Telecommunication Services
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Note: For 5G equipment and hardware makers, see Technology Hardware & Equipment in our Information Technology section.
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T $13
VZ $33 18 Jul 2023 |
AT&T shares fall to lowest level in three decades—Verizon not looking much better
Two years ago this October, we posed the question: “Over the course of twenty years, AT&T (T $13) shares have dropped 43%; is it time to buy?” We concluded that, based on the maladroit leadership team’s missteps, such as overpaying for ill-advised acquisitions instead of addressing a poor customer service problem, it was decidedly not time to buy, despite an enticing dividend yield. At the time, T shares were trading for $26 and offered a dividend yield north of 5%; in the two years since we wrote that article, they have fallen precisely 50%. The telecom giant’s latest headache stems from a Wall Street Journal report claiming that the company—along with other industry players, chiefly Verizon (VZ $33)—left behind over 2,000 lead-encased cables which remain buried throughout the United States. The publication claims its testing showed toxic lead leaching into soil and waterways around the cables at levels exceeding government standards. This begs the question, what are the potential liabilities once the class action lawsuits begin—and we all know they will. The ultimate legal costs could be staggering. Verizon shares were also affected by the report, falling over 7% on Monday and bringing them down to their lowest level since 2010. It should be noted that both T and VZ now have dividend yields around 8.25%, give or take five basis points. AT&T shot back to the contamination issue by stating that the Journal’s conclusion flies in the face of “long-standing science” regarding the safety of lead-clad cables. That position certainly won’t staunch the flood of litigation that is sure to come down the pike, but it does give us insight into the industry’s probable defense. New Street Research estimates that the removal of all remaining cables of this type would cost in the ballpark of $59 billion; of course, that is on top of any future legal costs. As of this writing, T has a market cap of just under $100 billion, while Verizon’s market cap sits just under $140 billion. Forget the fat dividend yields; steer clear of these two telecom giants. For an industry holding, investors may want to consider T-Mobile (TMUS $140), with its 19 forward P/E. It doesn’t offer a yield, but it sure seems to offer more growth potential than T or VZ. |
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FB $334
GOOG $2,856 |
US recommends approval of a massive Meta/Google undersea cable project in Asia; China is not amused
(19 Dec 2021) The Biden administration has recommended that the FCC grant Meta (FB $334) and Alphabet (GOOG $2,856) licenses to build a 12,000-kilometer-long (7,500 miles) network of undersea fiber optic cables spanning a number of Asian countries—sans China. The effort, known as Project Apricot, will connect Singapore, Japan, Guam, the Philippines, Taiwan, and Indonesia in an effort to bring reliable, high-speed Internet access to portions of the world both underserved and over-reliant on Communist China for their connectivity. The Apricot project will compliment Project Echo, connecting the US with Singapore, Guam, and Indonesia. The ultimate goal, according to Google VP of Global Networking Bikash Koley, is to create multiple (digital) paths in and out of Asia, and "increased resilience in connectivity between Southeast Asia, North Asia, and the United States." A previous joint project to build an undersea cable connecting California and Hong Kong was scrapped by Google and Meta—upon a US Department of Justice recommendation—due to US/Sino tensions. Technology, coupled with gutsy leadership, is making it harder for repressive regimes to constrict the free flow of information, thus controlling the narrative. Needless to say, Beijing is not happy with this project, which is slated to be completed by 2023. The more China is backed into a corner, the more evident it will become to the free world precisely what the CCP's long-term goals are, and how incompatible they are with the pursuit of human freedom. The West may have a short memory, but we can count on China's ruling communist elites to keep stoking the fire. In the end, freedom always wins. |
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T $26
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Over the course of twenty years, AT&T shares have dropped 43%; is it time to buy?
