Fundamentals:
1. Sales are booming. Nextel added more new subscribers than all other cellular companies.
+++ Sure. Nextel was first to market the digital cellular on a large scale. This window of opportunity, if still open, is closing fast.
2. They have the only proprietary wireless digital network. It is now 75% completed and they are in all of the largest markets and cities. They will have coverage of 98% of the US population.
+++ Being proprietory and as a consequence dependent on a single technology supplier is a curse, not a blessing. Coverage is one variable of the equation, bandwidth is another. Nextel owned spectrum is fairly narrow (10-15MHz) and non-contiguous.
3. Their cellular telephone has more function that any other cellular elephone.
+++ It is heavier and costs more.
4. They own the high-end of the business.
+++ What business? At best, they are a leading SMR operator. Much like the long-distance business, the digital cellular one is owned by noone, and the competition there is going be just as, if not more, intense.
5. They have the lowest cost of sales than any other provider. That means they can be price competitive. My opinion is and has been that they are the low cost provider for the business community or the high usage customers. For example, their no roaming fee policy saves huge money to businesses and cannot be matched by competion. They are the only company to round off to the nearest second. They got their specturm cheaper than anyone else. All of this will take market share from others.
+++ Nextel's digital cellular looks good in comparison with "AMPS", but so do most other digital offerings.
6. They will be cash flow positive in about 6 months.
+++ Says who?
7. They have the best management in the cellular business.
+++ Says who?
8. They are in an industry that is growing about 35% each year. Nextel is getting a nice share of this new business.
+++ What business?
9. They are immune to the Asia flu. They took US infrastructure shots against the Asia flu.
+++ Erroneous, but also irrelevant.
10. The CEO stated recently that Nextel should be able to add about 1.5 million subscribers each year (they are close to that rate of new subscriber additions now). Since 2 million makes them cash flow positive, you can see (if you play the the new subscriber numbers going forward) that they will be going to generate a very large amount of revenue over the next few years.
+++ Then why does Armstrong remain "guardedly optimistics" about Nextel's future? Extrapolating into the future Nextel's current subscriber growth and arpu is dangerous.
11. Their gross margins and ratio of net income to sales will be larger than most US companies. They have no telephone operators, they do now own the software, etc. ---this is a low maintenance company.
+++ Betrays complete misunderstanding of Nextel's cost structure.
Overall, Nextel bulls appear to be looking into a rear-view mirror. A lot what they say was true yesterday, may be true today, and unlikely to be true tomorrow. The market is looking 3-6mo ahead, which is reflected in the stock price.
PTB |
