Daily Archives: May 6, 2008

UTStarcom Miraculously Pins The Tail on the Donkey (UTSI)

If there has ever been a battered and tattered tech stock, UTStarcom Inc. is the epitome of that.  Almost miraculously, the company has raised guidance and shares are soaring. 

The company has put guidance for first quarter revenues in the range of $580 million to $590 million.  This compares to initial guidance of $500 million to $520 million.  The company also hiked up gross margins to be in the range of 15% to 16%, above the prior guidance of approximately 13%.

UTStarcom says this is due to better than expected performance from its personal communications unit and from its core business units.

One thing that is up though is operating expenses, which are now at $120 to $125 million instead of $115 to $120 million (due to unanticipated professional services expenses).

Revenue in the first quarter of 2007 was $475.9 million, and operating expenses in the first quarter of 2007 were $127.5 million.

We featured this at the start of the year as a "turnaround that hadn’t turned around" yet.  Maybe this is the start.

Shares of UTSI closed up 0.9% at $3.36 today, but shares are up 19% at $4.00 in after-hours trading.  The 52-week trading range is $2.23 to $7.47. This was above $10.00 less than 18 months ago, and this above $30 and even $40 back in late 2003 and briefly in 2004 before its problems kicked in.

Jon C. Ogg
May 6, 2008

Posted on: May 6, 2008 – 5:10 pm in Turnarounds,

Cisco Guidance, “Decent” to “Good Enough” (CSCO)

We already reported earnings out of Cisco Systems (NASDAQ: CSCO).  The networking giant posted $0.38 non-GAAP EPS on revenues of $9.8 Billion, which were ahead of First Call targets of $0.36 and $9.75 Billion.  This beat initially had shares up over 2% in after-hours reactions.

In the conference call, CEO & Chairman John Chambers came out with some loose guidance that you would put slightly below estimates for the coming quarter.  The problem is that he did that last quarter too and this still looks like it is in the "good enough" camp. 

Chambers sees challenges in the U.S. persisting, but the overall tone he sees is more temporary or short-lived than a deep continued period of pain. 

For next quarter (its fourth quarter), Chambers sees 9% to 10% revenue growth.  By our calculations, that would come to about $10.28 to $10.37 Billion on the surface.  First Call had estimates are $10.3 Billion.

On a longer-term basis he sees 12% to 17% revenue growth as still being achievable.

Shares were up over 2% initially in after-hours on the earnings beat, and shares had come off to be up only about 0.6% to $26.50 in after-hours. 

This gives an argument for bulls and bears alike.  The bears can say growth is slowing to ‘at-market growth,’ and the bulls can say this is still strong for the environment.  As long as no blow-up happens in the Q&A, we’ll keep this one in the "good enough for us" camp.

Jon C. Ogg
May 6, 2008

Posted on: May 6, 2008 – 4:14 pm in Earnings, Technology Companies,

Sprint (S) and Clearwire (CLWR) Get Billions For WiMax

Wall St. said WiMax was dead. Sprint (NYSE: S) which was going to build a $5 billion network for its broadband wireless network did not have the capital. Neither did start-up Clearwire (NASDAQ: CLWR). But, a number of companies with skin in the game are putting up $12 billion to take WiMax to Main Street.

According to The Wall Street Journal Sprint has agreed to merge its wireless broadband unit with Clearwire. The new company has raised a total of $3.2 billion in outside financing from several heavyweights — $1.05 billion from cable provider Comcast, $1 billion from Intel, $550 million from Time Warner Cable and $500 million from Internet giant Google.

The deal allows cable operators like Comcast (CMCSA) and Time Warner Cable (TWX) who are seeing some of their broadband customers go to AT&T (T) and Verizon (VZ) a bit of revenge. It allows Google (GOOG), which wants into broadband to market its wreless applications and online advertising, a chance to be in on the ground floor of a 4G wireless deployment. It will help the search company move off the PC and onto portable devices.

