Bloomberg News

Sprint Loss Is Smaller Than Estimated as Spending Ebbs

October 25, 2012

Sprint Loss Is Smaller Than Estimated as Smartphones Boost Sales

A man checks a mobile device while passing a Sprint Nextel Corp. retail store in New York. Photographer: Victor J. Blue/Bloomberg

Sprint Nextel Corp. (S:US), the third- largest U.S. wireless carrier, reported a smaller loss than estimated (S:US), helped in part by network-spending delays and fewer smartphone discounts.

The third-quarter net loss widened to 26 cents a share, compared with a 10 cent loss a year earlier, Overland Park, Kansas-based Sprint said today in a statement. Sales rose 5.2 percent to $8.76 billion. Analysts had predicted a loss of 43 cents a share and revenue of $8.81 billion on average, according to data compiled by Bloomberg.

Sprint has been losing money as it doles out smartphone subsidies and funnels cash into an infrastructure-upgrade plan called Network Vision. It’s starting to see more of a payback from that spending because more customers are using their devices to surf the Web, run applications and watch videos -- boosting Sprint’s revenue from data plans. Still, sales missed projections and the number of monthly contract subscribers fell.

“This underscores how difficult it is to grow in a wireless industry that is saturated,” said Craig Moffett, an analyst with Sanford C. Bernstein & Co. who has a neutral rating on the stock.

Help is coming in the form of a new investor. Last week, Tokyo-based Softbank Corp. (9984) agreed to pay $20 billion for a 70 percent stake in the carrier. The deal would be the biggest publicly announced outbound acquisition by a Japanese company since at least 2000, according to data compiled by Bloomberg. Sprint received $3.1 billion of the money this week as the first portion of Softbank’s investment.

Stock Gains

Sprint shares (S:US) fell 1.8 percent to $5.52 at the close in New York. The stock has more than doubled this year, bolstered by the Softbank deal and a turnaround plan by Chief Executive Officer Dan Hesse that promises to make Sprint profitable by 2014.

The company sold 1.5 million iPhones in the period, putting it on track to satisfy a $15.5 billion purchase agreement with Apple Inc. (AAPL:US), Hesse said on a conference call. The company also is shifting some of its capital spending to 2013.

Last week’s deal with Softbank will give Sprint more financial backing for its network expansion while helping the Japanese company grow beyond its home market.

“One could argue that Softbank’s bid puts a bit of a floor under the stock,” said Scott Schermerhorn, who helps manage $550 million in assets, including Sprint shares, at Granite Investment Advisors Inc. in Concord, New Hampshire. “Softbank strengthens them in terms of liquidity, but as a shareholder with Sprint issuing more shares as part of the deal you will be diluted a bit.”

Lost Customers

Sprint lost 456,000 subscribers last quarter, showing that the company’s comeback isn’t complete. Sprint began offering LTE, or long-term evolution, service in five cities in July, with plans to add more this year to offer newer, faster technology. That’s dwarfed by the LTE network offered by market leader Verizon Wireless.

“For a temporary period of time, we are at a competitive disadvantage in terms of LTE,” Hesse said in an interview. “And Verizon, to their credit, is using that significant advantage that they have, until we catch up.”

Sprint also is shutting down its out-of-date Nextel network, contributing to customer churn, though it did manage to coax 59 percent of the users leaving Nextel onto Sprint’s main service.

Still, the signs of weakness go beyond the Nextel network, said Chris King, an analyst with Stifel Nicolaus & Co. in Baltimore.

Excluding the users recaptured from Nextel, 106,000 monthly contract customers left Sprint’s main network, he said in a report. This “raises concerns for us regarding the long-term market share of the brand,” King said.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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Companies Mentioned

  • S
    (Sprint Corp)
    • $7.72 USD
    • -0.05
    • -0.65%
  • AAPL
    (Apple Inc)
    • $97.67 USD
    • 0.64
    • 0.66%
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