It's January, and at Sprint Nextel (S), that means layoff time. In each of the past two years, the No. 3 U.S. wireless service provider kicked off the new year with an announcement that thousands of jobs would be eliminated.
This year is no exception. On Jan. 26, Sprint said it will eliminate as many as 8,000 employees. Investors welcomed the announcement, boosting the shares 2% to 2.51 on the news.
But some analysts say there may be little reason in the long run to revel in this latest attempt to reduce expenses. In spite of about 9,000 jobs eliminated in the previous two years, the company has suffered losses in four of the past five quarters and margins have been narrowing. "Cost-cutting measures like this are akin to a tourniquet," says Craig Moffett, an analyst at Sanford C. Bernstein & Co. "They can help stave the bleeding, but they can't save the patient."
Handing out pink slips may help reduce costs—Sprint will cut expenses by $1.2 billion a year in this recent round of cuts—but the moves aren't doing too much to address the company's biggest challenge: keeping subscribers from disconnecting service and switching to rivals including AT&T (T) and Verizon Wireless, which is owned by Verizon Communications (VZ) and Vodafone (VOD) of Britain.
Investors and analysts will get a clearer view of Sprint Nextel's challenges on Feb. 19, when the company is due to release fourth-quarter results. In that period, Sprint likely lost 1.1 million to 1.3 million traditional wireless customers, according to analysts' estimates. Subscriber losses may continue through late 2010, says Michael Gary Nelson, an analyst at Stanford Group Co..
Fourth-quarter revenue may have dropped 13% to $8.55 billion, the sixth straight decline, and margins may keep narrowing, in part because of costs related to the elimination of jobs, according to analysts surveyed by Thomson One. In Sprint's main wireless business, gross margins may slip to 21% in 2009, from 24% in 2008, according to UBS (UBS). Net losses may also continue through 2010.
For CEO Dan Hesse, the task of retaining customers is made more difficult by stiff competition, an already saturated market, and an economic environment that's causing consumers to tighten their belts. "The deck is stacked against them," Moffett says. What's more, as one of the biggest providers of wireless service to bankers, managers, and engineers, Sprint may lose out as Corporate America slashes jobs and other spending.
Rivals, meanwhile, are picking off the few new subscribers by offering devices and services Sprint Nextel lacks. AT&T, for instance, is the exclusive U.S. provider of the Apple (AAPL) iPhone. To its credit, Sprint has snagged an exclusive on the much anticipated Palm (PALM) Pre. But the 3.1-inch touchscreen phone isn't expected to hit stores until May.
Sprint Nextel is taking several steps to stem losses and reverse course. It has stepped up spending on marketing. And on Jan. 26, the company tied its executive and employee incentives directly to subscriber retention and operating income metrics.
The company could also offer deeper discounts, such as bigger phone subsidies and cheaper calling plans, but that's a risky move for a company whose margins are already under pressure. In January, Sprint subsidiary Boost began offering unlimited calling, texting, and other services for $50 a month, paid in advance. The danger is that some current post-paid subscribers paying Sprint an average of $56 a month could switch to this lower-cost plan.
Further cost reductions may be in order. Sprint could hire an outside firm like Nokia Siemens Networks to manage its network, says Walter Piecyk, an analyst with Pali Research. And additional customer-care operations could be relegated to offshore call centers.
Fortunately for Sprint Nextel, the company has plenty of cash—about $4.1 billion at the end of the third quarter—and isn't expected to face a cash crunch imminently. But big debt eventually will come due, and investors' patience may wear thin even sooner. "Sprint still has a relatively long runway to turn this around," Nelson says. "But every quarter it's getting shorter."
Fueled by a crop of books, Web sites with countdown clocks, and claims about ancient timekeepers, interest is growing in what some see as the dawn of a new era, and others as an expiration date for Earth: December 21, 2012.
The date marks the end of a 5,126-year cycle on the Long Count calendar developed by the Maya, the ancient civilization known for its advanced understanding of astronomy and for the great cities it left behind in Mexico and Central America.
