4. Hesse's Messes
If Sprint (S) CEO Dan Hesse is trying to win a race to the bottom then he is sure is off to a flying start.
Shares of the wireless operator sank 20% last Friday to close at $2.41 after the company failed to allay analyst concerns about its cash position at an investor meeting. Sprint's stumble also dragged down its affiliate Clearwire (CLWR) which tumbled 32% and learned the hard way not to hitch your wagon to a falling star.
Sprint's CEO got off on the wrong foot when he told the crowd that the company would spend more cash than it brings in to upgrade its network. And things just snowballed from there as Hesse gave muddy answers to clear questions about how long a business can operate when it is burning more cash than it is making.In other words, they were posing the same types of questions our friends in Greece are now contemplating. Although in Athens they are doing it while brandishing pitchforks and placards in the streets, as opposed to Apple (AAPL) iPhones and Google (GOOG) Androids in a hotel ballroom. And speaking of the iPhone, one big question left unanswered was where Sprint would find the bread to pay Apple a reported $20 billion for the right to sell the must-have gadget when it's clearly running out of dough. Not to worry, says Hesse, who promised the crowd the iPhone would be "quite accretive" to Sprint's profits over time, while not fully understanding that he has the luxury of neither. Of course, the analysts covering Sprint proved their comprehension of the problem the following Monday when they downgraded the stock in droves leading to another 8% shellacking. Nevertheless, even though Hesse was lacking answers to the most pertinent inquiries, he still had something to say. At the meeting he outlined a plan to spend $7 billion on a network upgrade that he wants to complete by the end of 2013, two years earlier than previously suggested. The company said that upgrade would save it $10 billion to $11 billion. The company also said its liquidity would improve starting in 2014. Whether the company will reach that finish line is now under debate judging from this week's spike in the cost to insure Sprint's debt. And the same goes for Hesse, who may be forced to pass the baton sooner than he thinks if he doesn't pick up the pace.
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