Sprint Shares Dropped: What You Need to Know
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of wireless telecom laggard Sprint Nextel (NYS: S) were getting spanked by investors today, falling as much as 18% in intraday trading on concerns over the company's iPhone deal with Apple (NAS: AAPL) .
So what: You've really got to give it to Apple. If the deal that Apple struck with Sprint says anything at all, it says that it's Apple, not the wireless carriers, that currently has the upper hand. And that hand is way upper.
But I'm getting ahead of myself. As FierceWireless' Phil Goldstein put it, "Sprint has essentially bet a large chunk of its future on Apple's iPhone." The company has reportedly promised Apple that it will purchase 30.5 million iPhones over the next few years for a total commitment of $20 billion -- a hefty promise for a company that's struggled mightily with a not-so-insignificant issue known as profitability. And while this seems like a bullish bet by Sprint, it's not one that will turn the company's fortunes around quickly. According to most reports, the deal isn't expected to show a profit until 2014.
Now what: Imagine you're a pitcher in a baseball game and it's the fifth inning (still plenty of game left) and your opponents have been shelling you. The current score is 9-3 -- not in your favor -- and there are runners on second and third. If you buckle down and start throwing some really good pitches -- maybe strike a batter or two out -- your coach may keep you in. But if you start throwing wild pitches, it may not take long before there's a call to the bullpen.
Many investors looking at Sprint's deal with Apple may be seeing a wild pitch. They've already put up with a lot with this also-ran, and it appears that many of them are now more than ready to pick up that bullpen phone.
However, if Sprint's gains at the end of trading today are anything more than just the stock getting swept up in the overall market's jump, then it may show that some investors are holding out hope that this could put Sprint on better footing to battle back against AT&T (NYS: T) and Verizon (NYS: VZ) .
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