(Some scholars believe the cycle ends a bit later -- on December 23, 2012.)
Speculation in some circles about whether the Maya chose this particular time because they thought something ominous would happen has sparked a number of doomsday theories.
The hype also has mainstream Maya scholars shaking their heads.
"There's going to be a whole generation of people who, when they think of the Maya, think of 2012, and to me that's just criminal," said David Stuart, director of the Mesoamerica Center at the University of Texas at Austin.
"There is no serious scholar who puts any stock in the idea that the Maya said anything meaningful about 2012."Type "2012" into an Internet search engine and you'll find survival guides, survival schools, predictions and "official stuff" to wear, including T-shirts with slogans such as "2012 The End" and "Doomsday 2012."
Theories about what might happen range from solar storms triggering volcano eruptions to a polar reversal that will make the Earth spin in the opposite direction.
If you think all of this would make a great sci-fi disaster movie, Hollywood is already one step ahead.
"2012," a special-effects flick starring John Cusack and directed by Roland Emmerich, of "The Day After Tomorrow" fame, is scheduled to be released this fall. The trailer shows a monk running to a bell tower on a mountaintop to sound the alarm as a huge wall of water washes over what appear to be the peaks of the Himalayas.
'Promoting a hoax'
One barometer of the interest in 2012 may be the "Ask an Astrobiologist" section of NASA's Web site, where senior scientist David Morrison answers questions from the public. On a recent visit, more than half of the inquiries on the most popular list were related to 2012.
"The purveyors of doom are promoting a hoax," Morrison wrote earlier this month in response to a question from a person who expressed fear about the date.
A scholar who has studied the Maya for 35 years said there is nothing ominous about 2012, despite the hype surrounding claims to the contrary.
"I think that the popular books... about what the Maya say is going to happen are really fabricated on the basis of very little evidence," said Anthony Aveni, a professor of astronomy, anthropology and Native American studies at Colgate University.
Aveni and Stuart are both writing their own books explaining the Mayan calendar and 2012, but Stuart said he's pessimistic that people will be interested in the real story when so many other books are making sensational claims.
Dozens of titles about 2012 have been published and more are scheduled to go on sale in the coming months. Current offerings include "Apocalypse 2012," in which author Lawrence Joseph outlines "terrible possibilities," such as the potential for natural disaster.
But Joseph admits he doesn't think the world is going to end.
"I do, however, believe that 2012 will prove to be... a very dramatic and probably transformative year," Joseph said.
The author acknowledged he's worried his book's title might scare people, but said he wanted to alert the public about possible dangers ahead.
He added that his publisher controls the book's title, though he had no issue with the final choice.
"If it had been called 'Serious Threats 2012' or 'Profound Considerations for 2012,' it would have never gotten published," Joseph said.
Growing interest
Another author said the doom and gloom approach is a great misunderstanding of 2012.
"The trendy doomsday people... should be treated for what they are: under-informed opportunists and alarmists who will move onto other things in 2013," said John Major Jenkins, whose books include "Galactic Alignment" and who describes himself as a self-taught independent Maya scholar.
Jenkins said that cycle endings were all about transformation and renewal -- not catastrophe -- for the Maya. He also makes the case that the period they chose coincides with an alignment of the December solstice sun with the center of the Milky Way, as viewed from Earth.
"Two thousand years ago the Maya believed that the world would be going through a great transformation when this alignment happened," Jenkins said.
But Aveni said there is no evidence that the Maya cared about this concept of the Milky Way, adding that the galactic center was not defined until the 1950s.
"What you have here is a modern age influence [and] modern concepts trying to garb the ancient Maya in modern clothing, and it just doesn't wash for me," Aveni said.
Meanwhile, he and other scholars are bracing for growing interest as the date approaches.
"The whole year leading up to it is going to be just crazy, I'm sorry to say," Stuart said.
"I just think it's sad, it really just frustrates me. People are really misunderstanding this really cool culture by focusing on this 2012 thing. It means more about us than it does about the Maya."
