Sprint Continues Turnabout; Sales of iPhone Steady
By THOMAS GRYTA
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In contrast to its rivals, Sprint Nextel Corp. S +20.18% maintained sales levels for the popular Apple Inc. AAPL -0.02% iPhone in the second quarter, indicating that the company's turnaround is continuing and that the company has reason to be optimistic about sales when a new version of the smartphone, expected later this year, arrives.
Overall, the Overland Park, Kan., wireless carrier's second-quarter loss widened amid customer losses and costs from the shuttering of its older Nextel network, but its crucial network overhaul is on track, something that will be important because the new iPhone will likely utilize next-generation network technology.
Sprint began selling the iPhone in October by cutting a large, multiyear-purchase agreement. The accord was viewed as extreme by some, but the company provided assurances Thursday that it would ultimately benefit from the deal.
"We're ahead of pace for what it would take to retire that $15.5 billion four-year commitment," Chief Executive Dan Hesse said in an interview. "Right now, the iPhone decision is looking like a very good one."
The company's stock jumped 20% to $4.05 a share as Wall Street was caught off guard by the better-than-expected performance. The frequently volatile stock is down 22% over the past 12 months but up 73% for 2012.
After spending years juggling multiple wireless technologies, Sprint is streamlining and upgrading its network to draw new customers and keep pace with larger rivals that have a head start rolling out faster service.
Sprint's next-generation LTE, or Long Term Evolution, network is now running in 15 cities and should cover 100 million potential customers by year-end, but it is still well behind AT&T Inc. T +2.75% and Verizon Wireless in the technology rollout. The network upgrade is expected to be largely completed by mid-2013.
The next iteration of the iPhone--expected in the fall--is widely expected to run on the LTE network. Mr. Hesse played down any concern that Sprint's network will be lacking when compared with those of rivals. In an interview, he said that the phone would still perform well and that some of the company's best selling devices were LTE-compatible before the network rollout.
Sprint has also differentiated itself from other major carriers by being the only major one to still offer unlimited data packages to customers on its network, and Mr. Hesse said there are no plans to change that strategy. AT&T and Verizon Wireless recently unveiled wireless data plans that capitalize on data-consuming phones and devices.
In the quarter, iPhone unit sales at Verizon Wireless and AT&T dropped 16% and 14%, respectively, from last quarter, while Sprint's were unchanged at 1.5 million. Notably, Sprint said 40% of its iPhone sales were to new customers, compared with 25% at Verizon and 22% at AT&T.
Sprint still doesn't expect to make a profit on the iPhone deal before 2015, but Mr. Hesse said the device will help Sprint's business more than other high-end smartphones because of lower product returns and overall support costs. He expects iPhone users will be less likely to cancel their service and other subscribers will be less likely to jump to another carrier just to get an iPhone.
Sprint also opened a new sales channel last month when it began offering a pay-as-you-go iPhone through its Virgin Mobile USA business, allowing users to pay a higher price for the phone in exchange for cheaper service and no two-year contract.
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"We have sold quite a few devices, but it is just too early to make forecasts," Mr. Hesse said of the strategy. Sprint is working with Apple to begin advertising the prepaid iPhone.
Overall, Sprint's second-quarter results were mixed because of the network transition, but the company impressed Wall Street with its ability to draw revenue from current subscribers and its increase in full-year projections.
In the quarter, Sprint's loss widened to $1.37 billion, or 46 cents a share, from $847 million, or 28 cents, a year earlier. The most-recent quarter included charges of 39 cents a share from the Nextel shutdown and the impairment of an investment in network partner Clearwire CLWR +12.22% Corp.. Revenue rose 6.4% to $8.84 billion.
Analysts had projected a loss of 40 cents a share on revenue of $8.73 billion, according to Thomson Reuters. Wireless-service revenue rose to 17.8%, beating expectations and up from 16.3% a year ago.
Sprint raised its 2012 forecast for adjusted operating earnings before depreciation and amortization to a range of $4.5 billion to $4.6 billion, up from a previous view of $3.7 billion to $3.9 billion.
Overall the company lost 246,000 two-year contracts in the quarter, largely because of the loss of 688,000 users at the legacy Nextel unit.
However, Sprint is squeezing more out of the customers it has. Average revenue per postpaid user--an important metric--rose to $60.88 from $56.67 a year ago, the biggest increase in the company's history.
In the quarter, Sprint captured 60% of customers who are leaving its Nextel push-to-talk platform, up from 27% a year ago and 46% last quarter. Sprint said it was unlikely to sustain the latest rate, but it expects it to stay above 40% for the rest of the year.
