Sprint Posts Profit Drop, to Cut Jobs
Facing the same economic woes that have decimated others in the telecommunications industry, Sprint Corp. on Wednesday reported a third-quarter loss of $135million and said it will cut 7% of its work force to reduce costs.
The long-distance company, based in Kansas City, was one of the few large phone companies to hold off on large layoffs even as job losses mounted at rival companies. Sprint’s job cuts amount to 6,000 employees and 1,500 contract workers worldwide.
Sprint’s third-quarter loss was substantially wider than the company’s $9-million loss in the same period last year. Third-quarter sales jumped to $6.7 billion, up 11%.
The company’s phone unit, traded under the FON symbol, was the biggest reason for the large increase in quarterly losses. The phone business was hurt by lower margins for long-distance calling and heavy spending on broadband services, Sprint said.
The FON group had lower net income of $156 million, or 18 cents a share, a 59% drop from the same quarter last year, when its net income totaled $385 million, or 44 cents per share. Sales were flat at $4.2 billion for the quarter. Subtracting the 11 cents per share loss attributed to a now-canceled data network project, Sprint met the average analyst expectation of 28 cents per share for earnings on continuing operations.
Sprint PCS, the wireless unit that trades under the PCS symbol, posted a loss of $291 million, or 29 cents a share, on 55% higher sales of $2.7 billion. Analysts had expected a loss of 22 cents.
The higher-than-expected loss stemmed from a record influx of new customers, who initially cost more because of setup costs. Sprint PCS gained 1.6 million subscribers during the quarter, bringing the total customer base on Sept. 30 to 14.4 million, including customers signed up by affiliated companies.
To improve its performance, Sprint announced the elimination of two ambitious services that were draining profits.
Most of the employees that will be laid off worked on the two projects--Sprint ION and a fixed wireless Internet service. Both initiatives had technical troubles and never caught on with customers.
Sprint’s fixed-wireless service delivers video and high-speed Internet access to customers using mountaintop and small rooftop antennas.
Current customers will continue to get service, but Sprint said it will not expand the service until the technology improves.
ION--short for Integrated On-demand Network--provides customers with multiple phone lines, high-speed Internet access and controllable phone features over a single traditional phone line. Sprint, which had spent $2 billion on the project over three years, said existing ION customers will be shifted to “alternative service arrangements.”
When first announced, the ION project was more advanced than similar efforts at rival companies. But technical glitches delayed ION’s launch, and by the time it hit the market, other technologies had improved enough to approximate the ION offering. Earlier this year, Sprint scaled back ION to improve voice quality.
“It just kind of fizzled,” Tom Morabito, an analyst with McDonald Investments, said of ION.
Sprint expects the restructuring moves to reduce fourth-quarter pretax earnings by $2 billion, $600 million of that in cash. Eliminating the ION project and fixed-wireless market will save the company about $1 billion a year starting in 2002, the company said.
Sprint made the announcements after the New York Stock Exchange closed. Shares of Sprint FON fell $1.01 to $21.99, while PCS shares rose 7 cents to $26.45 in regular trading.
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Bloomberg News was used in compiling this report.