(12 Oct 2021) Our stop-loss order on AT&T (T $26) shares finally hit this past May at $32, ending a miserable period of holding the once-great telecom company. That stop was fortuitous, as shares have dropped to $26 since we dumped them. At least we had the fat dividend yield (now at 8% based on the share price, though it will be adjusted down after spinoffs), but that is about the only positive aspect of owning the shares since we picked them up. Our super-long-term 26% gain was not worth the wait; the opportunity cost was tremendous. In fact, an investment in the S&P 500 twenty years ago would have given investors just shy of a 500% return, while the same investment in T shares would have lost nearly 50% after two decades, sans the dividend. Enormous missteps by management—like overpaying for acquisitions they could never quite make fit into the T puzzle, and ignoring serious problems with customer service due to sheer arrogance—have brought us to this point. Other telecom companies have proven that industry flux is not the issue; poor management is the root cause. So, with the shares "dirt cheap," as some analysts have called them, is it time to bet on the storied company? The argument for purchase revolves around the company's plan to slim down and focus its efforts exclusively on telecom services, mainly its 5G wireless network. It already ditched its wildly-expensive DirecTV unit and is about to spinoff its WarnerMedia division, which will become Warner Bros. Discovery. But we have three major arguments against the bull case. First, the company still has a massive debt load of $180 billion, which will only be negligibly alleviated by the Warner spinoff. Second, the company's area of focus going forward is going to be hyper-competitive thanks to new technologies and entrants. Finally, we have about as much faith in the management team at T as we do in the team at Boeing. It is certainly tempting to pick up shares of T at $26, but we have seen the stock languish for too long to get excited here. It may end up being a multiyear low price, but there are simply too many obstacles facing the lackluster leadership team. |
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T
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AT&T is finally spinning off its satellite and cable TV services
(08 Mar 2021) Back in 2015, telecom giant AT&T (T $30) acquired satellite television service provider DirecTV for $66 billion ($49B plus debt), thus beginning a comical boondoggle for the firm. Finally, six years later, T is offloading the albatross for a fraction of what it paid. More accurately, the company is spinning off its satellite and cable operations into a new company with the help of private equity group TPG Capital, which will pay nearly $8 billion in cash to become a minority owner. The new entity will hold DirecTV, AT&T TV (the firm's cord-cutting attempt), and U-Verse (which it left on the vine to die when it bought DirecTV). Fair value of the company sits somewhere around $16 billion, with T owning 70% and TPG owning the remaining 30%. What will management do with the $8 billion windfall? The company said it plans to pay down debt; based on the fact that this $210 billion telecom has approximately $346 billion in short- and long-term debt, that is probably not a bad idea. CEO John Stankey said the move will allow AT&T to focus on "connectivity and content," meaning the 5G wireless, fiber internet, and HBO Max businesses. The deal should close in the second half of this year. We purchased AT&T in the Penn Strategic Income Portfolio years ago, based primarily on its fat dividend yield and seemingly reasonable price. The dividend yield now sits at 7% and the share price remains flat from where we bought in. Management continues to disappoint, but we still believe a fair value of the shares is around $35, or roughly 20% higher from here. |
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SpaceX
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The US Air Force has big plans for the SpaceX Starlink constellation
(19 Jun 2020) Readers are well familiar with SpaceX's plans to build a constellation of satellites in low Earth orbit (LEO) designed to ultimately provide low-cost, high-speed internet access to every part of the world—no matter how remote. To date, the company has placed 540 Starlink satellites in orbit, but that pales in comparison to the 12,000 the FCC has already approved. And even that number seems paltry to the 40,000 units SpaceX said it might eventually deploy. While we have reported on the civilian benefits of this massive network, it will also become a critical component of the nation's defense system. Last December, the United States Air Force held an Advanced Battle Management System exercise in which an AC-130 gunship connected with Starlink, proving its effectiveness for providing pinpoint accuracy. The next exercise, which was due to take place in April but was postponed due to the pandemic, will connect a number of military assets—from various branches—to the system, and will include live-fire drills against a UAV and a cruise missile. While SpaceX is a privately-held enterprise valued at roughly $36 billion, Elon Musk's company may end up bringing the SpaceX Starlink business public in an IPO, according to CEO Gwynne Shotwell. Sign us up. |
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TMUS
