Sprint loss widens on iPhone costs

Sprint Nextel posted a wider quarterly loss because of the higher costs of selling Apple Inc’s iPhone and the popular device delivered a smaller-than-expected boost to subscriber numbers, sending the company’s shares down 2 percent.

While the company’s loss was not as big as Wall Street feared, Sprint’s quarterly results and financial targets did little to calm investor nerves about its $15.5 billion bet on iPhone which coincides with a $7 billion network upgrade.

“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 referring in particular to discounts on iPhone.

Hesse also noted that Sprint lost customers from the Nextel network, which it plans to shutter by the middle of 2013, and would continue to do so for the rest of 2012.

Sprint’s fourth-quarter margin based on operating earnings before interest, depreciation and amortization (OIBDA) fell to 9.5 percent from 16 percent a year earlier but beat average expectations for 8.6 percent from eight analysts.

“It’s still unbelievably depressed and subscribers were below expectations,” said Roe Equity Research analyst Kevin Roe.

Sprint said its profit margin will remain under pressure in 2012 but it promised some improvements in the second half as smartphone users spend more on data services.

Hesse said that investors would have to wait for 2014 to see a meaningful acceleration in profit margins. Sprint expects to have completed its network upgrade by then. By the fourth quarter of 2014 he promised an increase of 12 to 16 percentage points from the fourth quarter 2011 number.

“You have to get through (the upgrade) to see the margin expansion,” he told Reuters. “That’s just how long it takes to completely revamp your network.”

MARGIN DECLINE

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.

While Sprint’s rivals Verizon Wireless and AT&T Inc 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 were down 5 cents, or 2 percent, at $2.40 in early afternoon trading on New York Stock Exchange.

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