The partnership rescues Sprint and Clearwire from the dustbin and could give the major cellular customer a fit.

Deutsche Telecom (DT), which was rumored to be buying Sprint, was left out in the cold along with its No.4 US wireless operation T-Mobile, which will now quietly fall apart.

The rumor that NexTel would be spun out of Sprint also turned to dust.

Douglas A. McIntyre

Posted on: May 6, 2008 – 3:38 pm in WiMAX, , , , , , , ,

Cisco Systems Pulls A Rabbit From The Tech Hat (CSCO)

Cisco Systems (NASDAQ: CSCO) has come out with earnings after the close and shares are initially up on the news.  The company posted $0.38 non-GAAP EPS on revenues of $9.8 Billion.  Both numbers are ahead of First Call targets of $0.36 and $9.75 Billion.

Cash flows from operations were $3.0 billion, while cash and equivalents were $24.4 billion. In the quarter, Cisco repurchased 83 million shares of common stock with an average purchase price of $24.04 per share (roughly $2 Billion spent).

Guidance has been held until the conference call.

Shares closed up 0.2% at $26.33 in normal trading, and so far shares are up about 2.3% at $26.95 in after-hours trading.

Jon C. Ogg
May 6, 2008

Posted on: May 6, 2008 – 3:18 pm in Earnings, Technology Companies,

Disney (DIS): Walt Would Be Proud

Disney (DIS) had the kind of quarter that a company based on the fantastic should have.

Diluted EPS for the second quarter increased to $0.58, compared to $0.44 in the prior-year quarter. Revenu rose 10% to $8.71 billion. Segment operating income was up 21% to $2.14 billion.

The company’s studios were the stars. Their revenue rose 18% to $1.822 billion. Operating income was up 61% to $377 million.

The company’s parks did unusually well given the economic slowdown. Revenue rose 11% to $2.725 billion. Operating income was up 33% to $339 million.

Disney’s largest division, its media networks, had slower growth with 5% revenue increase and a 14% segment operaing income bump to $1.317 billion. ESPN did well. ABC did not.

In tough times, investors in the company got a trip to Disney Land.

Shares rose 2.7% on the news to $34.60.

Douglas A. McIntyre

Posted on: May 6, 2008 – 3:16 pm in Entertainment,

The 52-Week Low Club (PSS)(SUN)(THO)

Collective Brands (PSS) An unfavorable verdict in a lawsuit with Adidas.Drops to $9.14 from 52-week high of $37.20

Sunoco  (SUN) Analyst downgrade. Down to $43.88 from 52-week high of $80.40.

Thor Industries (THO) Bad quarter, new CFO. Drops to $25.18 from 52-week high of $52.31.

DSP Group (DSPG) Falls on week quarter. Down to $8.97 from 52-week high of $22.30.

Franklin Bank  (FBTX) Company drops out of S&P Small Cap index. Drops to $.83 from 52-week high of $17.

Douglas A McIntyre

Posted on: May 6, 2008 – 3:02 pm in HI/LOW, , , , ,

Advanced Micro Devices Rises On Chatter (AMD)

Advanced Micro Devices Inc. (NYSE: AMD) is seeing a crazy and active day.  We saw an unusual rise in this yesterday on active volume, but that rise was a 6% rise.  Today’s gains are more than 10% to $7.30 (highest levels since late-February) on very active trading.  The call option buying for may is also more active than usual.  While there is no fresh news on the company or from the company, the move is being attributed to market chatter. 

Our friends over at Thomson Squawk Box noted that the chatter they are lending credit to is that the company could be split in two. 

Some other chatter revolves around takeover speculation, but if you look around that really looks like it may just be more message boards driven than anything. It may also be on the heels of other tech mergers out there.

We have also noted in the past that rumors have come up occasionally pointing to a Hector Ruiz departure.  We have called him one of our own ten CEO’s that need to leave, but he has been acting more and more like he has dug in and set up an anchor there.

