Palm Pre Cannot Rescue Sprint from Second-Quarter Loss

The Palm Pre was the most successful rollout in Sprint's history, but it's just one part of CEO Dan Hesse's strategy to turn the ailing carrier around. Sprint has improved customer service, says it will be the first to 4G, has a compelling device lineup and recently purchased Virgin Mobile to encourage its prepaid success. Sprint's exclusivity with the Pre, Hesse revealed, extends into 2010.

The Palm Pre proved to be a hit for Sprint Nextel, but it couldn't stop the carrier from losing a quarter of a million customers during the second quarter of 2009.
On July 29, Sprint announced consolidated net operating revenues of $8.1 billion for the second quarter-compared with $9.05 billion a year earlier-along with a net loss of $384 million and a diluted loss per share of 13 cents.
Additionally, customer numbers fell from 49.1 million at the end of the first quarter of 2009 to 48.8 million at the end of the second.
"As I prepared my comments for this earnings call, one observation was clear: Sprint is not the same company it was 12 months ago," Sprint CEO Dan Hesse told investors and analysts during the earnings conference call.
"During prior quarters our focus on operating improvements and efficiencies enabled Sprint to stabilize our earnings trend, and during the second quarter we saw a sequential improvement in adjusted OIBDA [operating income before deprecation and amortization]," said Hesse.
"We continue to generate strong free cash flow during the quarter, resulting in a cumulative free cash flow production of almost $1.5 billion during the first half of 2009."
Hesse later said that the Palm Pre was the most successful launch in Sprint's history, in part thanks to the training it gave employees, and that the Pre helped soften the impact of the arrival of the iPhone 3GS on competitor AT&T.
"When there's a new device launched, say the iPhone in particular, you'll see a blip for a period of time, in increased churn," said Hesse.
"But we think that, just like a year ago, when the [Samsung] Instinct helped to mitigate the impact of that significantly, this year we had the Palm Pre, which mitigated that as well. I don't want to lead you to believe that there's no impact at all from the iPhone-it is a successful device. But I think we've mitigated the impact significantly with a strong device lineup."
Exclusivity agreements between manufacturers and carriers have come under scrutiny lately, most especially regarding AT&T's relationship with the iPhone and Sprint's with the Palm Pre-which will be much shorter lived than the former's.
"We are the exclusive provider of the device into 2010," Hesse said. "And we have no more to say other than that."
Along with Keith Cowan, Sprint's president of strategic planning and corporate initiatives, Hesse detailed the ways they're working to turn the ailing carrier around, including vast improvements to customer service, excellent 3G capabilities, a strong handset lineup, an early launch of 4G services and also its recent acquisition of Virgin Mobile, which offers prepaid services.
Sprint has struggled to retain postpaid subscribers, but its prepaid service, Boost Mobile, has been a particular area of strength.
"The company's prepaid division has been adding a significant amount of subscribers since the introduction of the unlimited $50 Boost prepaid plan, partially offsetting postpaid subscriber losses," Kate Price, an analyst with Technology Business Research, told eWEEK.
"Prepaid ARPU also increased $3 sequentially to $34, with the $50 unlimited plan being the catalyst of the growth. Though the prepaid division is a small segment of the company, it was the only segment to post revenue growth, and will likely remain a focus for the company moving forward," Price continued. "The company's purchase of Virgin Mobile also indicated prepaid will likely receive increased focus from the company."