The iPhone Claims Its First Victim
May 7th 2012 6:12PM
Updated May 7th 2012 6:14PM
The high cost of subsidizing the iPhone, which has done more to fill Apple's (NAS: AAPL) coffers than those of this country's major mobile carriers, has just taken a bite out of one mobile executive's wallet. Sprint Nextel's (NYS: S) CEO Dan Hesse has agreed to take a $3.25 million pay cut as his reward for bringing the iPhone to Sprint's lineup.
Hesse envisioned the iPhone as his team's clean-up hitter, but the $15.5 billion that Sprint agreed to pay Apple over four years was difficult for Sprint investors to swallow. The iPhone did indeed attract more customers to Sprint's ballpark, but for every iPhone the carrier sold, the thinner its profit margin became. Shareholder angst, along with a growing concern over high executive compensation throughout the corporate world, persuaded Hesse to give something back to the company.
"I do not want, nor does our compensation committee want, to penalize Sprint employees for the company's investment with Apple," Hesse wrote to Sprint's HR department.
Sprint Chairman Jim Hance filed this with the SEC: "We applaud Dan for his willingness to sacrifice personal compensation in order to reduce any distractions that could negatively affect the morale and performance of the company. Dan enjoys the full support of our board of directors."
It wasn't long ago that Sprint was actually giving Hesse a bonus for meeting the company's goals. But the compensation committee explicitly said that Sprint's "incentive plan targets for 2011, and the 2011 operating budget, did not include the impacts on our financial results of offering the iPhone."
It should have been no surprise that getting the rights to carry the iPhone would be a Faustian bargain. Both AT&T (NYS: T) and Verizon (NYS: VZ) have been watching their profit margins shrink with each of the must-have smartphones they sold. The latest figures from Wireless Intelligence show the iPhone outselling Android phones at the major U.S. carriers by 2-to-1. At that rate, will we be seeing any other wireless CEOs with lighter wallets?
Whether the carriers sell iPhones, Android phones, or phones running Windows Phone, there will always be a need for mobile devices -- and the parts that make them work. The Motley Fool has released a free report called "The Next Trillion-Dollar Revolution. Don't miss out on this report. Get it today!
At the time this article was published Fool contributor Dan Radovsky owns shares of AT&T. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.