We’ll see if any real solid news comes out confirming or denying the talk out there.  Until then, it’s just another stock moving on rumors.

Jon C. Ogg
May 6, 2008

Jon Ogg is a producer and editor of the "10 Stocks Under $10" weekly newsletter from 247WallSt.com.

Posted on: May 6, 2008 – 12:34 pm in Rumors, Semiconductor,

Biotech Business Daily (GSK, MRK, OMPI, STEM, TEVA, VNDA)

Here are some of the top stories today that affecting key drug and biotech stocks:

GlaxoSmithKline (NYSE: GSK) reorganized its corporate structure, increasing focus on emerging markets such as China, Russia, Brazil, India and the Middle East. New CEO Andrew Witty, who will take over on May 22, approves the moves. Shares are down $0.25 to $44.64 in mid-day trading. The 52-week range is $40.51 to $58.23.

Merck (NYSE: MRK) down slightly despite news Monday that they are to cut 1,200 sales jobs to cut costs. Yesterday, shares dropped $0.47. Shares are down $0.13 to $38.85 in mid-day trading on thin volume. The 52-week range is $36.80 to $61.62.

Obagi Medical Products, Inc. (NASDAQ: OMPI) dropping over 20% today after earnings reported Monday missed Street estimates. The skin care products maker showed a profit of $3 million for EPS of $0.13. Thomson analysts estimated $0.18 EPS. The company also reduced its yearly outlook. Shares are down $1.81 to $6.98, grazing new lows. The 52-week range is $6.80 to $25.60.

StemCells Inc. (NASDAQ: STEM) sinking after first quarter earnings were reported this morning. They showed a net loss of $6.5 million or -$0.08 EPS, wider that -$0.06 EPS in 2007. Shares are down over 5% to $1.58. The 52-week range is $1.00 to $2.69.

Teva Pharmaceuticals (NASDAQ: TEVA) reported solid first quarter earnings that beat estimates. Excluding a large charge for the $382 million acquisition of CoGenesys, Teva showed a net income of $529 million or $0.64 EPS, beating estimates of $0.63 EPS. Shares are down marginally to $46.49. The 52-week range is $38.13 to $50.00.

Vanda Pharmaceuticals, Inc. (NASDAQ: VNDA) shares are dropping today after rising almost 40% yesterday after reporting narrower first quarter losses last Thursday, beating expectations. Also yesterday, Caris initiated coverage on the company with a “Buy” rating and a $22.00 price target, specifically citing the expectation that schizophrenia treatment Fanapta, will gain regulatory approval in July. Today, shares are down over 6% to $5.10 on unusually high trading volume. The 52-week range is $2.70 to $22.49.

Rachel Lopez
May 6, 2008

Posted on: May 6, 2008 – 12:17 pm in Biotech, , , , , ,

Can Blue Nile Earnings Outshine Short Sellers? (NILE)

Today after market close we’ll get to see the earnings out of Blue Nile Inc. (NASDAQ: NILE). Blue Nile has suffered a miserable time of it since the highs last year.  They have been decimated, they have been more than halved.

Estimates from First Call for the online retailer of fine jewelry for this quarter are $0.14 EPS on $68.52 million in revenues. Estimates for next quarter are $0.22 EPS on $77.84 million in revenues. Estimates for fiscal Dec-2008 are $1.06 EPS on $352.69 million in revenues.

Analysts have an average price target of $52.00.  That price target has come down significantly.  Over the last 90-days, we’ve also seen a fairly large reduction in earnings estimates for this quarter and next; and estimates have been brought in for 2008 and 2009.  Options traders appear to be braced for a move of more than $5.00 in either direction.

Based upon the forward valuations and based on the current state of the economy, this one also no longer looks cheap on a forward multiple analysis.  The good news is that its balance sheet is in fine shape, but the flip side is that the stock trades at almost 12-times tangible book value.

