It’s January, and at Sprint Nextel, 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 percent 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 and Verizon Wireless, which is owned by Verizon Communications and Vodafone of Britain.


Narrow Margins

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 percent to $8.55 billion, the sixth straight decline, and margins may keep narrowing, in part because of costs related to the elimination of…

Source: newsfactor.com

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