Tuesday, October 4, 2011

Sprint May Take ‘Big Hit’ With Bet on IPhone to Add Customers

Oct. 5 (Bloomberg) -- Sprint Nextel Corp.'s plan to offer Apple Inc.'s iPhone may slash its operating margins almost in half if enough people activate new phones, analysts said.

Sprint, which has lost money for 15 consecutive quarters, could see quarterly operating margins drop to 9 percent from the 16 percent reported because activations of each iPhone might cost the company up to $150 more than a typical smartphone, said James Ratcliffe, an analyst with Barclays Capital in New York. John Hodulik, an analyst with UBS AG, said fourth-quarter margins could be between 9.8 percent and 11.5 percent, depending how much Sprint subsidizes the devices.

"Is it better for Sprint to have the iPhone? Absolutely," Ratcliffe said in an interview Oct. 3. "But in the short term they're going to take a hit." He rates the company "equal weight/neutral."

Sprint, the third-biggest U.S. wireless operator, will begin selling the iPhone 4S on Oct. 14 along with larger competitors AT&T Corp. and Verizon Wireless. The iPhone 4S uses two antennas to improve call quality and a processor that is seven times faster than the chip in the previous phone, Apple said yesterday at a press conference at its headquarters in Cupertino, California.

"They will benefit from improved retention of their customers and a high level of customer upgrades," said Michael Nelson, an analyst with Mizuho Securities USA Inc. in New York, who expects Sprint will sell about 1 million iPhones in the fourth quarter. He rates the shares a "buy."

AT&T, Verizon

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