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Sprint and Other Carriers Deal a Blow to Tablet Makers Like Apple

May 3, 2016, 2:42 PM UTC
A Sprint Corp. Store Ahead Of Earnings Figures
A customer looks at an Apple Inc. iPhone 6 at a Sprint Corp. store in Palo Alto, California, U.S., on Friday, May 1, 2015. Sprint Corp. is scheduled to release earnings figures on May 5. Photographer: David Paul Morris/Bloomberg via Getty Images
Photograph by David Paul Morris — Bloomberg via Getty Images

Sprint reported lower revenue and profitability in its latest quarter on Tuesday, but beneath the surface, the fourth-largest mobile carrier also disclosed a trend that’s likely to hurt hardware makers, including Apple and Samsung.

Sprint CEO Marcelo Claure explained that the mobile industry is moving away from pushing tablets on customers. Sprint lost a net 36,000 tablet subscribers in its just-completed fiscal fourth quarter, after adding a net 82,000 in the previous quarter and 349,000 a year earlier.

Two years ago, tablets were all the rage among the carriers as a way to bolster sagging phone subscriber growth. But luring millions of customers to sign up for $10 per month or less data plans at the cost of subsidizing $200 or more off the price of a tablet turned out to be a pretty dismal business tactic.

“For whatever reason, two years ago we had some pretty aggressive promotions in tablets that right now we’re paying the price for,” said Claure, who become CEO a few months less than two years ago, while speaking to analysts on the company’s earnings call. “That obviously has stopped.”

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The reason is simple economics, Claure added, explaining that “in many cases,” the carrier would get 10 times more lifetime customer value from a phone subscriber than a tablet buyer. Phone buyers sign up for much more expensive monthly plans, and the carriers no longer subsidize most phone purchases at all.

Add to that the fact that churn on tablets has been high and customer lifetimes on phones can run to a decade, and it’s easy to see why you’d prioritize phones over tablets,” said Jan Dawson, a telecom analyst at Jackdaw Research. “On the other hand, there are very few new phone customers available, which means phone growth is largely a matter of prizing customers away from competitors.”

The same tablet trend has been evident at Verizon Communications (VZ), AT&T (T), and T-Mobile (TMUS), which all saw tablet subscriber additions peak in the past year or two and decrease over the past few quarters. Sprint (S) was the first to report a net loss of tablets, however.

Among all four carriers, tablet sales peaked at 2.8 million in the holiday quarter of 2014, dropping to 900,000 in the latest quarter, according to Dawson.

For more about Sprint, watch:

Top tablet makers Apple (AAPL) and Samsung have already been struggling with weaker sales for the past few years—and that was with the mobile carriers pushing the devices. Worldwide, tablet sales decreased by 10% last year to 230 million devices, according to market tracker International Data Corp. Apple’s shipments declined 22% and Samsung’s shrunk by 16%, IDC noted.

Sprint’s overall results were about as Wall Street expected. Revenue slipped 3% to $8.1 billion for the quarter while the net loss of $554 million was more than double the year earlier loss of $224 million. But adjusted earnings before interest, taxes, depreciation and amortization—a more closely followed metric for a heavily indebted company like Sprint—increased 24% to $2.2 billion.

Shares of Sprint lost 2% to $3.42 in morning trading on Tuesday. The shares have lost 34% over the past year.