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T-Mobile double-whammy: outages and SoftBank liquidations
(16 Jun 2020) Former Penn Intrepid Trading Platform member (we sold it on 11 May) T-Mobile (TMUS $103) got some fantastic news in February when a federal judge ruled that the company's merger with Sprint could proceed. Since then, however, the news has been less-than-stellar. Most recently, a string of nationwide outages has plagued the company and frustrated customers. The FCC just announced a formal investigation into the disruptions, calling them "unacceptable." Now comes news that SoftBank plans to divest itself of up to two-thirds of its stake in the merged company. That amount would total about $20 billion, or a little over 15% of the company's market cap. The announced sale says more about SoftBank's need to raise cash than it does about the new T-Mobile, but the move will certainly put downward pressure on the shares. Although we could have held out for a larger gain (our shares stopped out at $96), we believe the sideline is the place to be with respect to the carrier right now. The company's strategy for moving into the 5G environment is still a big question mark. |
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ZM
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Zoom is now worth more than the four major US airlines...combined
(03 Jun 2020) Before we discuss what a strong quarter Zoom Video (ZM $208) just reported, it is important to point out that the video conferencing platform has a rather rich multiple: its P/E ratio now sits at 2,162. Nonetheless, thanks to an exponential increase in cloud-based company meetings, Q1 was a barn-burner. Against expected revenues of $203 million, the company reported $328 million in sales—a 169% increase over the same quarter last year. Earnings expectations of $0.09 per share were dwarfed by the $0.20 reported, and expected Q2 revenues of nearly $500 million are over twice what the Street expects. Is this crazy-high multiple deserved? That all depends on how many of the platform's millions of users can be convinced to convert from the free service to the paid subscription model. To put Zoom's new market cap of $59 billion in perspective, the top four US airlines—Delta, United, American, and Southwest—have a combined size of $46 billion. |
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S
TMUS |
(11 Feb 2020) The federal judge handling the Sprint/T-Mobile merger lawsuit has ruled in favor of the companies, pushing Sprint shares up 73% at Tuesday's open. Despite all of the naysayers predicting this merger would be shot down, we had a different view. See our comments from 19 Dec 2019 below.
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AAPL
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Could Apple's secret plan to beam data via satellites impact the telecom giants? (23 Dec 2019) Right now, there is a battle royale going on in the federal courts over whether or not Sprint (S) and T-Mobile's (TMUS) planned merger would create an oligopoly of telecom companies in the US, with AT&T (T), Verizon (VZ), and the newly-formed S/TMUS entity in control of virtually every American's cellphone plan when 5G hits. We don't buy the argument, and believe the judge will side with the government and allow the deal to go through, but if Apple (AAPL) has its way, it may become a moot point within a few years. According to sources cited by Bloomberg, the $1.26 trillion Cupertino-based company is working on a secret plan that would allow a network of communications satellites and next-gen (5G) wireless technology to beam data directly to users' devices, potentially negating the need for wireless carriers altogether. With SpaceX deploying thousands of small satellites for what will be its Starlink constellation, and Amazon (AMZN) planning to deploy over 3,000 satellites as part of its own constellation, the idea doesn't seem that far-fetched. Certainly, massively expensive projects like the Iridium satellite boondoggle highlight the risks associated with this type of undertaking, but we believe it is a matter of when, not if. Compare these constellations to the groups of Europeans who attempted to create settlements in the New World in the 16th and 17th centuries: while the early attempts ended in tragedy, the inevitable success of the strategy was all but assured. That doesn't mean you should begin dumping your AT&T and Verizon stock just yet, however—it will take a decade (in our estimation) for these lofty plans to come to fruition. Nonetheless, it pays to be thinking a number of steps ahead when investing in the technology arena. Look for the companies which make the hardware for the satellites and their accompanying 5G terrestrial components; companies like Qualcomm (QCOM), Raytheon (RTN), and Astronics (ATRO). And move cautiously around high-flying cell tower companies like American Tower (AMT), which often carry tech-like multiples. It wouldn't take much to spook investors into taking their profits and exiting these names. Ultimately, Tim Cook may abandon this plan as too expensive, but we could see him teaming up with Elon Musk's Starlink constellation. Imagine the incredible synergies that could be created with a joint Apple and SpaceX project. (We own Apple in the Penn Global Leaders Club, and Qualcomm in the Penn New Frontier Fund.)
