In its most-recent 8K filing with the Securities and Exchange Commission, Sprint Nextel Corp. says it may have to write off the full value of the $31 billion worth of "goodwill" carried on its books as an asset related to the Nextel acquisition. The move will not affect Sprint Nextel's cash balance or future cash flows but will affect the company's statement of assets.
One way of looking at the impact of the overpayment is to analyze the former Nextel's contribution to Sprint Nextel's overall business. In the most-recent quarter, Sprint Nextel reported $8.04 billion worth of service revenues, of which the former Nextel business contributed 35 percent, or about $2.6 billion. On an annualized basis, call that $10.3 billion of gross revenue.
Sprint's profit margin on wireless services is about 32.4 percent. So call the former Nextel profit as $3.3 billion a year. The magnitude of the overpayment is 9.4 times the annual profit from owning the business.
Thursday, January 31, 2008
Magnitude of Nextel Blunder
Gary Kim has been a digital infra analyst and journalist for more than 30 years, covering the business impact of technology, pre- and post-internet. He sees a similar evolution coming with AI. General-purpose technologies do not come along very often, but when they do, they change life, economies and industries.
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1 comment:
The real blunder was by any Nextel shareholders that didn't exit at the time of the transaction. A few points:
-Much of Sprint's problems are related to the legacy Sprint wireless business. Lousy network, high churn, crappy distribution, low income customer base.
-NExtel's business was in much better shape than Sprint's. Higher ARPU, lower churn, better margins.
Did they overpay -- yes, but with their own crappy shares. No chance that Sprint would be independent today if they HADN'T done the Nextel deal.
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