iPhone’s Carrier Competitors: Sprint

In this post, I will analyze Sprint with respect to AT&T and iPhone. Related posts are available here and here.

Sprint Nextel Corp.(NYSE: S) is a global communications company with net operating revenue of $41.02 billion in 2006. Its business is organized into two segments: Wireless and Wireline. The company utilizes CDMA and Nextel’s digital enhanced network (iDEN) technologies. Sprint and Nextel merged in 2005. The merger cost Sprint $36 billion and apparently much more. Its iDEN subscriber base decreased dramatically over recent quarters and Sprint had to spend more on advertising, promotions, and subsidies. The aggressive spending only resulted in decreasing the post-paid churn rate to 2% from 2.3% in the earlier quarter but did not affect the decreasing demand for iDEN services. Looks to me like an acquisition that has caused bad indigestion!

For Q2 2007, Sprint saw an increase of 373,000 customers and its customer base increased by 5% from a year ago to 54 million. Sprint is No.3 in the industry but it has the highest churn rate. AT&T and Verizon are leaving Sprint far behind in the game with 1.5 million and 1.3 million net subscribers gained in Q2, respectively. Even T-Mobile has outpaced Sprint with 857,000 net additions in Q2.

The aggressive spending saw its net income dropping 95% to $19 million from $370 million a year earlier. Revenue increased to $10.16 billion from $10.01 billion. Diluted EPS for the quarter was 1 cent, compared to a loss of 7 cents in the first quarter. Sprint reiterated its 2007 revenue forecast of $41 to $42 billion and would continue investing in the WiMax network.

To add to its woes, Sprint also faces potential losses of $2 billion due to the ban on the import of Qualcomm’s 3G chips that infringe on certain Broadcom patents. Verizon has already made a deal with Broadcom. It remains to be seen whether Sprint will follow suit.

Sprint has already an answer to the iPhone in the form of the Samsung UpStage, which saw strong sales during the quarter. Sprint might have turned around its customer losses during the second quarter but iPhone is sure to upset its delicate balance. With the iPhone hitting the market at the end of the second quarter, its effect on Sprint would be best measured in the next quarter. Though its stock is doing better than the beginning of the year, it is currently on a downward trend and is hovering between $17 and $20.

Treading with cautious steps, investors should look into how the convergence device strategy shapes up, and how Samsung’s UpStage performs. As you know, I am very bullish on Samsung’s prospects as a competitor to the iPhone.

This segment is a part in the series : iPhone’s Carrier Competitors