There are two signs that point to a company entering into “desperation mode”: big cuts and big investments.
Big, risky investments often signal prosperity at large companies, but they can also mean the exact opposite as companies try to buy their way out of bad situations and stagnant balance sheets. The latter seems to be the case with Sprint, a company that is committing a lot more money than they plan on bringing in over the next couple of years.
First, there’s the iPhone. While the initial announcement that Sprint was getting the iPhone was met with glee, the decisions they’ve made since them have investors and analysts scratching their head. Sprint plans on offering unlimited data on the Apple offering, but they’ve also committed to $20 billion over the next 4 years. This news was enough to send some investors for the hills, but today’s actions have the remaining investors even more upset.
Shares fell 13% after they outlined their plan to spend $7 billion on a network upgrade.
“They’re going to be spending more money than they’re bringing in for the next couple of years… even before iPhone costs,” Hudson Square analyst Todd Rethemeier said.
An angry batch of investors questioned the company’s choices during a conference today. One well-applauded question surrounded Clearwire, a company owned by Sprint on the verge of bankruptcy that has more spectrum than Sprint. Why would they spend billions when they have a majority stake in the wireless telecommunications network operator already (with much of the money potentially going to Clearwire’s competitor, LightSquared)?
When in doubt, spend. That’s one way of looking at the situation, but it’s not giving investors the warm and fuzzies. Has Sprint made a batch of fool’s bets in the last few weeks that are sure to wreck the company or do they know things that analysts and investors do not? Will the iPhone save the company or help to bankrupt it? Are they sprinting towards disaster?
It seems like they just may be.