BrightPoint executives are watching Research in Motion Ltd.’s next move as closely as anyone in the wireless industry. That's because the Indianapolis-based company gets about 10 percent of its distribution business from the struggling BlackBerry maker.
Toronto-based RIM said Tuesday that it won’t turn a profit this quarter, and that it has hired investment bankers to explore strategic options, suggesting the company might be sold.
Last time a major wireless industry merger was announced—in March 2011, when AT&T said it wanted to buy T-Mobile—BrightPoint’s stock price dropped 21 percent over the following week. At the time, analysts predicted that AT&T, which was not a BrightPoint logistics customer, would cancel T-Mobile's contract with the company, but the merger deal died in December.
This time around, major consolidation in the industry could affect the distribution side of BrightPoint’s business, and the potential impact is less clear.
The company’s stock closed Wednesday at $4.89 per share, which is close to its 52-week low of $4.83. The stock has fallen 60 percent, from $11.99, since Feb. 1.
RIM’s troubles are one factor of many related to the company's stock performance, BrightPoint's director of investor relations, Tom Ward, said. BrightPoint has lowered its own earnings forecast this year, based on slower growth in the whole industry.
“Wireless overall seems to be out of favor with investors,” Ward said.
BrightPoint has shifted more of its business from logistics, where it deals with wireless service companies, to buying and reselling devices. BrightPoint’s two largest distribution customers are Nokia and Samsung, followed by RIM. Distribution accounted for $1.2 billion of BrightPoint's $1.37 billion in first-quarter revenue.
A RIM sale could mean simply that a larger share of BrightPoint’s business goes to the acquiring company, Ward said. “We may benefit in that way because we have relationships with all the players in the wireless industry.”
RIM could also end up licensing its technology to another manufacturer, or put off a sale in hopes of a successful launch of its BlackBerry 10 operating system, the Wall Street Journal reported Thursday.
It’s unclear how those moves would affect BrightPoint.
“We’re doing everything we can to make sure we operate as efficiently as possible,” Ward said.
BrightPoint faced headwinds well before the latest revelations about RIM’s future.
The company revised its earnings per-share estimates downward in February after losing a customer, and its first-quarter earnings, reported in April, did not meet the Wall Street consensus.
Analysts often look to BrightPoint for a broad perspective on the industry, because the company handles logistics for a number of wireless operators. Ward said BrightPoint’s cautious outlook is turning out to be accurate.
Heading into the year, BrightPoint predicted the industry would be flat or up by about 5 percent, Ward noted, “and we were skewered for it.”
On May 23, equity analysts with Oppenheimer Holdings Inc. lowered their price targets on a number of wireless-industry stocks, including Brightpoint, based on flat growth expectations. Oppenheimer predicted BrightPoint would reach $9 per share, rather than $11, this year.