The rate at which customers leave its networks, a measurement known as churn, dropped to 1.79% from 2% in the prior quarter. It was 1.75% a year ago.
iPhone 5 Speculation Drives Apple Earnings Down
Apple CEO Tim Cook speaks at the All Things D conference in Los Angeles. (Joanna Stern / ABC News)
Apple's third quarter earnings, released this afternoon, were below analysts' predictions.
While the quarter is usually one of the slower ones for the tech giant, Apple CEO Tim Cook and CFO Peter Oppenheimer admitted that speculation surrounding the next iPhone -- what many are calling the iPhone 5 -- has affected sales of current iPhones.
Apple said it sold 26 million iPhones, down from 35.1 million in the previous quarter. Presumably, people put off purchases of phones, waiting for a newer model.
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"We're reading the same speculation about a new iPhone as you are, and we think this has caused some delay in purchasing," Oppenheimer said.
Of course he was referring to the flood of rumors about the next iPhone, including the ones that say the next version will have a larger and thinner display, a new dock connector, and a faster processor and graphics.
The topic of the rumors came up numerous times on the earnings call with analysts. But no matter how hard analysts pushed, Cook and Oppenheimer would not talk about their product plans for the remainder of the year.
Oppenheimer added later in the call, "The fall transition is driving most of the decline in gross margin, it's not something we are going to talk about in any level of detail."
When Cook was asked about a new feature of iOS 6 called Passbook, which puts all tickets or coupons into one app, he wouldn't elaborate on what Apple might do down the road.
"We try very hard to keep our product roadmap secret and confidential. We go to extreme activities to try and do that," Cook said. "That, however, doesn't stop people from speculating and wondering."
In May, Cook said he was planning to "double down on secrecy" on products, but he conceded it won't stop the speculation.
"I'm glad that people want the next thing, I am super happy about it. I am not going to put energy into getting people to stop speculating, that's not going to amount to anything," Cook said.
Apple is also rumored to be planning a smaller version of its iPad before the year is up, which would compete with Google's recently-announced Nexus 7. Cook wouldn't comment on that and mentioned the $399 version of the iPad 2.
"I think most customers feel that they are not looking for a tablet, they are looking for an iPad," Cook said. "We are going to keep innovating in the space and make new products."
Again, he wouldn't elaborate on those products, which ultimately hit the company's bottom line this past quarter, but he was clear about how Apple intends to keep making those products.
"Our North Star is to maniacally focus on making the world's best products," Cook said. He repeated that word "maniacally" twice during the call.
Top secret iPhone, iPad prototype shots emerge
What might previous versions of the iPad and iPhone have looked like? Newly-unearthed shots of early prototypes give us a peek.
by Josh Lowensohn
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Who said lawyers are the only ones who benefit from massive lawsuits between multi-national companies? As a by-product of the proceedings between Apple and Samsung, Apple-watchers now get a slew of shots of early iPhone and iPad designs that have been unveiled in court documents.
As profiled by The Verge this afternoon, the collection includes an unusual picture frame-esq version of the iPad that sports a kickstand. There also a handful of prototype iPhone designs, including one with angular emerald-like corners, one that's like a metallic slab, and one with two-toned design on the rear, which MacRumors points out looks quite a bit like renderings that have cropped up lately for Apple's sixth-generation iPhone.
The images come on the heels of last week's de-classifying (if you can call it that) of an early prototype of the iPad. That device, which looked quite similar to the topside of a G4 iBook model, ran about an inch thick, and was shown off in a series of shots published by Networkworld and Buzzfeed.
Apple and Samsung go to trial in California beginning next week. Apple sued Samsung last April, claiming the company made "slavish" copies of its smartphones and tablet computers. The case has gotten increasingly complicated, with Samsung countersuing, and both companies piling on with more complaints against one another.
A prototype iPhone design.
Included in this series of filings are shots of a device that might just have been the iPhone 4. Apple went with a modified design, but you can see the beginnings of what would become the form factor that remains today in the iPhone 4S.
Also of interest are iPhone and iPad designs that make use of what appears to be anodized aluminum with rounded corners -- a throwback to the early iPod Mini, a product Apple later replaced with the Nano.
More designs and behind the scenes look at gadgets from both companies could be on parade in the coming weeks and months, however this represents one of the largest collections of Apple product mock-ups seen outside of drawings and renderings depicted in patent filings.
Josh Lowensohn joined CNET in 2006 and covers everything Apple. Before that, Josh wrote about new Web startups, video games, and remote-controlled robots that watch your house. When not attempting experimental pizza recipes, Josh is an avid photographer.
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