As far as the chart, well shares used $40+ as support in both February and March.  Shares are currently close to the 50-day moving average of $47.68, and the 200-day moving average is far north at $67.64.

Lastly, we’d like to note that if Blue Nile doesn’t show some horrific numbers despite the concerns and high valuations, the short interest is massive here.  With 7.95 million shares carried in the short interest, that represents close to 59% of the float and is a days-to-cover ratio of roughly 20.  So anything "not so much more bad" could cause a major short covering session. 

Blue Nile’s shares were down about 3.5% at $46.14 in early afternoon trading; its 52-week range is $38.35 to $106.16.

Jon C. Ogg
May 6, 2008

Posted on: May 6, 2008 – 11:53 am in Earnings, Internet, Luxury,

Capital Senior, Brookdale, Senior Housing Lead Old Folks Homes Earnings Week (CSU, BKD, SNH, SRZ, SCI)

This week, we’ll see earnings from many of the top publicly traded retirement homes.  We have earnings from Capital Senior Living Corp. (NYSE: CSU), Brookdale Senior Living Inc. (NYSE: BKD), Senior Housing Properties Trust (NYSE: SNH), and Sunrise Senior Living Inc. (NYSE: SRZ).  This earnings preview report wouldn’t be complete without the grand finale.  The global leader in funeral homes and cemeteries, Service Corp. International (NYSE: SCI), is also on deck to report earnings.

While "old folks homes" might sound derogatory in name, it shouldn’t be thought of that way.  Not at all.  247WallSt.com looks for sectors that we believe can enjoy secular growth.  The oldest of the Baby Boomer generation is just now entering the very first stages of retirement age, and many of their parents are still alive and many are in need of assisted living care.  Combine this with more future demand than current supply can meet, and all of a sudden you have the formula for a secular growth and income story.   

Below is an orderly report calendar for the top stocks in this sector that are reporting earnings this week:

Read More »

Posted on: May 6, 2008 – 11:31 am in Earnings, , , , ,

WuXi PharaTech, Worth More on Secondary Cancellation (WX)

WuXi PharmaTech (Cayman) Inc. (NYSE: WX) announced today that it has decided to postpone its follow-on offering of American Depository Shares "due to current market conditions and share price."

Credit Suisse Securities and JP Morgan Securities were lead underwriters and joint book-runners for the offering that was originally filed April 4. Some of the shares that were being sold were for existing shareholders and some share sale proceeds were to be used for existing factory expansions and for general corporate purposes.

The Chinese and U.S.-based pharmaceutical, biotechnology, and medical device "outsourcing" company is trading up 2% at $19.10 in early morning trading and when the offering was first announced, WuXi was trading at about $23.50. WuXi has a 52-week range of $17.43 to $45.65.

You can join our open email distribution list to keep up with other developments in secondary offerings, IPO’s, mergers, spin-offs, and other specialty financings.

Rachel Lopez
May 6, 2008

Posted on: May 6, 2008 – 10:12 am in China, Drug companies, Secondary Offering,

Yellow Gold Rises Faster than Black Gold (GG, ABX, KGC)

We’ve now seen earnings out of gold giants Barrick Gold Corporation (NYSE:ABX) and Goldcorp (NYSE:GG), and after the close we’ll see earnings out of Kinross Gold Corporation (NYSE:KGC).  As you read through the releases, you’ll see why these are all higher.  You might even wonder why these are all so far off of highs.

Barrick Gold Corporation (NYSE:ABX) reported first quarter 2008 earnings today of $514 million, or $0.59 EPS, compared with a loss of $159 million, or $0.18 EPS, in the same period a year ago. Adjusted to account for one-time items, EPS would have been $0.62. Revenue for the quarter totaled $1.958 billion, nearly double first quarter 2007 revenue of $1.089 billion. Production costs rose to $501 per ounce, but the average realized price per ounce of gold hit $925. Analysts expected EPS of $0.60 and revenues of $2.24 billion.  Barrick shares are up 2% at $39.74 (52-week range $27.79 to $54.74).

