Sprint’s Fourth Quarter Snowed Under from iPhone

Results of Sprint Nextel (NYSE:S) for the fourth quarter and subsequently, are expected to be snowed under due to the impact of the $15.5 billion subsidy cost for introducing Apple (NASDAQ:AAPL) iPhones, another $7 billion outlay on a network upgrade and costs associated with operating two networks until 2013. Sprint is also contending with customer cancellations at its retail partners.

According to Nomura analyst Michael McCormack, these problems would render Sprint “ill-prepared to deal with the effect of the iPhone.” He further said, “In 2012, and to a large extent 2013, you’re basically in purgatory.”

Sprint has committed a payment of $15.5 billion over four years, being the subsidy on iPhones that the telco had no choice but to introduce on its network to prevent the hemorrhaging due to customers departing to other networks that provided iPhones.

The problem really lies in the margins – Sprint is likely to see its wireless margins fall to 8.6 percent from 17.6 percent in the quarter it introduced the iPhone. This is far below that of Verizon (42.2 percent) and AT&T (28.7 per cent). The silver lining is that Sprint has been able to convert a subscriber loss of 44,000 in the third quarter to a gain of 272,000 subscribers in the fourth quarter.

Here’s how Sprint shares are trading now:

Sprint Nextel Corp. (NYSE:S): S shares recently traded at $2.29, up $0.08, or 3.62%. They have traded in a 52-week range of $2.10 to $6.45. Volume today was 22,309,674 shares versus a 3-month average volume of 35,983,200 shares. The company’s trailing earnings are $-0.84 per share.

To contact the reporter on this story: Jonathan Morris at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com