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S
TMUS |
What is the federal judge telegraphing about the T-Mobile/Sprint lawsuit? (09 Dec 2019) The lawsuit was a colossal joke from the start. A group of thirteen (down from sixteen) state attorneys general, led by New York and California (which tells us everything we need to know), is suing to stop the Sprint (S $5-$5-$8)/T-Mobile (TMUS $60-$76-$85) merger on grounds that it will limit competition in the 5G arena, harming consumers. News flash for the political hack AGs: Sprint probably won't make it without the merger, so what will that do to the competitive landscape? For its part, the Department of Justice has already given the green light to the merger, which further points to the politics at the heart of the lawsuit. In the latest move, US District Judge Victor Marrero (a Clinton appointee) told both sides in the suit to skip their opening arguments and get on with calling their witnesses. This indicates to us that he has very little patience in the matter, which we believe bodes well for the telecom companies. It should be noted that, as part of the DoJ approval process, Sprint would have to divest itself of some assets to Dish Network (DISH) so that company would be able to build its own 5G network. We believe the judge recognizes this suit as the frivolous waste of taxpayer money that it is, and will ultimately rule for the merger. We can't wait to see the bloviating AGs rush to the microphones to screech about the injustice thrust upon the public by the judicial system. Maybe Al Sharpton will even show up with his bullhorn.
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T
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Penn member AT&T jumps 5% not so much on earnings, but on making nice with the hedge fund thorn in its side. (28 Oct 2019) More often than not, we take a company's side over an activist hedge fund fomenting chaos in the name of change at a firm. Bill Ackman of Pershing Square could be the poster boy for causing such destruction. However, in the case of Penn Strategic Income Portfolio member AT&T (T $27-$39-$39), the board of directors and CEO Randall Stephenson needed to have some fireworks lit beneath their feet. The $67 billion acquisition of DirecTV has been a bust, as subscribers continue to flee the beast, and the $109 billion purchase of Time Warner has been somewhat of a boondoggle. Hence, the caustic letter to the board from activist investor Paul Singer's Elliott Management. The hedge fund demanded change, accountability, and an end to a wanton buying spree by the $280 billion telecom giant. The firm finally capitulated, writing a new three-year strategic plan and agreeing to put a freeze on any new acquisitions in the time-frame. Despite a lackluster earnings report (sales dropped 2% from Q3 of 2018 and earnings came in below expectations), investors cheered the Elliott-induced strategic plan. Shares jumped 5%—to $38.86, a new 52-week high—on the news. Under Elliott's watchful eye, we continue to believe in our AT&T position, which is up nicely since our purchase. Additionally, we bought it in the strategy designed for income, and T's 5.5% yield isn't in any danger. At $39, we wouldn't be buying more shares, but we have no plans to sell our position anytime soon.
