Brightpoint: A global distribution model

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US firm Brightpoint claims to lead the global distribution sector, but its European business has taken a hit recently. Brightpoint, however, claims to have reinvented it as an untouchable next-generation logistics provider. James Blackman speaks exclusively with Brightpoint boss Robert Laikin

This article originally appeared in Mobile News issue 474 (October 11, 2010)

It is difficult to argue with the statistics, especially when a certain outspoken and broadly-accented Indianapolis-resident is on the other end of the line. It is not impossible, however, when the distribution market, and the battle within it for global supremacy, can be read in various ways.

US handset distributor Brightpoint is the biggest operative of its type on the international stage, it reckons; the undisputed heavyweight champ, according to its founder, Robert Laikin.

Last year, it was responsible for shipment of 83.48 million mobile phones to 50 markets, representing sales of $3.185 billion (around £2 billion). It claims to handle 33 per cent of all devices sold in the US, and around five per cent of all those shipped to fragmented European markets.

Its intention is to increase the volume of devices through its warehouses by almost 20 per cent, to 100 million, this financial year; a feat that would see its compound annual growth rate for units-handled top out at 24 per cent since 2004; more than double the industry growth in the period.

In the medium term, Brightpoint’s strategy is broadly to impose its US model on Europe, and to at least triple its market share in the region by 2014.

Laikin, chairman and chief executive, remarks: “We consider Europe and the UK to be a huge growth area for the company. I don’t know if 33 per cent [in Europe] is realistic, but certainly 15-20 per cent [is]. I would be disappointed if we do not get to that [within three years].”

It will be the ultimate test of the global distribution model that Laikin has set down.

The title fight

An easy frame of reference for NASDAQ-listed Brightpoint is difficult, since its principle rivals are privately-held and their financial performances are less vigorously clear. But Laikin is happy to do the ‘math’.

“If you look at our competitors in the UK and Europe most of the so-called ‘players’ are doing around $1 billion per year, all of it in distribution,” he says, making distinction between the original discipline of box-shifting and the contemporary service of supply chain solutions.

“If you divide that by the average selling price [of handsets], then it is perhaps six-to-seven million units. Some might be doing 10 million, but the data we have suggests they are by and large doing less than that.”

This appears, unflinchingly, to deal with the challenge of UK leader and world number-three 20:20 Mobile, which claims 2009 revenue from 11 country operations of £991.6 million (or $1.57 billion at today’s rates), around half Brightpoint’s figure.

20:20 Mobile confirmed his estimate, stating its total units-handled was “just shy of 10 million”.

But what of country-rival Brightstar, a more formidable opponent on the international scene, presently engaged in a fierce land-grab this side of the pond in cooperation with IT firm Tech Data?

Laikin remarks: “The only firm that competes with us outside of Europe is Tech Data/Brightstar – and Tech Data is not actually in this business outside of Europe, and Brightstar’s figures are very difficult to estimate – but I would suggest it might be doing closer 15-25 million units globally.”

Ouch. Brightstar has a decent comeback, here. But it is worth considering, first, that Laikin’s rivalry with Brightstar is characterised in the market to be personal, even if Laikin himself comes across unfazed; just equipped with homespun arithmetic to dismiss it alongside sundry other inconveniences in its foreign rampage.

However, Brightstar president and chief executive Marcelo Claure is reckoned to be a thorn in Laikin’s side. He was once Laikin’s customer – in a previous life, variously, at US firms Unplugged Communications, Small World Communications and Cellular Solutions – before founding Brightstar in 1997 as an alternative to, and with mischievous reference to, the leading operatives of the day, ‘Bright’point and Cell‘Star’.

In 13 years, Brightstar has expanded into 40 markets on six continents. There is a school of thought that says Brightpoint’s purchase of longtime rival CellStar in late 2006 for $88 million was in part a demonstration of power for its new nemesis in the Americas.

Similarly, its mid-2007 purchase of European behemoth Dangaard for $384.9 million is considered by some to be an embattled riposte to the Brightstar Europe joint venture with Tech Data, signed off a few months prior.

Whatever. In his Brightstar deconstruction, Laikin references Tech Data’s latest filing (it is listed on the NASDAQ, even if Brightstar is not) with the Securities and Exchange Commission in the US, which states the Brightstar Europe project made a small loss in the first half of 2010/11 – specifically, that each partner took a hit of “less than $0.1 million” in the period.

