Sprint’s iPhone Sales Come with Faustian Bargain
On Wednesday, Sprint (NYSE:S) reported its much-anticipated fourth earnings and it saw a huge rise in customers thanks to its Apple (NASDAQ:AAPL) iPhone 4s offering. But for the company, this came at a very expensive cost.
In the fourth quarter, Sprint reported a $1.3 billion ($0.43 cents per share) loss from $8.72 billion in revenues. As compared to the previous year, Sprint reported a $929 million loss ($0.31 cents per share) with $8.3 billion in revenue.
Other fourth quarter numbers included a $241 million loss ($0.08 cents per share) from one-time costs from asset charges on property, plant, equipment, as well as severance costs and the company’s Clearwire investment, according to CNET.
Wall Street had forecast a $0.37 cents per share loss from $8.69 billion revenues.
In a conference call with analysts, Sprint CEO Dan Hesse said, “Although we’re far from finished, our progress has been very significant. 2011 caps off the first phase of our recovery.”
Loss is No Surprise
Similar to it competitors, Verizon (NYSE:VZ) and AT&T (NYSE:T), Sprint saw great customer growth in the fourth quarter from customer purchases of the coveted iPhone 4S as well as payment of large subsidies to Apple.Unfortunately for Sprint, it affected their much-desired profits.
Adding to the increased iPhone costs, the company also knew with the launch of its 4G LTE network, it would push upcoming margins. Chief Financial Officer Joe Euteneuer had said that the iPhone would come in 40 percent more expensive to the company than its other smartphone offerings, according to CNET.
The company put all of its eggs in one basket for the iPhone with Hesse saying the expensive costs would have to do so Sprint wouldn’t lose customers. He has hopes the iPhone will bring in loyal customers paying more every month.
In the fourth quarter, Sprint didn’t heavily promote its smartphones. Meanwhile, its competitors cut iPhone and 4G LTE prices. This backfired as Sprint didn’t hit its annual customer growth target. Hesse believes it was the right decision,
Now Sprint faces the question of selling additional iPhones, will come at a higher short-term hit. In the fourth quarter, the company activated 1.8 million iPhones, with 40 percent coming from new customers. One plus for Sprint is its unlimited data package for the iPhones; however, the company did raise monthly prices by $10.
Other increases that customers may not like as an effort for the company to make the iPhone profitable in the future is an increase in early-termination fees, the elimination of its customer loyalty program and an extension of its phone upgrade cycle.
Sprint did add a total of 1.6 million new net customers, with 161,000 customers signing a long-term contract with the company. But is all of this worth it just for the success of one phone? Hesse thinks so.
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