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T
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Penn Member AT&T jumps 8% after Elliott Management announces large stake. (09 Sep 2019) Here's the good news for Penn Strategic Income Portfolio member AT&T (T $27-$39-$36): Paul Singer's Elliott Management has purchased a $3.2 billion (about 1.5%) stake in the firm. AT&T's board, however, didn't have much time to celebrate news of the purchase, as it was accompanied by a caustic letter from the activist outlining the company's missteps. Singer says shares of the telecom giant are worth $60, assuming management refocuses its strategy and divests itself of non-core businesses. Elliott criticized the DirecTV purchase, and said that management has yet to articulate precisely why it needs to own Time Warner. He is also against the implicit plans for former Time Warner CEO John Stankey to take over as T's CEO when Randall Stephenson steps down. While we are often suspect of activist moves into companies we own, we like this move by Elliott. He is right: T seems to have too many moving parts and is struggling to remain focused on its wireless telecom business. We also share the concern about a Time Warner executive taking the helm at the firm. The ensuing friction between Paul Singer and the T board might just create some needed heat for the company—and its share price. We also believe T's 5.63% dividend yield is safe. |
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TMUS
S |
The latest in the Sprint/T-Mobile saga: a major hurdle cleared, a loss of the Sprint name, and lingering state lawsuits. (30 Jul 2019) Settle in—there are plenty of twists and turns remaining in the biggest story in telecom services: the proposed merger between T-Mobile (TMUS $59-$82-$85) and Sprint (S $5-$8-$8). To recap: AT&T (T) and Verizon (VZ) are the big dogs in the industry, with T-Mobile and Sprint coming in a distant third and fourth, respectively. The latter two wish to merge to better compete, but several state AGs are claiming this would lead to price gouging. (A ludicrous claim, as it is more likely that Sprint would be on the slow path towards insolvency without the merger, which would leave the same two major players and one less small fry.) Now that the Department of Justice has finally given its blessing to the merger, assuming the two players sell assets to Dish Network (DISH) to help it become a new 5G wireless player, the story should be over, right? Not so fast. Attorneys general from fourteen states—including California and New York—have filed suit to stop the merger, claiming low-income families will be hurt. Ultimately, we expect the lawsuit to be thrown out, but that won't happen until late this year at the earliest. When the $26 billion deal finally does go through (and it will), expect to say goodby to the Sprint name. The new company will be called T-Mobile, and that firm's odd-duck CEO, John Legere, will run the show. While that may be a scary prospect, under the agreement made with the DoJ and the FCC, both the new T-Mobile and the new entrant Dish will be required to rollout 5G service to virtually every corner of the US, no matter how rural the area. And that is a very good thing. We own AT&T in the Strategic Income Portfolio, and that is the only carrier that looks attractive right now. Sprint's market cap has moved above the $26 billion deal price-tag, and Dish is going to have to spend a ton of money to make good on its promises to the FCC.
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T
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AT&T surges as wireless business grows, overshadowing the cord-cutter problem. (24 Jul 2019) First the bad news: Penn member AT&T's (T $27-$33-$34) DirecTV problems continue to mount, as a record number of customers drop the service. In fact, a full 778,000 DirecTV and U-Verse customers cut the cord over the course of the quarter. Now the good news: against expectations for 27,000 new phone subscribers, T actually netted 72,000 new sign-ups. The latter metric, combined with excitement over the launch of HBO (a T company) Max this coming spring, helped push T shares up over 3% at Wednesday's open. While the company is still riddled with debt following its massive purchase of Time Warner, management remains committed to reducing that debt load to $150 billion (down from $180 billion) by the end of the year. T is up around 10% since we added it back to the Strategic Income Portfolio this past February. We moved it into the SIP due to its 6% dividend yield and solid outlook.
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5G Tech
T |
Why is Sprint suing AT&T over what you see at the top of your smartphone? (11 Feb 2019) Just how big is the 5G revolution? From a speed standpoint, imagine everything you do via the internet, whether on your mobile device or laptop, transpiring at least ten times faster—and that is a conservative estimate. But 5G is so much more. It will allow the "Internet of Things," or IoT, to become a reality. Virtually everything you use, from the car you drive to your home appliances, will become "connected." It is not a stretch to say it will change the way we live. Here's the thing, though: 5G isn't available yet. The technology requires that a much higher frequency—millimeter wave bandwidth, or mmWave—be used, and the infrastructure buildout effort will be enormous. But, that hasn't stopped AT&T (T $27-$30-$38) from running a massive campaign built around their "5GE" technology, which is nothing more than a dressed-up version of their 4G LTE system. In other words, it is not, in any way, 5G technology (the "E" stands for evolution, by the way). In addition to the ad campaigns, the company has been persuading hardware companies like Apple (AAPL) to put the "5GE" label on the top of their smartphones, where users typically see something like "LTE" when they are out of wi-fi range. This is clearly a questionable tactic, to say the least, and it has the other carriers fuming. Sprint (S), in fact, has filed a lawsuit in federal court against AT&T which states, in part, that "the significance of AT&T's deception cannot be overstated." Despite holding the telecom giant in our Strategic Income Portfolio, we completely agree with the complaint. It is clearly—in our minds—deception. T will be one of the first companies to roll out 5G technology, but that doesn't give them the right to fool consumers. Investors, as well as consumers, should be incredibly excited about the rollout of 5G technology. The investment opportunities created by the IoT will be bountiful. Here's something many Apple critics probably haven't considered: everyone who wants blazing-fast speed (and isn't that all of us?) using the new technology will need a brand new smartphone equipped to handle the mmWave bandwidth, which will lead to massive demand for new iPhones. And that is something Tim Cook is certainly well aware of.