Laikin says: “I don’t think anyone would claim it has been a wild success. It is one of the most interesting joint ventures ever done because they are partners in Europe, but competitors in every other market in which they exist. Who drives its goals? The fact is the joint venture lost money. I would question whether the experiment has been successful.”

Clearly, Brightstar takes umbrage at such a description and reads the global leadership board very differently. It claims it handled around 100 million handsets last year, itself, and recorded gross revenue of $3.6 billion. Its global sales in the first half of 2010 are understood to be up by more than 50 per cent on the year-ago period. Such figures would put it first on key measures in global terms.

The loss for the joint venture is only the consequence of its acquisitions in the territory, remarks Brightstar Europe president Rod Millar.

He says: “As a standalone entity we were profitable in 2009 and have been profitable the last seven quarters. Our annual revenue run-rate derived from pure organic growth is $800 million in less than three years but, coupling recent targeted acquisitions, it surpasses $1.5 billion.”

Which runs Brightpoint mighty close in Europe (Brightpoint recorded EMEA revenue of $1.67 billion). It is, ultimately, one company’s figures against another’s word. Either way, competition at the very top appears to be tight indeed.

Logistics services
Laikin is prepared to go further. When pressed on Brightstar Europe’s expansion, which has seen it recently pick off parochial concerns in Austria (AKL Telecoms) and the Netherlands (MCC) in pursuit of its own continental universalism, Laikin is dismissive of the calibre of firm it is targeting.

“We think the companies Tech Data and Brightstar are targeting are distribution companies, trading companies. They may be fine distributors in their own rights, but we are not focused on moving boxes, or on finding efficiencies in the supply chain for short-term trading gains,” says Laikin.

“We will distribute product, let us be clear; don’t get me wrong on that. We are the largest distributor in Europe, and we are growing as such, not shrinking. But the part of our business that distributes handsets, which competes with the likes of Brightstar and 20:20 Mobile, is doing only 20 million of that number of 100-odd million [we expect this year].

“Eighty million units are through our solution, services and logistics business. And it is our unique and innovative supply chain solutions which set us apart in the field.”

This is important, albeit disputed by Brightstar for one. Brightpoint’s future-model is to impose its US construct on Europe and the UK, specifically.

Laikin defines Brightpoint as a company increasingly at odds with traditional box-shifting firms, of which he suggests Brightstar is only its most significant competitor, and in harmony with the advancing global requirements of manufacturer suppliers and operator customers, which he reckons such firms will struggle to meet.

That total 80/20 logistics/distribution ratio is slanted heavily towards the former discipline in the US, where Brightpoint takes an “astronomical share”, and towards the latter in Europe, where it has work to do. The sense is, of course, it can run crucial and advanced logistics functions for manufacturers, operators, MVNOs and retailers almost like loss-leaders, entangle them and make itself vital, and through sheer scale drive cost out of the supply chain.

Laikin runs through its rarified services portfolio beyond straight distribution: order management, inventory management, end-user fulfilment, retail fulfilment, billing, collections, activation services, kitting, packaging, device flashing, reverse logistics, warehousing, programming, returns, repairs and refurbishments.

“We are doing this in the US and Australia, and in some countries in Europe. In a year, we will have all of this in the UK. There is a huge initiative in the US to have all of these services across Europe,” says Laikin.

Box shifting
Of course, Brightstar disputes absolutely such a claim it is huddled with a mass of box traders, suffering from lack of foresight, and most major UK channel servants might also, having espoused ‘value-added services’ in these pages for five years at least already.

Millar says in Brightstar Europe’s defence: “We have coupled geographic growth with a broad services offering ranging from wireless products, to software, to activation. We offer a complete end-to-end solution for customers.”

And he counter punches too. “The fact is we are not similar companies, and Brightpoint only provides a fraction of the service Brightstar provides and in far fewer markets around the world. This is the reality.”

Phew. But it is not Laikin’s reality, and it is not, he suggests, the reality of his clients (everyday trading familiars for rival firms also, which are unwilling, here, to judge whose truth is most artful). Distribution behaviour is very clear in Laikin’s mind and, for him naturally, Brightpoint is operating on a higher plain.

“Tech Data and Ingram Micro can outsell me by taking truckloads of devices, putting them in warehouses, shipping them on in bulk and never opening the boxes. They do great jobs. But they don’t open the box,” he says, referencing IT broadliners in the first instance.

“From a low-end voice phone to a highly-specified tablet, we open the box, customise it and then either ship to individuals or in bulk loads to the channel. In most cases, the box doesn’t come to me as a finished product even. There is work to do. Tech Data/Brightstar moves boxes.”

