Why cost-cutting efforts are helping Sprint

Why Sprint's stock plunged after the earnings announcement (Part 7 of 16)

(Continued from Part 6)

Sprint is resorting to job cuts to save costs

Sprint's (S) revenues have been declining. As the chart below shows, Sprint's overall revenues declined sequentially in the last three out of four quarters. Sprint's revenues in fiscal 2Q14 were $8.49 billion. Revenues declined sequentially by $300 million—from $8.79 billion in fiscal 1Q14.

The company attributed the decline to the continuous losses of net postpaid phone connections. However, to offset the decline, Sprint started to implement a number of cost-cutting initiatives.

One of the main cost-cutting measures that Sprint undertook was to eliminate 2,000 jobs from its workforce. This is in addition to the 5,000 job cuts it announced earlier. 2014 has seen a lot of companies in the technology sector resorting to job cuts to save cost.

This year Microsoft (MSFT) announced 18,000 job cuts.  HP (HPQ) will eliminate ~11,000–16,000 jobs by October 2014.  AMD (AMD) will reduce its jobs by ~7%—impacting ~700 people. SAP (SAP) is also eliminating 1,500–2,500 jobs this year. By eliminating 2,000 jobs, Sprint is expecting to save $400 million on an annualized basis.

Sprint plans to save a total of $1.5 billion annually

Sprint wants to eliminate $1.5 billion in cost on an annualized basis. In addition to job cuts, Sprint is also focused on simplifying IT and customer care processes. This will help it save another $150 million annually. The company also plans to save another $100 by lowering distribution and procurement costs.

In addition to cost savings, Sprint also plans to invest selectively in growth areas. For example, Sprint plans to have a call center located at its headquarter campus in Overland Park, Kansas. The call center will serve its top customers.

Continue to Part 8

Browse this series on Market Realist:

• Part 1 - Must-know: Sprint's stock decreased after the earnings
• Part 2 - Why Apple's iPhone 6 could instill life into Sprint
• Part 3 - Why Sprint is targeting prime customers to improve its churn rate

• Information Technology
• Business

 

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