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T
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Bank of America/Merrill Lynch upgrades AT&T. (30 Jul 2018) We have considered Penn Strategic Income Portfolio member AT&T (T $30-$32-$40) a screaming buy for about two months now—though we have owned it for much longer than that. For some reason, despite its victory over the government in the Time Warner case, investors have shied away from this profit-generating cash cow (6.44% current dividend yield). Now, the company is garnering some interest again. T shares popped about 2% after a Bank of America/Merrill Lynch analyst upgraded the stock from "neutral" to "buy." While analyst David Barden kept his price target for the company at $37 per share, he sees a lower corporate tax rate, an annuitized income stream (from its subscription model), and higher projected revenues for 2018 all playing a role in the shares going higher. With a company of this caliber carrying a 6.29 p/e ratio and a dividend yield north of 6, it appears to be a value investors dream.
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Sprint
WorldCom |
Blast from the Past: WorldCom to buy Sprint for $129 billion
(05 Oct 1999/18 years ago) It would have been the most expensive corporate takeover to date. WorldCom (then WCOM), led by con-man and soon to be jailbird Bernie Ebbers, was set to acquire wireless provider Sprint (then FON and tracking stock PCS) for $129 billion. The Department of Justice thought the arrangement smelled like a monopoly, however, and put the kibosh on the deal. Sprint CEO Bill Esrey, the prototypical cocky CEO jerk, screamed like a stuck pig. It wasn't long before the world realized that Ebbers was acquiring companies just fast enough to drain them of cash, staying one step ahead of the law with the aid of accounting firm Arthur Andersen (which also happened to serve in a "consulting" role with the firm). Had Ebbers and Esrey gotten their way, Sprint would have died along with WorldCom. In 2005, Bernie Ebbers was given a 25-year sentence for conspiracy, securities fraud, and filing false documents. As for Esrey, maybe he is out on the Busch family yacht with his fellow disgraced blowhards. How much do you want to bet that he takes no responsibility for what almost happened, eighteen years ago this past month. |
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S
TMUS |
T-Mobile and Sprint get pounded in markets as merger talks called off
(30 Oct 2017) This deal smelled from the beginning, especially with the sleazy (in our opinion) T-Mobile US (TMUS $49-$60-$69) CEO John Legere involved. Now, quite suddenly, the merger deal between TMUS and Sprint (S $6-$6-$10) is dead. The stocks are taking a pounding as a result, but the breakdown in talks may just have saved Sprint from ruin. The deal reminded us of another planned Sprint merger that got destroyed—WorldCom's planned takeover of the Overland Park, Kansas-based carrier. We recall how then-CEO Bill Esrey screamed like a stuck pig when the government called the deal off. A deal which, of course, would have led to the complete demise of Sprint when WorldCom ultimately went belly up. What ended the most recent talks? SoftBank's Masayoshi Son realized just how little control he would have over the new entity. Wise man. |
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S
TMUS |
T-Mobile and Sprint are in active merger talks
(20 Sep 2017) We were looking forward to the day when we didn’t have to see the long-haired freak CEO of T-Mobile, John Legere, any longer. Sadly, we may be seeing a lot more of the loudmouth if the rumors are true about T-Mobile (TMUS $44-$65-$69) and Sprint (S $6-$8-$10) joining together. There would be a lot of moving parts to a merger between these two telecom companies, as neither are stand-alone entities. T-Mobile is actually majority-owned by Germany’s Deutsche Telekom, and Japan’s Softbank has owned 80% of Sprint since 2013. Under the alleged plan, John Legere would lead the combined entity, but Softbank’s Masayoshi Son has indicated he would have a lot of say in how the company is run. We don’t see a dynamic, vibrant company emerging from this mess. |
(10 Apr 2017) Straight Path Communications pops 150% on AT&T takeover news. Oh, you lucky Straight Path Communications (STRP $15-$90-$52) investors. For the few who had the guts to own a highly-volatile small-cap internet services provider, your ship just came in, as $250 billion AT&T (T $36-$41-$44) just offered a roughly 165% premium to buy your company. STRP closed around $37.50 per share on Friday, and opened at $91.39 Monday morning. Put another way, Straight Path was a $450 million company last week, and a $1.25 billion company this week. This deal is all about wireless spectrum, specifically as it relates to 5G. The company is one of the largest holders of 28GHz and 39GHz millimeter wave spectrum (remember those wild government auctions for spectrum?)—the required commodity for the upcoming "Internet of Things" revolution.