The ultimate test

Questions have been raised about Brightpoint’s success in Europe since it purchased Dangaard in 2007. It has, afterall, pulled out of France, Italy and Poland, and its revenue in the broader EMEA region slumped $630 million, or 29 per cent, in 2009 to $1.67 billion (from $2.3 billion in 2008).

Its critics claim it has systematically “destroyed” the old Dangaard operation, and has failed to build significantly on its $759.8 million global spree in the past four years. And, as Brightstar is happy to observe, Brightpoint has taken an impairment charge of $325.9 million on the Dangaard purchase.

Claure, agitated by Laikin’s broadsides, goes so far: “Brightpoint has had to buy its way to remain competitive and satisfy its shareholders. Our success, meanwhile, makes Brightpoint extremely nervous. In its attempts to compete with Brightstar, I would question its success in every region – the Americas, Asia Pacific and now Europe. And this even after its growth-by-acquisition strategy.”

Laikin responds specifically to the Dangaard question: “We did not ‘destroy’ it. We retained all major customers and suppliers, and over 90 per cent of the combined employees in the markets in which we operate. We did exit markets that were not financially viable, but our company today is the number one player in Europe.

“If competitors call it destroying Dangaard, I call it a success. Remember, the recession started within three months of our acquisition of Dangaard and through it we retained our position.”

Brightpoint has been here before, of course, beating a retreat from these shores in 1999, after just a year in the UK market, where it found the dominance of John Caudwell-era 20:20 Logistics, as it was then, absolute.

It is different now. Europe, Laikin suggests, is Brightpoint’s for losing and its UK business this time is of a different order. Laikin looks to be playing the long game.

Hugh Symons Telecom, the part of the old family-run Hugh Symons Group that Carphone Warehouse did not want with its purchase of the airtime unit in 2005, was arguably ahead of the market curve – selling smartphones and IT solutions to vertical markets.

It was slight, and remains so to a degree, but the channel and the mass consumer market are increasingly coming around to its viewpoint.

Laikin has retained the management team, led by Hugh Roper, son of Hugh Symons founder Geoff and provider of one part of the original company name. And Brightpoint GB, as it is, has essential contracts in the market now with Taiwanese firm HTC and BlackBerry-maker Research in Motion.

Laikin seems mindful of the UK market still. He says: “The UK is very competitive. It remains a centre for trading, rather than for [uptake of supply chain] services – it looks to me like there is a lot of buying and selling in the UK. It is really a hub. But supply-chain solutions in the UK will find an audience, and we went into the UK to grow business, and we will be aggressive there.”

He regards the timing now to be about right. The market will open up, he suggests. “The industry is 20 per cent ‘smart’, and will be 75 per cent smart in the next three-to-five years. Europe will go from 30 per cent to 90 per cent in that period.

“Our strategy is to go higher up the pyramid with unique and ‘sticky’ services.”

And Laikin is ready to put real muscle behind it. Brightpoint GB can be open for bigger business as soon as the market is. “I would argue I have a record that, where I get a contract, I can build a facility from scratch in 120 days or less.”

Or, alternatively, he could just open his cheque book again, although he professes to be unimpressed by the pickings right now.

Revenue decline

Laikin explains away the fall in Brightpoint’s EMEA revenue in terms of slower market demand for high-end devices in the period, reflected in a whacking 35 per cent reduction in its average selling price (down from $245 to $158) in the region.

It was also, he says, a result of a slowdown in sales of navigation devices and a change in recognition of prepay airtime commissions, which undermined reporting of logistics services (non-distribution) revenue in the year.

At the same time, Laikin claims a remarkable growth rate in the period in terms of units handled, which is for him the definitive measure. Brightpoint increased handset volumes 15 per cent in the region last year, from 13.4 million in 2008 to 15.4 million, primarily through an expanded relationship with an unnamed “manufacturer in the Middle East”.

Its total handset volumes increased one per cent overall, where global industry shipments slumped seven per cent in the year. It increased logistics handling in EMEA by 19 per cent in 2009 and 44 per cent in the first half of 2010.

He says: “From a devices handled standpoint, Brightpoint is growing and gaining share in EMEA.”

There is a discrepancy in its revenue figures, where logistics services contributed just eight per cent of revenue on 37 per cent of units-handled in EMEA, and 30 per cent on 95 per cent in the US.

