The Wall Street Journal-20080119-Investors Run From Sprint- Subscriber Defections And Gloomy Forecast Drive Down Stock 25-
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Investors Run From Sprint; Subscriber Defections And Gloomy Forecast Drive Down Stock 25%
Sprint Nextel Corp.'s shares plunged almost 25% as the wireless carrier reported worse-than-expected losses in cellphone subscribers and issued a gloomy outlook for 2008.
Sprint said it would streamline its operations to reflect slowing growth, beginning with 4,000 job cuts in the first half of the year, reductions in outside contractors and the closing of about 8% of its retail stores. The company, which recently hired telecom veteran Dan Hesse to succeed ousted Chief Executive Gary Forsee, expects the moves to save $700 million to $800 million on an annual basis. Sprint shares skidded $2.87 to $8.70 in 4 p.m. composite trading on the New York Stock Exchange.
Investors weren't expecting the Reston, Va., wireless company to turn in a great fourth quarter -- it has been lagging well behind larger carriers such as Verizon Wireless and AT&T Inc. for the past year. But the net losses of 683,000 post-paid subscribers -- people who pay monthly bills and sign contracts -- and 202,000 pre-paid customers exceeded bearish Wall Street analysts' forecasts.
Sprint stock is down 65% since June of last year. At the current price, with Sprint's market capitalization sliced to $24.7 billion, the company could become an attractive takeover target, analysts say, though it isn't clear who could emerge as a buyer.
Cable operator Comcast Corp., which has evaluated a potential Sprint merger in the past, is dealing with its own problems, including tough competition from phone companies. Analysts say private-equity firms would probably be interested, given Sprint's downsized valuation. Providence Equity Partners teamed up with SK Telecom to propose a $5 billion investment in Sprint that the company turned down in November. Such a deal could be revived and expanded into a full takeover -- though many on Wall Street are skeptical, especially given the current credit environment.
Some analysts questioned whether Sprint's problems signal a looming slowdown throughout the wireless industry, as the proportion of U.S. consumers already owning cellphones has now reached about 80%. AT&T and Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, have posted strong results in recent quarters, but Christopher King, an analyst at Stifel Nicolaus, says much of their growth is now coming from stealing away Sprint's customers, rather than from attracting new cellphone users. "The industry for the past year has been feeding off the carcass of Sprint Nextel," Mr. King said.
Also in 4 p.m. Big Board trading, AT&T was down $1.19 to $36.11, while Verizon slid $1.82 to $39.09.
Investors were particularly rattled by Sprint's forecast of downward pressure on subscriber trends, revenue and profitability that seems to rule out any significant turnaround this year. But Mr. King noted that Mr. Hesse had a history of conservative guidance as CEO of local phone company Embarq Corp.
According to an internal document for employees, the layoffs will include cuts of 1,700-2,000 in the sales operations and 1,400 in network services. Some senior executives may be ousted later. "Cutting costs isn't going to help solve the basic problem," said Craig Moffett, an analyst at Sanford Bernstein & Co. "They're not going to cut their way to greatness."
Many of Sprint's problems stem from its 2005 merger with Nextel Communications, which led to higher customer-service complaints and subscriber defections. The investment community will be looking to Mr. Hesse to provide more details on a turnaround plan during its Feb. 28 fourth-quarter earnings conference call. Besides addressing its core cellphone business, Mr. Hesse may provide hints of whether and how Sprint plans to follow through on its planned $5 billion capital investment in a new high-speed wireless network based on WiMax technology.
Beyond those issues is a more fundamental marketing problem. Sprint lacks a distinct identity. Verizon gets credit for a reliable and fast network, while AT&T has benefited hugely from its exclusive rollout of the Apple Inc. iPhone in the U.S. "Everyone knows [Sprint], but no one knows them for anything in particular," said Robert Passikoff, president of Brand Keys Inc., a consultancy that specializes in customer loyalty.
