Selling iPhones Hurts Sprint
Business + Economy

Selling iPhones Hurts Sprint

Sprint Nextel <S.N> posted a wider quarterly loss, reflecting the higher costs of selling Apple Inc's <AAPL.O> iPhone. Plus its subscriber growth fell short of expectations, which sent the company's shares down 3.7 percent.

The addition of the iPhone to Sprint's lineup during the quarter did not win the company as many subscribers as Wall Street expected.

"There was nothing in the quarter that gave people an indication it was time to buy the stock," said BTIG analyst Walter Piecyk. "They were the only operator that sold less iPhones than we expected in a record quarter for iPhone."

Sprint's Chief Executive Dan Hesse, who has been working to turn around the company for four years, said he decided against cutting Sprint phone prices further in what he described as an unusually competitive fourth quarter.

"During the quarter we saw unprecedented discounting on devices," Hesse told analysts on a conference call.
He also noted that Sprint was losing customers from the Nextel network, which it plans to shutter by the middle of 2013.

Sprint also warned that its profit margins would continue to be under pressure in 2012, because it is paying billions of dollars for a costly network upgrade on top of heavy iPhone expenses.

Sprint's loss was 35 cents per share in the fourth quarter compared with the average analyst expectation for a loss of 37 cents, according to Thomson Reuters I/B/E/S.

Its loss was smaller than Wall Street expected because fewer subscribers mean lower costs as Sprint pays a hefty subsidy for each iPhone customer.

Its margin based on operating earnings before interest, depreciation and amortization (OIBDA) fell to 9.5 percent from 16 percent a year earlier but beat expectations for 8.6 percent, according to eight analyst estimates Reuters compiled.

"It's still unbelievably depressed and subscribers were below expectations," said Roe Equity Research analyst Kevin Roe who also noted that Sprint's targets for the full year were not particularly impressive.

While Sprint's rivals Verizon Wireless and AT&T Inc <T.N> also struggled in the fourth quarter with rising costs they had stronger subscriber growth than Sprint.

Sprint added 161,000 total net subscribers in the quarter compared with the average expectation for 272,000 additions from eight analyst estimates compiled by Reuters.

It sold 1.8 million iPhones in the quarter, 40 percent of which went to new customers. However, this was below Piecyk's expectation for 2 million iPhones. He said that upgrades to iPhone from Sprint's existing customers were likely stunted by its tightening of upgrade policies.

Sprint's net loss widened to $1.3 billion, or 43 cents per share, from $929 million, or 31 cents per share, a year earlier.

Revenue rose to $8.72 billion from $8.3 billion and was slightly ahead of Wall Street expectations for $8.69 billion, according to Thomson Reuters I/B/E/S.

Sprint forecast full-year net service revenue growth of 4 percent to 6 percent and forecast 2012 adjusted OIBDA between $3.7 billion and $3.9 billion.

Its shares fell 9 cents, or 3.7 percent, to $2.36 in morning trading on New York Stock Exchange.

(Reporting by Sinead Carew; Editing by Derek Caney)