But revenue margin is much improved for non-owned handsets, of course, and Laikin’s eye is on a longer-term reversal, where the money from work on them improves as smartphone and mobile internet penetration spirals upwards, and vendors and buyers are drawn to bigger contracts for everyday distribution as a consequence.

Business integration
There is to consider the difficult process of matching-up two sizeable multi-market distribution businesses in the climate also.

“We have spent two years integrating those businesses [in Europe]. We put the four or five markets we were already operating in within Europe together with the Dangaard business. That process is complete,” explains Laikin.

“We have met with suppliers and customers, talked with them in depth, and faced down integration issues, and spent time rationalising our footprint. But we are not exiting Europe. We are the biggest in Europe in terms of units handled. We are the number one.”

But there has been some break-up of the old Dangaard business, clearly, and Laikin’s strategy to, again, run Europe like the US illustrates it. On purchase of Dangaard, Brightpoint held around 32 facilities on the continent of more than 1,000 square feet. When its European adventure is at full throttle, it will have just five or six.

The intention is to operate cross-border supply from massive centralised distribution hubs, much like US accessories distributor Strax set down in Europe on a smaller scale with the acquisition of the ‘more…’ group of companies in 2006, running supply from Germany to 10 disparate customer markets.

In light of Vodafone’s termination of Data Select’s central fulfilment contract in the UK recently, for pursuit of a pan-European logistics deal, such a move can make sense.

Laikin explains the rationale: “Europe was intriguing for us because each market managed supply on a country basis. There is tremendous money to be saved by a pan-European solution.

“The problem was that as we talked as Brightpoint/Dangaard, suppliers and customers understood Dangaard as a fantastic distribution business. Their response to this vision of advanced supply chain solutions was ‘build it and we will come’.

“So a year ago, we put our money where our mouth is and invested in new technology centres across Europe. Instead of 30 warehouses, each of 10,000 square feet say, we can have just four or five much larger Centres of Excellence – facilities of 100,000 or 200,000 square feet.

“Europe is a landmass like the US, where we have a few very large bases. So if we can provide same-day shipping and high-speed customisation services from these sites for feature phones, smartphones, tablets, laptops – because all require sophisticated services – then we can bring down the cost of the total supply chain.”

But does cross-border supply not throw up difficulties for stockholders with grey trading, and tend to put local suppliers’ noses out of joint?

“Of all folks who are distributors, we have the most open-book policy with the vendors,” responds Laikin. “If a product is sold out of market, we will work with the manufacturers in ways that aligns their marketing, after-sales service and brand. We are not a trading business, we got out of that five years ago.”

The mousetrap

This, then, is the sense of it, of all the apparent disruption in Brightpoint’s European operations these past two years – to knock out its old-school distributor network and build a few very large contemporary facilities, supported by satellite sales and marketing offices, to ramp down costs, ramp up functionality and take share.

“As a public company, this expansion in Europe is not for our ego. It is for shareholder value. Our revenue in Europe is highly-slanted towards distribution. But we wouldn’t have invested in Europe and specifically in the UK if it was not to replicate the model in the US and to bring value to shareholders,” remarks Laikin.

And whatever the claims of an unworkable US-centric standpoint, Brightpoint’s model is arguably better suited to Europe anyway, where smartphone penetration is expected to outrun US rates. For Laikin, it has been effectively two years of consolidation and modernisation following the triumphalist acquisition of Dangaard.

He questions, again, the wisdom of lining up as a wireless distributor alongside an IT firm, despite the converging narratives of their channels. “You cannot put a smartphone or a tablet device alongside 10,000 SKUs in a warehouse of IT stock. These mobile devices require some customisation, and they get lost in these other vast warehouses.”

Laikin recognises the inherent value of straightforward distribution, but says the sector must upskill.

“Distribution will always have a role. Box moving distribution, finding inefficiencies in the supply chain, will always find an audience, but it is the lowest value of supply chain services.”

At the same time, he does not claim to be able to offer the ultimate logistics portfolio, or to be indispensable, only the definitive offer in the market at this time.

“No, no. I’m not indispensable. I’m paranoid about my suppliers and customers and I will work like crazy to retain them. My vision is to delight partners by driving the cost out of the supply chain, and to innovate always on services in the meantime – because this industry is completely different to what it was in 1995 and in 2005, and to what it will be in 2015,” he says.

The knockout punch? For Laikin, anyway, Brightpoint is already operating its future model of distribution in the US. Imitators cannot just replicate what it has already built, and what it is about to complete in Europe now. “My mousetrap has been tested,” he remarks.

