iPhone Helps Sprint Stay Competitive

10/02/2012 7:45 am EST

Focus: STOCKS

Patrick McKeough

Editor, Successful Investor

The question is, will the company be able to build out its infrastructure and keep subscribers happy without running out of money, asks Pat McKeough of TSI Network.

Sprint Nextel (S) offers a wide range of wireless and wireline communications products and services. The company's clients include individuals, businesses, governments, and resellers. It has subscribers in all 50 states, Puerto Rico, and the US Virgin Islands.

Sprint continues to benefit from the Apple iPhone, which the company launched on its network earlier this year. In the first quarter of 2012, it sold over 1.5 million iPhones. Of that total, 44% were new customers for Sprint.

The company now has over 56 million subscribers, and almost 70% have smartphones. That's a big plus for Sprint, because smartphones generate significantly higher revenue per customer than regular cell phones.

The company's earnings are being held back in the short term because of its heavy spending on a new high-speed 4G LTE network that should be around 25 times faster than its current 3G network. Sprint aims to catch up with competitors Verizon (VZ) and AT&T (T), both of which have already rolled out their 4G networks.

The company has also launched Sprint Buyback, a new program that lets its customers sell their old phones back to Sprint for a credit up to $300 toward a new device. This should boost sales of smartphones that can take full advantage of Sprint's new network.

In June 2012, Sprint began selling the new Samsung Galaxy S III smartphone and promised that its 4G network would soon be in place. That has helped push up its stock price by over 128%, from $2.50 at the start of June.

The challenge: whether the company's cash flow, which is projected to be 56 cents per share this year and 90 cents next year, will be sufficient to service the company's high debt, which is 123% of its $17.1 billion market cap.

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