Sprint iPhone has investors worried
Sprint iPhone: Did Sprint pay too much for it?
Sprint has reportedly signed an exclusive deal with Apple for the first few months of the new iPhone. If true, the deal would mark a major coup for a phone carrier that is ranked third nationally and has been bleeding customers since 2006.
So how did Sprint pull this off? The carrier has lagged behind competitors for years but managed to snag an exclusive contract for the much-anticipated iPhone update.
According to a Wall Street Journal report, Sprint committed to buy at least 30.5 million iPhones for approximately $20 billion. The problem some see is that Sprint is risking it all on the new iPhone. The carrier has a market capitalization of just $8.4 billion, compared to their $20 billion commitment.
The Journal's insider said, "This is a bet-the-company kind of thing," going on to say the projected effect on the company's operating income is "staggering."
That gave stockholders a shock and caused them to dump Sprint shares on Monday, which ended 10 percent down.
Sprint may charge customers around $200 for the phone, absorbing an additional $400 or more of the phone's manufacturing cost. With those user subsidies the company can expect returns to be slow-coming. If Sprint is able to double the number of signed customers, a Journal contact familiar with the matter said the company still can't expect a profit until 2014.
That's a long wait, several variables, and years in the red before Sprint will be able to make the iPhone profitable.
But for all the naysayers, Sprint must have looked at previous years' iPhone sales. Global iPhone sales are topping 16 million per quarter these days. If Sprint can get just a fraction of that, they could be back in the black in no time.
For Sprint fans, this is a boon. The carrier is expected to offer an unlimited data plan, and competitive prices that are sure to lure some customers away from Verizon and AT&T.
But the biggest draw is the iPhone itself. Directors at Sprint sounded like budding Apple fanboys when, according to the Journal's insider, they said, "How can we pass this up? We have to have it."
[Editor's note: the original version of this story referred to a possible iPhone 5 release instead of just a new iPhone release]