Goldcorp (NYSE:GG) reported earnings yesterday of $229.5 million, or $0.32 EPS, up 84% from the same period last year. Goldcorp achieved a record-high realized price of $932/ounce of gold on production costs of $240/ounce. GG and ABX each gained about $0.50/share yesterday on the announcement. Goldcorp shares are up 3% at $37.79 (52-week range $21.00 to $46.30)..

After market close today, Kinross Gold Corporation (NYSE:KGC) reports first quarter earnings after market close today. Analysts are expecting $0.13 EPS on revenue of $335 million. Kinross shares are also up 3% before they have even reported (52-week range $9.87 to $27.40).

Yellow gold appears to be following the lead of black gold: the higher the price for the commodity, the better a gold miner’s results. The weak dollar moves the prices of both gold and oil higher. Rising production costs in gold mining also compare to rising production costs in petroleum. Commodity hedging is also factored into production costs. Interestingly, Goldcorp’s gold production is totally unhedged, and ABX reported a hedging loss of only $29 million. Analyst estimates for the June 2008 quarter are lower for both companies. That could be true, but only seems likely in a scenario where gold prices fall.

Paul Ausick
May 6, 2008

Posted on: May 6, 2008 – 9:20 am in Commodities, Earnings, Metals, , ,

Goldman Sachs and $150 to $200 Oil (Part II) (GS)

Goldman Sachs (NYSE: GS) has come out and updated its "oil super-spike" prices today.  In fact, it ponders whether or not the super-spike end game has begun.  We covered part of this yesterday, and today the full details were sent out.

The firm now notes that we could see $150 to $200 per barrel of oil in the next six to 24 months.  The note says the current energy crisis may be coming to a head.  It cites lack of adequate supply growth and this notes that a needed demand rationing in the OECD areas (in particular the U.S.). 

This might not even big too big of a stretch now considering the recent comments from OPEC’s head.

So this $150 to $200 level seems increasingly likely… even though the brief summary is "though predicting the ultimate peak in oil prices as as the remaining duration of the upcycle remains a major uncertainty."

While this $150 to $200 level is its super-spike target, the firm has raised its 2008 spot target to $108 per barrel of West Texas Intermediate crude (previous was $96) and it has raised Brent Sea crude to $108 as well (from prior $95).

Well, this may explain some of the rapid rise in oil prices in the last two trading sessions… just when it looked like the oil prices were going to get a reprieve.

No wonder T. Boone Pickens says oil stock prices are more representative of $75 oil rather than $100 oil.
Now we know Exxon’s hiked dividend has some support.

Jon C. Ogg
May 6, 2008

Posted on: May 6, 2008 – 8:32 am in Analyst Calls, Oil & Gas,

Blackstone Closed on 3 CLO’s In Q2 So Far (BX)

The Blackstone Group (NYSE:BX) has announced the closing of three newly created collateralized loan obligation funds totaling $1.3 billion.  Yep, CLO’s. These were all created over the past month.

In March, Blackstone merged its existing CLO group with the team from its newly acquired GSO Capital Partners. This 35 person CLO team has offices in New York and London. The combined CLO group now manages $14 billion across 26 funds in the US and Europe.  The new CLOs closed by the group were as follows:

  • Columbus Park ($400 million) on April 3rd,
  • Riverside Park ($500 million) on April 15th,
  • and Tribeca Park ($400 million) on May 1st.

In this release Blackstone noted that Standard and Poors’ showed the first three months of
2007 with 48 CLO’s created with total volume of $24.8 billion.  This compares to only 11 new CLOs with aggregate volume of $6.0 billion in the first three months of 2008.  While that is a drop of 76%, it’s still larger than many would have guessed considering the credit malaise and street-wide shut downs that have been seen in the sector.

