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Thursday, 27 October 2011 12:14

iPhone causes Sprint to ratchet up debts

Written by Nick Farell

iphone 4 logo new

iPhone costs $7 billion

Apple chum Sprint is in hot water with its shareholders after it revealed how much it is costing to prop up iPhone sales. Shares in the telco fell by 12 percent as the telco said it could need $7 billion in new financing over the next few years to cover a cash shortfall caused by heavy investments in the Apple iPhone introduction and a big network upgrade.

Sprint does not expect to gain anything from its deal with Apple until 2015. Sprint was slammed for refusing to disclose iPhone costs at an October 7 conference. With it losing that much money on the deal it is clear why.

Besides the $7 billion network upgrade plan, Sprint has committed to pay at least $15.5 billion to Apple in the next four years for iPhone, but it expects that amount to be even bigger because it is based on the number of phones it sells. To put this in perspective, the deal with Apple is costing the company more than double its market capitalisation and analysts think that is crazy.

One analyst said that to meet its target it would have to turn its entire company into an Apple shop. Others are saying investors should stay away until they see clear signs Sprint will succeed.

Sprint, which started taking iPhone orders on October 7, is paying Apple a subsidy that is 40 percent higher, or $200 more per device, than what it pays for other phones.

More here.

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