Sprint Nextel Corporation (NYSE:S) made a major move on June 11 when it not only announced its entrance into the smartphone sphere, but that it had cracked the developing world market.
The $99 Sprint Nextel Corporation (NYSE:S) ZTE Vital is a high mid-range Android smartphone that has spawned a new option for those not able to afford the more expensive iPhones, Androids, and Galaxies. The move comes out of nowhere and puts pressure on Apple Inc. (NASDAQ:AAPL), Samsung, and Google Inc (NASDAQ:GOOG) to come out with affordable versions of their smartphones.
Missing a bite of the Apple?
Apple is rumored to have been making an attempt at developing a cheaper version of the iPhone that is made of plastic. In the first quarter, Apple Inc. (NASDAQ:AAPL) actually lost market share in China due to a preference in that nation for China’s Huawei devices. That could be a result of the iPhone’s high cost. Apple recently announced it would develop a bargain iPhone, but didn’t disclose the price point. The demand for an affordable product is even evidenced in the developed world, where customers often choose the iPhone 4 over the iPhone 5. That prompted a $28 price reduction.
It’s hard to say anything bad about Apple, but that can lead to inflation of the stock’s price. In reality, Apple Inc. (NASDAQ:AAPL)’s market share is gradually dwindling, with sales of the Samsung Galaxy S4 actually beating iPhone sales in May. As Apple faces competition from all sides, the stock’s price has reacted with a drop, but don’t expect Apple’s shares to increase back to the mid-$700s. While the stock’s financials add up, with one of the highest returns on equity in the business and a profit margin of over 23%, I predict the years ahead will result in Apple Inc. (NASDAQ:AAPL)’s market share dropping. However, if the company is able to make a dent in the emerging market with a bargain smartphone, then it will have access to that multi-trillion-dollar industry and profits will continue to surge. Either way, I’m excited to see what this company is planning. It could be something big that saves a dominant market share and results in an exploding share price.
With one statement, which likely took Apple Inc. (NASDAQ:AAPL) by surprise, Sprint Nextel Corporation (NYSE:S) completely changed the landscape of the smartphone market. Not only is this phone comparable in price to some of the basic “non-smart” devices Nokia Corporation (ADR) (NYSE:NOK) sells in the developing world, but it has potentially broken ahead of traditional smartphone providers who haven’t managed to release a cheaper option for developing nations. However, in order for Sprint to become a leading smartphone provider, it needs to be able to market and sell its products internationally.
But, Sprint Nextel Corporation (NYSE:S) doesn’t look to be capable. In fact, I’m surprised the company was able to dedicate enough money to developing a smartphone. The company has posted a 78% increase in annual losses over the last four years. In 2009, the firm posted about $2.4 billion in losses, and 2012 resulted in more than $4.3 billion in losses. The cost of revenue is too much for this company to handle, at over $30.5 billion compared to revenue of over $35 billion last year. Depreciation and other costs increased operating expenses further. That poor return on equity tells me the firm wouldn’t be able to market well in the developing world, and certainly not better than Apple Inc. (NASDAQ:AAPL) (once it releases its bargain iPhone). These two companies are opposites when it comes to return on equity.