Blackstone said that while ‘aspects of the credit markets have experienced a degree of dislocation,’ it believes the limiting factor in creating new CLOs is most directly related to the lack of supply for the CLOs’ most senior capital tranche, AAA-rated liabilities.  That is interesting considering the fact that the lower-end became impossible to place last year.  Maybe the number of people with stellar credit has fallen off the roof.

These AAA liabilities represent approximately 70% to 75% of a generic CLO’s capital structure and recently have been available to only the most highly regarded asset managers.

Maybe we’ve seen the bottom and the worst in this sector after all.  The fact that CLO’s are even publicly being priced may be good enough reason to celebrate.

Jon C. Ogg
May 6, 2008

Posted on: May 6, 2008 – 7:45 am in Financial Stocks, Private Equity,

Playboy, Challenged By Media Trends & Economy (PLA)

Playboy Enterprises, Inc. (NYSE: PLA) has reported a net loss for the first quarter of $3.1 million, or -$0.09 per basic and diluted share, on and 8% decline in revenues to $78.5 million.  Unfortunately, First Call had estimates pegged at $0.06 EPS on $84.8 million in revenues.

Playboy Chairman & CEO Christie Hefner said: "The quarter’s results reflected the dual challenges of structural transformation in our traditional media business and a difficult U.S. economy…."  She might as well have just said, "A soft economy is hurting sales, and people can get enough nude pictures and adult videos for free on the Internet."

While exact guidance was not offered, the company does still expect its licensing business to show high single-digit growth in 2008 over 2007.  Elsewhere, the picture was stark.  total domestic TV revenues declined 16% to $16.5 million, online revenues declined 3%, and publishing saw revenues drop 14% to $20.1 million.  The company also noted that it sees a 5%  drop in advertising revenues over Q2 2007.  Corporate administration costs rose 7% to $6.1 million.

Unfortunately, this is going to make these 2008 estimates of $0.27 EPS come down for 2008, and it’s hard to imagine that the $0.48 EPS estimate for 2009 won’t be brought down on a dual concern as well.  If so, then even at $8.00 this is not a cheap stock.

Playboy closed at $8.26 yesterday, and shares are indicated down 3% at $8.01 in pre-market trading; its 52-week trading range is $7.76 to $12.00. At the start of 2006, this was a $15.00 stock and this was a $20 to $30 stock back in the late 1990’s.

Jon C, Ogg
May 6, 2008

Posted on: May 6, 2008 – 7:18 am in Earnings, Earnings Warning, Entertainment,

Fannie Mae (FNM) Takes A Blow To The Head, Cuts Dividend

The housing and subprime mortgage market claimed another victim today as Fannie Mae (FNM) reported a dismal quarter, cut its dividend and said it would raise $6 billion.

Fannie Mae says it lost $2.2 billion in Q1. The loss was equivalent to $2.57 a share. It earned 85 cents a share a year earlier.

According to the company "The latest quarter included $4.4 billion in fair value losses, reflecting markdowns on the value of Fannie’s derivatives holdings and trading positions."

Shares fell 15% ahead of the open.

Douglas A. McIntyre

Posted on: May 6, 2008 – 7:12 am in Housing,

Top 10 Pre-Market Analyst Calls (AG, HBC, CNH, MEOH, OMTR, PLD, RYAAY, SLM, PCU, VE)

These are the top 10 analyst calls that we are focusing on this Tuesday morning:

  • AGCO Corp. (NYSE: AG) raised to Overweight at Goldman Sachs.
  • HSBC Holdings (NYSE: HBC) cut to Neutral at UBS
  • CNH Global NV (NYSE: CNH) cut to Neutral at Goldman Sachs.
  • Methanex (NASDAQ: MEOH) raised to Buy at UBS.
  • Omniture (NASDAQ: OMTR) raised to Buy at Piper Jaffray.
  • ProLogis (NYSE: PLD) cut to Outperform from Top Pick at    RBC Capital Markets.
  • Ryanair (NASDAQ: RYAAY) cut to Sell from Hold at Deutsche Bank.
  • SLM Corp (NYSE: SLM) raised to Overweight at Lehman Brothers.
  • Southern Copper (NYSE: PCU) cut to Neutral at HSBC Securities.
  • Veolia Environnement (NYSE: VE) Cut To Neutral By JPMorgan.

