Sprints (S) Huge iPhone Gamble
By now, youve probably heard. The iPhone is coming to Sprint (S).
Over the years, Sprint has steadily fallen behind huge rivals Verizon (VZ) and AT&T (T). Theyre currently the third largest US wireless carrier but a distant third to the two industry powerhouses.
Much of Sprints downfall can be pinned on their disastrous merger with Nextel in 2005. But the companys inability to offer the iPhone has proved to be a serious competitive disadvantage.
So it shouldnt come as much of a surprise Sprint hasnt been profitable since 2007. The wild popularity of the iPhone has led to more and more customer churn. Many of Sprints customers simply couldnt resist the allure of owning Apples (AAPL) groundbreaking device.
Clearly, its time for a change.
Well, change is finally coming in the form of the Sprint iPhone including the brand new iPhone 4S.
But it wont come cheap. Or perhaps it would be more accurate to say, its going to be exceptionally expensive.
Lets put it this way, Sprint is likely betting the future of the entire company on the adoption of the iPhone.
So why the huge gamble?
Because frankly, they have no choice. This is Sprints last chance to regain their status as an industry leader. And more importantly, this gamble is going to pay off.
Sprints CEO Dan Hesse has said the lack of an iPhone offering is the No. 1 reason customers leave or switch. And he believes the company cant compete without it.
So Hesse and Sprint are shelling out big bucks to offer the iPhone. And to put it mildly, theyre not being shy about it.
Heres the deal
Sprint will purchase 30.5 million iPhones over the next four years at a staggering cost of $20 billion. That works out to over $650 per iPhone.
To be fair, Sprint will likely sell the phones for $200, so a decent chunk of the cost will be recouped with every sale. Still, its a hefty price to pay. And Hesse doesnt expect the deal to make money until 2014.
Fortunately, Sprint investors have plenty to be optimistic about.
Computerworlds Matt Hamblen notes Sprint has 16 million subscribers not yet on smartphones. Surveys show 12.5% of these customers are waiting for the right smartphone to come out, in most cases, the iPhone.
That works out to roughly two million existing subscribers waiting to upgrade to the iPhone. Sounds like a pretty good way to kick off iPhone sales!
Whats more, a Wall Street Journal poll shows 20% of respondents would switch to Sprint if the iPhone was available and a whopping 44% will stay with Sprint because of it. Make no mistake, these are very encouraging numbers.
Finally, Sprint has a couple of important advantages over the competition.
For one, theyre the only major US company offering unlimited data service. Both Verizon and AT&T cap their data plans.
Moreover, Sprints a top-ranked wireless carrier in terms of customer service. In an industry with such a high churn rate, good customer service can be vital.
Heres the bottom line
Sprint already has the pieces in place to regain their former glory theyve just been missing a truly compelling lure. But now, they have it in the iPhone. And it should hook many new (and existing) customers.
As a matter of fact, Ive already overheard several people talking about switching to Sprint. And if thats going on here, what do you think is going on everywhere else? Most importantly, at $2.86 per share, theres little risk to adding the shares to your portfolio. And with the upside potential, thats a gamble Im willing to make.
Yours in profit,
Gordon Lewis
Category: Penny Stocks to Watch, Technology Stocks
