Cinram's Wireless Inroad Drives 850,000-SF Plan

FORT WORTH-Heralding a new era for its fulfillment company, the Toronto-based Cinram International Income Fund has inked a deal to take over Motorola Inc.'s US cell phone distribution. The takeover of the AllianceTexas-based operation will begin this month, but Cinram plans to build an 850,000-sf distribution center with 40-foot clear heights.

Cinram Wireless LLC's president Bill Mueller wasn't available for an interview. A spokeswoman, however, has confirmed the site decision is still pending although it's definitely Fort Worth-bound. Answers to additional questions weren't available by press time.

Cinram is one of, if not the, largest providers in the world of pre-recorded multimedia products and related logistics services like label printing so its push into Texas is significant. In a conference call this week, Cinram executives clearly indicated that the Schaumburg, IL-based Motorola's multi-year contract is the focus for now, but not the last one that it expects to nail in the wireless distribution arena. A case in point is its DVD distribution channel, which services more than one brand-name company.

Cinram CEO David Rubenstein said the key is not to put competitors under one roof. "But we have lots of roofs," he told shareholders and analysts. Cinram's US head office is in Richmond, IN plus it has distribution centers in Huntsville, AL and Olyphant, PA.

Cinram has budgeted $15 million to $20 million for the Fort Worth distribution project, which is slated to be up and running by midyear 2008. Company execs project the annual cap-ex will be $1 million to $2 million after the center's on line.

The Fort Worth shop will be used to assemble, program, package and ship mobile phones and accessories. Cinram also intends to handle reverse logistics for repairs, returns and upgrades. Motorola presently houses those functions in a 400,000-sf distribution center at 4801 Westport Pkwy. plus it has additional space in several scattered nearby sites. During the call, Rubenstein said the new center would be "nearby."

Word had been on the street that a cell phone manufacturer was scouring the market for an 800,000-sf build-to-suit. Although all roads pointed to Motorola, there was no inkling that the outcome would be an outsourcing pact.

In a press release about the pact, Tim Cawley, senior vice president of Motorola's integrated supply chain, said a number of third-party logistics providers were sized up for the deal. Cinram's supply chain infrastructure, which includes a direct-to-retail mantra and turnkey solution, produced the win.

"Not coming from the wireless industry, we were the dark horse in the selection process," Rubenstein said. He stressed Cinram won't carry the cost of inventory on its books, validating street talk that Foreign Trade Zone status was an unbendable site requirement that limited Fort Worth sites to AllianceTexas and ground-leased projects at Dallas/Fort Worth International Airport.

The wireless industry has recorded a 45% growth in the past five years. Rubenstein said projections show demand by 2010 will crest 1.4 billion mobile devices. The contract's financials aren't being disclosed due to a confidentiality agreement, but Rubenstein did tell analysts that Cinram's revenue from the Motorola pact would be less than $100 million per year.

"We are turning the page on a new chapter, in a new industry," Rubenstein said. "We do have a strategy to be a very significant player in this space."