Jon C, Ogg
May 6, 2008

Posted on: May 6, 2008 – 6:53 am in Analyst Calls, , , , , , , , , ,

Europe Markets 5/6/2008 (GSK)(SAP)

Markets in Europe were off modestly at 6.40 AM New York time.

The FTSE dropped .6% to 6,181. British Airways was off 3.8% to 239.25. GlaxoSmithKline (GSK) was off 1.8% to 1131.

The DAXX fell .7% to 7,005. Commerzbank was down 2.5% to 23.04. Infineon was up 5.1% to 6,64. SAP (SAP) was down 1.6% to 32,

The CAC 40 was down .5% to 5,038. Credit Agricole was of 2.3% to 21.97. Societe Generale was down 2.9% to 76.15.

Data from Reuters

Douglas A. McIntyre

Posted on: May 6, 2008 – 5:48 am in International Markets, ,

Merck (MRK): The Beatings Will Continue Until Morale Improves

Big Pharma continues to throw ballast out of the balloon in the hopes of staying aloft. The latest victim of declining fortunes in the industry is Merck (MRK), which seems to have had every drug which it submitted to the FDA this year turned down.

Merck’s cholesterol medicine Cordaptive got the thumbs down last week. Researchers are also questioning the value of its Vytorin product, another cholesterol treatment which does not seem to work.

According to The Wall Street Journal, Merck will cut 1,200 sales jobs.

There are more to come. The problems Merck has replacing drugs which are coming off-patent are getting deeper and deeper.

Douglas A. McIntyre

Posted on: May 6, 2008 – 5:37 am in Pharmaceuticals,

Now For A Little Bad News From Sprint (S): Verizon Wireless Takes Qwest (Q) Contract

All of the rumored good news out of Sprint (S) took the stock on a magic carpet ride yesterday. First there were reports that Deutsche Telekom (DT) might buy the whole company. Then there were rumors Sprint might spin-off its failing NexTel division. It is not clear why anyone would want it, but that is beside the point.

Now word comes that Verizon Wireless, a joint venture of Verizon (VZ) and Vodafone (VOD), has gotten the franchise to sell wireless service to all of Qwest’s (Q) customers. Qwest is a big phone company which covers fourteen states, but it does not have a cellular service business of its own. That Qwest franchise has a substantial value because of the number of landline customers the company serves.

According to The Wall Street Journal "A Sprint spokeswoman said the carrier was "disappointed that Qwest has chosen this path" but said it would remain focused on its wireless partners and continue to evaluate opportunities in that space."

The news may be very good for Verizon Wireless in its race with AT&T (T) Wireless to be the No.1 wireless provider in the US, but the announcement may have more of an effect on Sprint. The company is just now starting to shed the perception that it can never do anything right. Since its merger with NexTel customer service has been so bad that the company has not been about to grow while its rivals add more subscribers each quarter.

The Qwest news reopens the question of why DT would want to buy Sprint. Its 50 million customers are certainly attractive. Added to the DT US wireless operation T-Mobile, it would create the largest cellular provider in the US. But, how can a company based in Germany and with a relatively small US operation fix Sprint’s problems and take the two operations through a complex merger.

Similar issues face any company which takes the NexTel part of Sprint’s business. Many Sprint executives and Wall St. analysts blame the NexTel part of the business for most of the execution problems that trouble Sprint’s operations.

Sprint/NexTel and NexTel are not worth buying. The problems that go with the firms and their customer bases are overwhelming and would vex even the most seasoned telecom management.

Douglas A. McIntyre

Posted on: May 6, 2008 – 5:25 am in Telecom, , , , ,