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BrightPoint capitalizes on tech trend: 'wearables'

June 14, 2014
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Officials at BrightPoint Inc.—a company once so tied to the cell phone industry it used the ticker symbol “CELL”—today speak as fondly of athletic bands as they do Androids.

The phone distribution and logistics business—operating as Plainfield-based Ingram Micro Mobility since its 2012 acquisition by California-based Ingram Micro Inc.—is turning attention toward wearable technology.

paskoff-alex-mug Paskoff

Ingram, which has 1,500 Indiana employees, landed contracts in the past two years with two top wearable-technology upstarts: Fitbit, a maker of wristbands that monitor physical activity, and Jawbone, which sells similar wristbands and portable audio devices. Ingram also handles the Samsung Gear digital wristband.

Company officials would not say how much the Fitbit and Jawbone contracts were worth, but they described the deals as “material” to a division that reported $4.5 billion in revenue in 2013.

“These companies are getting a lot of traction and generating considerable volume,” said Alex Paskoff, vice president of the consumer and strategy divisions at Ingram Micro Mobility, in a recent interview with IBJ.

The market for wearable tech—everything from standard earphones to digital skin patches—will grow from $14 billion to $70 billion over the next decade, according to Boston-based research firm IDTechEx.

“There are a lot of markets that wearables can address: in particular, health care,” said Guillaume Chansin, a technology analyst for the firm, referring to the digital athletic bands Ingram handles.

The emerging industry is still a drop in the ocean compared to Ingram Micro Mobility’s main source of business, the mobile phone industry.

Consulting giant Deloitte, which defines wearable electronics more narrowly, gives a much smaller 2014 market estimate of $3 billion and forecasts 10 million unit sales this year.

That compares to 1.8 billion mobile phones sold in 2013, according to Gartner Research.

“Wearables are growing faster. They’re just much, much, much, much smaller,” said Daniel Matte, head of wearables research for technology researcher Canalys in Palo Alto, Calif.

Ingram sees the gap, and it has no intention of steering away from its existing phone business, Paskoff said. But the growth of the wearable-tech market is hard to ignore, especially as the company looks for a more diverse mix of customers.

“They’re still emerging,” he said. “It’s very difficult for us to quantify whether that’s going to be 50 percent of our business in three to five years or 10 to 20 percent of our business. But we see it as being material. And we are putting a lot of time, energy and investment in these new categories.”

Wider reach

Paskoff described the new focus as “complementary” to the core of mobile phone distribution and logistics.

To a lesser extent, the company is also pursuing business with home automation customers. So-called smart homes digitally sync appliances with a central control. That market isn’t as developed, though, Paskoff said. Ingram has one customer in the niche, August Smart Lock.

In general, Ingram is trying to reach out to more customers after historically focusing on a handful.

For years, BrightPoint’s, and now Ingram Micro Mobility’s, earnings spiked and crashed alongside the often-chaotic mobile phone business.

brightpoint-fevers.gifRevenue has hovered around $1 billion for the mobility division most quarters since the acquisition. Sales slid to $830 million in the first quarter of 2014. About $100 million was reported under another Ingram division, explaining some of the drop; however, the company also saw a steep decline in Indonesian sales, executives said during an April conference call with analysts.

Executives admit the company, for too long, relied on just one or two big customers, such as Nokia or Research in Motion, which first claimed a stake in the smartphone market with its BlackBerry before Google and Apple took over.

A limited number of customers also means a single acquisition or merger can kill a large piece of revenue in an acquisition-obsessed industry. AT&T demonstrated the tumult in 2011 when it announced plans to buy BrightPoint customer T-Mobile, and BrightPoint’s stock plummeted 21 percent the following week. The deal never happened.

“You’ve got Microsoft buying Nokia. You’ve got Lenovo buying Motorola after Google bought Motorola,” Paskoff said. “So it’s extremely volatile, and that sort of speaks to the importance of not being dependent on a single partner.”

Tough market No. 2

Ingram appears to be taking the correct approach with wearable tech, even though it’s turning attention toward a nascent market, said Ramon Llamas, research manager for mobile phones at International Data Corp., a market intelligence firm based in Framingham, Mass.

“Ingram Micro is starting with two of the biggest brands in the industry. I think that bodes well,” said Llamas, whose firm projects 7.6 million wearable-tech sales worldwide that will grow to 27.3 million by 2018. Digital fitness bands and other “health trackers” will play a large role in that growth.

“Especially at this stage in the market, it’s all about going with some of the stronger companies. It is about brand. If you ask a [retailer], ‘What’s your most popular health tracker?’ More of them than not, they’re going to say Fitbit or Jawbone.”

Market potential aside, wearable tech could face as much volatility as the phone industry, he and other analysts said.

Fitbit and Jawbone could face stiff competition from the tech giants, much like how Google and Apple trounced BlackBerry—and hurt BrightPoint’s sales. Rumors already swirl around Apple’s iWatch, which would horn in on the smaller firms’ wristband sales, said Matte, the researcher from Canalys.

“We’ll see a lot of the traditional smartphone vendors enter the space,” he said.

Phones still rule

Wearable tech is a piece of a much broader, years-long strategy for Ingram Micro Mobility to diversify its customer base.

The company in April nabbed a long-term arrangement with 360 Group, which is a consortium of four of Verizon Wireless’ largest dealers. Terms of the agreement weren’t disclosed, but Paskoff noted it is large enough to have an Ingram team dedicated full time to it.

Analysts at Stifel Nicolaus estimated the contract’s value at $500 million to $700 million per year for Ingram. The firm expected Sprint would offset a large piece of that gain by moving to Ingram competitor Brightstar, though.

Wall Street is holding its faith in Ingram and its BrightPoint buyout despite disappointments with the first quarter and missed forecasts.

Ingram’s share price rose 62 percent from the announcement in July 2012 until IBJ deadline. That outpaced the Standard & Poor’s Index’s 43 percent over that span. Shares are down about 6 percent since April 23, the day before Ingram reported its first-quarter earnings.

“Despite a surprise miss,” Barclays analysts wrote, “the long-term story for IM seems intact given potential savings from restructuring, a ramp of new distribution deals at BrightPoint, and some yield on growth investments.”•

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