.”
The CEO said, however, that he could not elaborate on any upcoming devices from Motorola that made him confident about the second half of the year, due to confidentiality agreements. This represented a glimmer of positive news from that quarter, as Motorola has said it is exploring the separation of its mobile devices business into a standalone company.
On Wednesday, indeed, Brightpoint announced that it had hired Bashar Nejdawi as president of its newly formed “mobile enhancement business.” Nejdawi had served Motorola as senior director of global distribution.
But with Motorola as a new customer, Brightpoint might be expected to give an optimistic assessment. Laikin did so.
“They’re bringing in new people,” Laikan said of Motorola. “They are talking to all their customers, operators who are our customers, retailers, distributors. They have a lot of focus on reviewing their distribution strategy globally and making Motorola important to their partners. So they are doing all the right things. (The question is) can they bring the right design team in and can they bring to market the right products at the right price, at the right time?”
As for Nokia’s fortunes in the U.S., which have flagged badly over the past two years, Tony Boor, Brightpoint’s CFO, said: “I think Nokia clearly is putting (in place) the people assets, the marketing budgets (and) R&D development to try to gain market share in the U.S. We think that they should have a good opportunity to gain some market share in the U.S.”
Any gains Nokia might make in the U.S. would probably come at Motorola’s expense, thus Brightpoint executives’ statements that Nokia would grow in the U.S. where Motorola’s dominance is fraying could be viewed as somewhat contradictory.