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Archive for Saturday, January 19, 2008

Sprint Nextel to cut 4,000 jobs, close 8 percent of retail shops

January 19, 2008

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— Sprint Nextel Corp. will need a more aggressive and innovative business plan - and perhaps a revamped board of directors - if it hopes to reverse a continuing decline in customers, analysts said.

The nation's third-largest wireless company announced Friday that it will cut 4,000 jobs and close 125 retail locations, causing its stock to drop nearly 25 percent.

Analysts were unimpressed with the company's moves and forecast even more cuts in the coming months as Sprint struggles to compete with AT&T Inc. and Verizon Wireless.

"Firing people is not a plan to fix the company," said Walter Piecyk of Pali Research. "There are so many things wrong with the current strategy that any plan would be additive."

Piecyk said Sprint's board of directors needs to change because it has not properly managed the company since Sprint acquired Nextel Communications Inc. in 2005, nor has it developed a realistic plan to make the company more relevant in the intensely competitive telecommunications industry.

The layoff of about 6.7 percent of Sprint's work force and closure of 8 percent of its stores is to be completed in the first half of the year. Sprint said in a news release that the cuts will trim labor costs by $700 million to $800 million a year.

Greg Gorbatenko, an analyst for Jackson Securities, said Friday's moves may make Sprint a bit more nimble but new Chief Executive Officer Dan Hesse will still have trouble righting the company

"It's going to be tough," he said. "Verizon is doing everything right and AT&T has the advantage of scale. Hesse seems like old-school Sprint. They have to come up with new creative marketing, better customer service, some new ideas. They need to do some testing and go after it."

Sprint said it lost 683,000 so-called postpaid subscribers - the most profitable customers - in the fourth quarter, more than twice the loss in that category that Wall Street analysts predicted. The company lost nearly 1 million postpaid customers in 2007.

Despite gains in such categories as wholesale customers and its new flat-rate unlimited calling plan, Sprint reported a loss of 109,000 overall subscribers during the final three months of the year. Sprint finished last year with 53.8 million subscribers.

Churn - the percentage of customers who cancel service - also remained high at 2.3 percent in the fourth quarter.

In addition to the layoffs and store closings, Sprint plans to shut down 4,000 of its 20,000 third-party distribution points, such as stalls inside consumer-electronics retailers, and reduce its use of contractors and outsourced services.

Sprint owns about 1,400 retail outlets.

In a filing with the SEC Friday, Sprint said it expected the job cuts to cost about $200 million, but it could not estimate costs associated with the closing of its distribution points and retail stores.

Company spokeswoman Leigh Horner said the company will offer severance packages to the workers, who include management and non-management employees. The 4,000 jobs is about 6.7 percent of Sprint's current work force of 60,000.

Friday's announcement continued after more than a year of customer losses and service problems that led Sprint to oust former Chief Executive Gary Forsee and replace him last month with Hesse, who had been CEO of Sprint spinoff Embarq.

Armstrong said in a client note that the cuts had been planned before Hesse took over, meaning Hesse "has yet to take his first cut at the business. He has historically been aggressive on cost cuts and conservative on guidance, so look for more reductions when he finalizes his plan."

The company's struggle dates to the 2005 acquisition of Nextel, which left it with incompatible networks, technical glitches, a customer base filled with credit-compromised subscribers and a dubious marketing effort.

Jeff Kagan, an Atlanta-based wireless analyst, said the job cuts and retail closings are a first step in Hesse's efforts to "stop the bleeding."

"None of the moves they've made in the last two years have struck gold," Kagan said. "Dan has to figure out what's broken and fix it. And he's got to do it quickly."

The company also said it could record a charge in the fourth quarter of 2007 for what's known as "goodwill impairment," reflecting the decreased value of its assets and share price. The company expects to issue its fourth-quarter earnings report Feb. 28.

Besides the layoffs and closings, Hesse and his staff are considering consolidating company operations at the operational headquarters in Overland Park, Kan. Horner said Friday that the company has made no decision on the headquarters location.

Sprint's shares dropped 24.81 percent Friday to close at $8.70.

Comments

toefungus 7 years ago

Yes, it will. Rather significantly I am afraid. Especially housing.

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