Sprint eyes new financing as iPhone swells costs
Posted by gracelim under macintosh on Wednesday Oct 26, 2011(Reuters) – Sprint finally owned up to the massive bet it is making on iPhone, sending its shares down as much as 12 percent on Wednesday.
The No. 3 U.S. operator said it could need $7 billion in new financing over the next few years to cover a cash shortfall caused by heavy investments in the Apple Inc iPhone introduction and a big network upgrade.
Sprint said it does not expect the benefits from iPhone to exceed its costs until 2015. It also said it was negotiating a new deal with majority owned Clearwire Corp, its biggest client. Clearwire shares closed up 19.5 percent.
Sprint was sharply criticized for refusing to disclose iPhone costs and its intentions for Clearwire at an October 7 conference.
Besides the $7 billion network upgrade plan, Sprint has committed to pay at least $15.5 billion to Apple in the next four years for iPhone, but it expects that amount to be even bigger because it is based on the number of phones it sells.
Sprint, whose market capitalization is $7 billion, estimated the “net present value,” or present value of anticipated profits from the contract, at $7 billion to $8 billion over the next four years.
Analysts were skeptical the bet would work.
“To meet their target, they’d effectively have to turn their entire company into an Apple shop,” said Bernstein analyst Craig Moffett.
Another analyst said investors should stay away until they see clear signs Sprint will succeed.
“They’re betting the house on two things at the same time,” said Mizuho analyst Michael Nelson. “If they pull it off, great. If they don’t, their financial performance would get materially worse, and they could have significant liquidity risks.”
Nelson said it would be at least a year before investors could assess whether both plans are working because of the timing of the network upgrade.
Sprint warned it would need to refinance $4 billion of debt and raise up to $3 billion from vendor financing deals in the next few years to cover iPhone and network costs and keep its cash balance at
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