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May 8, 2009

Palm Pre May Revive Sprint’s Fortunes

Filed under: iPhone, Smartphones — Tags: , , , , — AJ @ 8:44 pm

Palm Pre has been getting rave reviews from all those who have seen it and many believe if there was ever an iPhone killer, this is it.  In a few weeks, Pre will be available exclusively on the Sprint’s network and combined with all the operational improvements Sprint has done in the last 18 months, it may very well revive Sprint’s fortunes.

What’s special about Pre?

 It has singular design vision – just like the iPhone. Almost two years ago, Palm managed to hire Jon Rubinstein, previously Apple’s head of hardware engineering and the guy behind Apple’s product design revival over the last decade – from iMacs to iPods (see details in Newsweek story). As WSJ reported in December 2007,  Jon has been actively involved in designing Palm’s smartphones and setting its strategy. Plus, as the Executive Chairman of the company, he has given “design” a seat on the board.

Palm started building buzz around the Pre at CES 2009 and it wowed everyone who saw it. Here is a link to a video recording of Pre’s CES debut. And here is another video that shows some of the really cool features of the phone – including its advanced multitouch capability, QWERTY keyboard, and amazing graphics.  At the heart of Palm Pre, is a new operating system called WebOS. According to a recent article in The Industry Standard, developers who have created apps on WebOS agree that it lives up to its hype. And according to Fast Company, Palm Pre can give iPhone 3.0 (the next-gen iPhone) a run for its money.

Though Palm will not have the tens of thousands apps that Apple boasts at the time of launch, it is working on getting all the top applications on the device before launch, from Google and Facebook to integration with MS Exchange and Pandora.  Just like iPhone, its browser is based on WebKit and beautifully renders web pages. And yes, it has a music store too – from Apple’s arch-rival – Amazon. 

Sprint has dry powder

 Palm Pre may be able to work a charm at Sprint only because Sprint (under CEO Dan Hesse) has aggressively trimmed its capital and operating expenses over the last 18 months, and has maintained positive free cash flow despite losing almost 6 million post-paid subscribers. 

Sprint has countered some of  the subscriber losses by winning pre-paid subscribers (its Boost service added ~700K subs in Q1’09) and adding more wholesale subscribers (like Amazon Kindle).  But more importantly, it has slashed cap-ex (Q3’07: $1.2B, Q1’09: 0.3B), and trimmed operating expenses (SG&A Q3’07: 2.7B, Q1’09: 2.2B). As a consequence, it generated $536M of FCF in Q4’08 and $796M of FCF in Q1’09. At the end of March 2009,  Sprint had $4.5B of cash and cash equivalents – a significant war chest to compete with the biggies.  (All numbers from Sprint Investor website)

A resurgent Sprint – small, nimble and hip?

If Palm Pre lives up to its hype, it would help Sprint reverse post-paid subscriber losses.  Consumers want cool devices, and just like Apple, Palm has its cadre of loyalists.  Not only can the Pre win new subs for Sprint, it can create a positive “hip” halo around Sprint.  The Pre, combined with the growth of Boost Mobile, could help Sprint reverse the trend of subscriber losses and may even add 5M between March and December 2009.

The world (yes, that is correct) needs Sprint. The US has been the center of wireless innovation – from new air interfaces like CDMA and WiMAX to devices like Blackberry, iPhone and now Pre – because it has carriers that need to compete.  And for competition to be vibrant, Sprint needs to be successful.

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