(20 Jul 16) Due to a string of abhorrent management teams, going back to the brilliant CEO (Bill Esrey) who tried to sell the company to WorldCom con man Bernie Ebbers, Sprint found itself forced into an acquisition three years ago. Egotistical Japanese businessman Masayoshi Son used his SoftBank Group’s deep pockets to take a controlling interest in the 3rd largest US wireless carrier (at the time) for $22 billion. Just how big is Son’s ego? He claims to have a 300-year strategic plan for SoftBank.
Fast forward three years and the Overland Park, Kansas-based Sprint seems to have had the last laugh, albeit at the expense of its employees. Son’s personal fortune is down $3.2 billion within the past year alone, largely due to massive under-performance by its two recent acquisitions—Sprint and Alibaba (SoftBank owns about a third of the Chinese Internet company). His conceited claim that SoftBank would soon be the largest company in the world suddenly seems implausible.
After the stumbles in the US and China, SoftBank has turned its attention to Europe. Forget telecom and online commerce, the real money (Son now tells us) is in semiconductors. The company announced that it would buy Britain’s largest high-tech company—global semiconductor maker ARM HoldingsARMH—for $32 billion. Son has come to embrace the “Internet of Things” (IoT) concept, which envisions humans interconnected to thousands of micro-devices as they go through a typical day. This one actually may be a triumph for the Japanese billionaire, for a couple of reasons.
One of the first victims of Brexit was the British pound. As it was getting hammered, UK companies suddenly became a lot cheaper to buy thanks to the exchange rate (remember BUD and the weak dollar?). Additionally, we believe ARM is an exceptionally well-run company, and it just happens to have a little Cupertino, California computer maker as a major client. On the news of the buyout offer, ARMH shot up from $45 per share to over $65 per share.
The ink isn’t dry on the deal yet, however. There are two potentially major stumbling blocks for Son: SoftBank’s shareholders and the new UK government. Investors in SoftBank have expressed concern that Son is overpaying for the asset, and that he is pushing his outstanding debt to dangerous levels.
As for the new Theresa May-led government, many Brits are loath to give up the helm of one of their few industry-leading firms (ARM supplies 95% of chips for smartphones around the world). They point to Son’s cavalier business practices as a warning sign that the chip maker might have its cash hordes pillaged for his next venture.
As for poor Sprint, Son’s claim that the carrier is becoming self-sufficient and no longer needs cash infusions from SoftBank is beyond ludicrous. No, Son probably just grew tired of all the early morning calls from the Midwest. After all, a man with a 300-year strategic plan simply cannot afford to be dragged into the weeds.
(Reprinted from this coming Sunday’s Penn Wealth Report, Vol. 4, Issue 29.)
(OK, got it. Take me back to the Penn Wealth Hub!)
Fast forward three years and the Overland Park, Kansas-based Sprint seems to have had the last laugh, albeit at the expense of its employees. Son’s personal fortune is down $3.2 billion within the past year alone, largely due to massive under-performance by its two recent acquisitions—Sprint and Alibaba (SoftBank owns about a third of the Chinese Internet company). His conceited claim that SoftBank would soon be the largest company in the world suddenly seems implausible.
