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Sprint Imploding

Posted on Thursday, Mar 6th 2008

On February 28, Sprint Nextel Corp. (NYSE: S) reported disappointing results for fourth quarter and full-year 2007 with a huge net loss in Q4 due to a write-down of its Nextel acquisition in 2005 for $36 billion. Earlier coverage is available here and here in which I had looked at Sprint’s troubles including the launch of iPhone.

Q4 operating revenue was $9.8 billion, down 6% y-o-y and 2% y-o-y mainly due to losses in the wireless segment. Net loss was $29.5 billion or $10.36 diluted loss per share compared to net income of $261 million or 9 cents diluted EPS in Q4 2006 and $64 million or 2 cents EPS in Q3 2007. Full year revenue was $40.1 billion, down 2%.

Segment-wise, wireless revenues were $8.5 billion in Q4 (down 6% y-o-y and 2% sequentially) and $34.7 billion in full year 2007 (down 1% y-o-y driven by lower equipment revenue). Wireline revenues were $1.6 billion in Q4 (up modestly q-o-q and down 1% y-o-y) and $6.5 billion in 2007 (down 1.5%).

At the end of 2007, Sprint had 53.8 million total wireless subscribers with a decline of 108,000 in Q4. Q4 post-paid churn was 2.3%, same as Q3 2007 and Q4 2006. Its churn is the highest in the industry and its rivals AT&T, Verizon, and T-Mobile seem to be fighting hard to get its defectors.

And in Q1 2008, Sprint expects to lose $1.2 million post-paid customers. To keep its customers interested, it is offering a $99.99 plan with unlimited calls, text messages, Web access and G.P.S. navigation.

Here’s an interesting blog post on WSJ speculating on a Verizon taking over Sprint. But as it says, when it can have its customers easily with its downfall why bother acquiring?

Daniel R. Hesse, formerly with AT&T took over as the CEO two months ago. He announced last month that Sprint would close 125 retail locations and lay off 4000 employees. The Company’s corporate headquarters were also moved back recently to Kansas for better efficiency. Its market cap is around $19 billion and its stock is currently trading around $6.83. It had hit a 52-week low of $6.89 earlier this week on March 3. I don’t see yet how this would recover anytime soon, in fact, looks like this will go from bad to worse still.

Chart for Sprint Nextel Corp. (S)

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