“We have these services in the real market with real volumes. Anyone else who comes in now to do the same hasn’t handled such volumes; they haven’t invested $100 million in the necessary IT systems. When it is mission-critical, manufacturers and operators know Brightpoint is the safe play.”

Brightpoint factfile

• Founded in 1989 in Plainfield, Indiana
• Initial public offering in 1994
• Operations in 25 countries with 2,700 staff
• Serving 50 markets in Americas, EMEA and APAC
• Serving 100,000 points of sale
• Handled 84m devices ($10bn product value) in 2009
• Handled 22.3m devices ($3b product value) in Q2 2010
• 2009 revenue of $3.19bn (down from $4.43bn in 2008)
• 2009 profit of $275.8m (down from $333.4m in 2008)

Acquisition strategy

Brightpoint president and chief executive Robert Laikin on the likelihood of acquiring new distributor businesses in Europe:

“Well, never say never. I proved with the Dangaard acquisition that I have a big appetite and that when we do things, we do them big. But high-volume box-moving traders do not get me excited. I am not interested in a short-term uplift – our strategy is to move up the value pyramid with unique and ‘sticky’ solutions for manufacturers, operators and MVNOs.

“I have looked at two companies per month across Europe, the Middle East and Asia for last two years. I understand the UK and Europe, and I know our competitors very well. I have the capital to acquire the cash, debt and stock of anyone I wish to. And I have merged with every company I have wanted to.

“But, sure, we are always in conversations. People know that if you have a company for sale, then you call Brightpoint. We built this business through organic growth and acquisition. We acquired Allied Communications (in 1996 for $42 million), CellStar (in 2006 for $88 million), Dangaard (in 2007 for $608 million); we have bought in Hong Kong, Taiwan, Australia, the Middle East, South Africa.

“There is not a region I haven’t acquired in. But I’m not excited by these box-shifting companies. And as the world gets smarter, these companies will get squeezed. They require a high, high integrity [for my interest], and to be valued by the main vendors, operators and MVNOs.”

Buy and build record

2009    Distribution facility (US) – $31m
2008    Hugh Symons Telecom (UK) – $7.8m
2007    Dangaard Technologies (EU) – $384.9m
2006    CellStar (Latin America) – $88m
1998    Cellular Services (Brazil) – $24.5m
1996    Allied Communications (US) – $42m

UK market strategy

Brightpoint’s purchase of Danish distributor Dangaard in 2007 was followed in early 2008 by its move for Hugh Symons Telecom (HST) in the UK.

The deal valued the business at $7.8 million. HST was the part left over after Carphone Warehouse’s acquisition of its sister business, airtime distributor Hugh Symons Communications (HSC), from the Roper family in 2005.

The Hugh Symons Group was family-run and well-regarded, founded by Geoff Roper in 1974. Its management was handed to his son, Hugh Roper (for whom it was named in part), in 1993. The business has expanded under his continued leadership as Brightpoint GB, and appears also to have retained its original integrity in the broader and uglier UK distribution market – most larger rivals consider it to be well-run and smart. But it remains a niche operative.

It has sought-after distribution contracts in place with HTC and Research in Motion. But its failure to retain its Nokia contract, awarded in 2008 and removed in 2009, splits opinion. Was it a failure of Brightpoint, that it missed targets on Nokia’s smartphone range?

Or was it just reflective of deeper issues with Nokia itself, struggling to create demand in the face of competition from Apple, BlackBerry and HTC?

For his part, Brightpoint founder, chairman and chief executive Robert Laikin appears very satisfied with the UK business, and explains away the Nokia fallout like ‘just one of those things’. He restates that Nokia remains one of its biggest suppliers, taking 18 per cent of its units-handled in Q2 2010. Laikin is, he says, its “biggest fan.”

“We have an unparalleled relationship with HTC and Nokia and have a rapidly growing relationship with RIM,” he says.

And the UK business, already grown 500 per cent, is about to get much bigger, he suggests. The two-year reorganisation on the continent, with integration of Dangaard and construction of new facilities, has prepared Brightpoint to step up in Europe and the UK now.

“Hugh Roper is doing a fantastic job. He’s educated us. And we will continue to develop channels and services in the UK. We understand the market. Hugh Roper understands the market.

“He is an expert there, and has our full backing, and the UK business will benefit from all our innovations and all our contract wins. We are ambitious for that business specifically.”

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