After the stumbles in the US and China, SoftBank has turned its attention to Europe. Forget telecom and online commerce, the real money (Son now tells us) is in semiconductors. The company announced that it would buy Britain’s largest high-tech company—global semiconductor maker ARM HoldingsARMH—for $32 billion. Son has come to embrace the “Internet of Things” (IoT) concept, which envisions humans interconnected to thousands of micro-devices as they go through a typical day. This one actually may be a triumph for the Japanese billionaire, for a couple of reasons.
One of the first victims of Brexit was the British pound. As it was getting hammered, UK companies suddenly became a lot cheaper to buy thanks to the exchange rate (remember BUD and the weak dollar?). Additionally, we believe ARM is an exceptionally well-run company, and it just happens to have a little Cupertino, California computer maker as a major client. On the news of the buyout offer, ARMH shot up from $45 per share to over $65 per share.
The ink isn’t dry on the deal yet, however. There are two potentially major stumbling blocks for Son: SoftBank’s shareholders and the new UK government. Investors in SoftBank have expressed concern that Son is overpaying for the asset, and that he is pushing his outstanding debt to dangerous levels.
As for the new Theresa May-led government, many Brits are loath to give up the helm of one of their few industry-leading firms (ARM supplies 95% of chips for smartphones around the world). They point to Son’s cavalier business practices as a warning sign that the chip maker might have its cash hordes pillaged for his next venture.
As for poor Sprint, Son’s claim that the carrier is becoming self-sufficient and no longer needs cash infusions from SoftBank is beyond ludicrous. No, Son probably just grew tired of all the early morning calls from the Midwest. After all, a man with a 300-year strategic plan simply cannot afford to be dragged into the weeds.
(Reprinted from this coming Sunday’s Penn Wealth Report, Vol. 4, Issue 29.)
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Sprint to End Contract Period
(18 Aug 15) T-MobileTMUS CEO John Legere may be a bully, or eccentric, or just downright goofy, but consumers have him to thank for forcing SprintS to end its two-year contract period imposed on new wireless customers.
Sprint CEO Marcelo Claure has unveiled a new leasing plan that will do away with the contract period, which offered deep subsidies for new smartphones in exchange for the time commitment, and move to a leasing model. By year-end, customers will either have to pay upfront for the devices or pay over time, with the option of upgrading to new devices as they become available.
The new iPhone Forever plan will cost $22 per month (in addition to the wireless service fee), allowing users to lease their phone instead of owning it, with the ability to upgrade at any time. Sprint reported that 51% of customers who bought a phone in the second quarter opted for the lease option.
The company has been reeling of late, getting knocked into the fourth position among wireless providers earlier this year by a surging T-Mobile. They are making strides, however, in improving their much-maligned network, beating out T-Mobile’s reliability in 2015 thus far.
Japanese firm SoftBank has an 80% ownership stake in Kansas-based Sprint. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 33.)
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(18 Aug 15) T-MobileTMUS CEO John Legere may be a bully, or eccentric, or just downright goofy, but consumers have him to thank for forcing SprintS to end its two-year contract period imposed on new wireless customers.
Sprint CEO Marcelo Claure has unveiled a new leasing plan that will do away with the contract period, which offered deep subsidies for new smartphones in exchange for the time commitment, and move to a leasing model. By year-end, customers will either have to pay upfront for the devices or pay over time, with the option of upgrading to new devices as they become available.
The new iPhone Forever plan will cost $22 per month (in addition to the wireless service fee), allowing users to lease their phone instead of owning it, with the ability to upgrade at any time. Sprint reported that 51% of customers who bought a phone in the second quarter opted for the lease option.
The company has been reeling of late, getting knocked into the fourth position among wireless providers earlier this year by a surging T-Mobile. They are making strides, however, in improving their much-maligned network, beating out T-Mobile’s reliability in 2015 thus far.
Japanese firm SoftBank has an 80% ownership stake in Kansas-based Sprint. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 33.)
(OK, got it. Take me back to the Penn Wealth Hub!)