- The Washington Times - Monday, May 7, 2001

The word of the moment for Nextel Communications Inc. is change, as the company is laying off some of its American work force while getting ready to enter the retail wireless communications market.

The Reston company, which provides wireless communications for businesses, announced last Tuesday that they will lay off about 5 percent of its American workforce, or 800 employees over the next two weeks.

Total operating revenue for the first quarter ended March 31 increased 48 percent to $1.7 million from $1.2 million it posted for the like quarter the year before. But Nextel says it is trying to reduce costs after losses for its first quarter continue to grow. The company posted a net loss of $372 million (56 cents per share) compared with net losses from operations of $279 million (45 cents).

"One fast way to reduce costs is to do layoffs," says Sean Butson, an analyst with Legg Mason Wood Walker in Baltimore. "They're making the move from growth to profit in order to move forward. It's tough to focus on profits when a company's growing, but Nextel can probably focus on that more now."

After posting a 52-week high of $73 on July 14, the company posted a 52-week low of $11.19 on April 4. But the stock's price has rebounded slightly, rising up to about $17 as recently as April 27. The stock price closed at $19.99 on Friday.

But Todd Bernier, an analyst with Morningstar in Chicago says the stock's climbing up because people are excited by the news that Nextel surpassed its expectations in customer adds and cash flow growth, even if those numbers are small.

"I like the stock, but they have taken the bar so far down that they've exceeded expectations," Mr. Bernier says. "The figures are just based on numbers that have already been lowered."

Mr. Bernier also says a few indicators he's noticed may mean the upward trend in the stock may not last. The company's figures for average revenue per user went down and "churn," the rate at which customers disconnect from their service, are going up.

"Yes, the numbers are decent, but there are some warning signs I'm not too pleased with," Mr. Bernier says. "They have fewer users, more disconnects and are spending more money to get new users and hold on to the old."

Nextel's rate of churn has gone up from 2 percent to 2.5 percent, but Paul Blaylock, a spokesman for Nextel, says the figure is still well below the industry average.

"Other companies have churn rates closer to 3 percent, which makes a big difference," Mr. Blaylock says. "We think the increase may be due to high-tech and dot-com companies going under."

The company has also announced that it will get into the retail business soon, having acquired Let's Talk Cellular and Wireless Inc. Under the Nextel name, the company will sell its phones in stores and over the Internet.

"It's been successful for AT&T;, Sprint and Verizon," Mr. Butson says. "This will help them reach a new market."

Mr. Bernier points out that most wireless companies aren't doing as well as they have been in the past. While Nextel is down 74 percent off its 52-week high, AT&T; and Sprint are also well below their posted 52-week high, down 44 percent and 59 percent, respectively.


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