Brightpoint adjusts as wireless demand finally cools off

Forget for the moment Brightpoint Inc.’s $344 million loss in the fourth quarter. It was mostly indigestion in the form of
a goodwill impairment charge from buying Europe’s biggest wireless distributor in 2007.

Just how the recession has gotten Brightpoint’s number is perhaps better reflected in a more mundane measure: After years
of torrid gains in the number of wireless phones it handles, Brightpoint has had two consecutive comparable-quarter declines.

The Indianapolis company plans to weather the most difficult economy in its 20 years in part by slashing costs and debt, and
by grabbing market share from struggling competitors.

Company executives say they expect Brightpoint to outperform the industry, one that Citi Investment Research estimates will
see a 13-percent decline in handsets worldwide during 2009.

Other analysts see a 10-percent decline industry-wide.

"This still translates to over 1 billion units. I expect Brightpoint to outpace the industry in terms of units-handled
rate in 2009," Robert Laikin, Brightpoint’s chairman and CEO, told IBJ.

For Brightpoint, the industry slowdown came clearly into range during the third quarter. That’s when units handled fell to
20 million, from 22 million in the same period of 2007.

The slump was worse in the fourth quarter, at 22 million units vs. 27 million from the period a year earlier. That’s a decline
of almost 19 percent.

Revenue in the fourth quarter fell 36 percent, to $1 billion. Brightpoint blamed lower
selling prices for phones in Europe and major currency fluctuations between the euro and the dollar, among other things. Saying
the economic slowdown had pinched
its operating results, on Feb. 9 Brightpoint announced it would cut spending this year at least $40 million and reduce debt
$100 million to $150 million. It is renegotiating terms with customers and vendors.

It’s cutting about 220 positions, or about 7 percent of its worldwide work force. It had already announced a 10-percent cut
last June. The company, which has about 950 central Indiana employees, hasn’t said how the cuts will affect its local work
force. Other reductions include eliminating bonuses for staff and senior officers and freezing employees’ base pay.

Brightpoint ended 2008 with $176 million in debt — a reduction of $285 million from the end of 2007. Last month, it put
$33 million toward debt and says it has no additional debt payments due in the United States or Europe until April 2011.

Brightpoint’s debt reduction strategy suggests it could whittle debt to between $26 million and $76 million by the end of
the year, Avian Securities analyst Matthew Thornton said in a recent report.

"We admit we are weary of the company’s ability to achieve these aggressive debt-reduction targets," Thornton added.

Many such targets of Laikin’s are predicated on the company’s ability to wrest business from struggling competitors and to
get more work from phone manufacturers and phone networks that want to reduce costs by outsourcing additional work to Brightpoint.
The company does everything from programming phones to packaging them for shipping.

Earlier this month, Laikin told analysts that the "days of us making any big-bang acquisitions are over."

But, "I think that we are in a great position from a balance-sheet standpoint that as competitors are falling away daily
we will be able to get their business."

Laikin is touting Brightpoint’s ability to put together a logistics facility within as little as 120 days.

"That’s a short period of time and it’s kind of our secret sauce and our competitive advantage," he said.

He’s also pointing to new deals the company struck last year that had little or no impact on business in 2008. Among them
was a distribution agreement with Verizon announced in June and a deal announced in May with Ontario-based Research in Motion
Ltd. to distribute its BlackBerry smart phones. Financial terms of those deals were not disclosed.

So-called smart phones offer functions similar to a personal computer, such as Web browsing and e-mail capabilities.

"Smart phones is where the industry is headed for the next three to five years," Laikin said.

Smart phones promise higher margins, in part because they require more configuring and content loading before being shipped.

"Despite the overall market decline, we believe smart phones will grow year over year, and we believe in 2009 smart phones
will be 25 percent to 30 percent of [the total handset market]," Laikin said.

In the shorter term, there is a glimmer of hope in the number of phones Brightpoint handled between the third and fourth quarters.
The total was up 8 percent. That contrasts with industry forecasts of an overall volume decline of about 5 percent in the
fourth quarter, said Sidoti & Co. analyst Gregory Burns in a report this month.

"This lends support to our thesis that [Brightpoint] will continue to gain share in 2009," Burns said.

As for that $344 million loss in the last quarter, $326 million of it stems from the 2007 acquisition of Dangaard Telecom,
the largest wireless phone distributor in Europe. Brightpoint paid more than $300 million, plus assumed $350 million in Dangaard

Laikin said Brightpoint is preparing to apply its logistics expertise to the new European business, squeezing out some costs
and improving service.

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