NEXTEL COMMUNICATIONS INC. Louise Philbrick David Guerra Keith Grant Overview • • • • • Current Condition Vision and Mission External Factors – CPM – EFE Internal Factors – IFE Analysis – Key Ratios – SWOT Matrix – Space Matrix – BCG – IE Matrix – GSM – QSPM Possible Strategies Recommendations Evaluation Nextel Overview Nextel Communications Inc. is a provider of communications services with three operating segments: • Digital Cellular – Customers receive crystal clear calls and guaranteed message delivery in a secure environment, within the Nextel National Network. • Walkie-Talkie Services – Direct Connect®, Nationwide Direct Connect™, and International Direct Connect™ services allow communication without having to dial a number. Nextel Overview Continued • Wireless Data Services – Customers can access the wireless web, e-mail, instant messages, text messages, and multimedia messages. They can also customize their phones with Java™ applications, wallpapers, ring tones, and alerts with sports, news, and weather information. Nextel History • Founded as Fleet Call in April of 1987 • Fleet Call was founded as a two-way radio service. • Fleet Call issued their IPO in 1992 • Nextel first recorded profit in 2002 Stock Price Performance Graphic source: cbs.marketwatch.com Nextel Today • • • • 8.2% Market share 14.1% of new wireless subscribers Nextel Direct Connect® Nextel trades on the NASDAQ National Market under the symbol NXTL Key Facts • 95 % of Fortune 500 companies are Nextel customers • Currently in 297of the top 300 US markets • Nextel is tied with Verizon for the lowest customer churn rate. • 36% sales growth over the past 5 years • In 2003 Nextel won the naming rights to NASCAR racing series Goals and Objectives • Provide individualized packages of wireless services – combine multiple wireless communication options in single wireless telephones • Target Business Customers – focus on business customers will emanate a higher monthly average revenue per unit and lower average monthly service cancellations or terminations Goals and Objectives Concluded • Rapid deployment of robust networks – create vigorous wireless systems that cover all key areas of a given market before introduction of network in that market. • Operate in Mid-sized and smaller markets – this strategy would allow Nextel to impulsively increase penetration within our targeted segment Vision Statement Enhancing the diversity of Nextel’s workforce and promoting an inclusive work environment to better serve our diverse employees, customers, suppliers, and business partners. Graphic obtained from: Nextel.com Source: Nextel. COM Nextel Mission statement • We will achieve our vision statement by incorporating inclusion into all that we do. – Recruiting and retaining a talented, diverse employee base – Recognizing and appreciating all employee’s perspective and talents – Fostering an environment that enables all employees to reach their highest potential – Building diversity awareness throughout the organization – Promoting supplier diversity Source: Nextel. COM Nationwide Direct Connect® Coverage Graphic obtained from: Nextel.com External Audit Opportunities 1. 2. 3. 4. 5. 141 million possible investors in Europe, UK, and Germany. Low P/E ratio which should attract value investors. Sports marketing can be luring for younger customers. Growing Hispanic population in the US. Increased desire for wirelsss service. Threats 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. New regulatory complaints (new phone # portability). Rising costs of healthcare. Global unrest- economic monetary and financial. Consumer privacy rights being attacked. Weak Consumer spending. Decreasing demand for traditional voice lines and fixed lines. Increasing overlap of telecommunication territories. Increasing competition for providers of web search directories. Increasing providers of wireless services. Brand recognition. EFE Matrix External Factor Evaluation Matrix (EFE) Opportunities 141 million possible investors in Europe, UK, and Germany. Low P/E ratio which should attract value investors. Increased desire for wirelsss service. Growing Hispanic population in the US. Sports marketing can be luring for younger customers. Weight Rating Weighted Score 0.06 1 0.06 0.06 3 0.18 0.02 2 0.04 0.06 2 0.12 0.10 3 0.30 Threats 1. New regulatory complaints (new phone # portability). 2. Rising costs of healthcare. 3. Global unrest- economic monetary and financial. 4. Consumer privacy rights being attacked. 5. Weak Consumer spending. 6. Decreasing demand for traditional voice lines and fixed lines. 7. Increasing overlap of telecommunication territories. 8. Increasing competition for providers of web search directories. 9. Increasing providers of wireless services. 10. Brand recognition. TOTALS Weight Rating Weighted Score 0.10 3 0.30 0.07 2 0.14 0.12 3 0.36 0.02 4 0.08 0.10 2 0.20 0.05 3 0.15 0.06 3 0.18 0.02 2 0.04 0.06 4 0.24 0.10 4 0.40 1.00 2.79 1. 2. 3. 4. 5. Competitive Profile Matrix Competitive Profile Matrix (CPM) Nextel Critical Success Factors Alltel SBC Weight Rating Score Rating Score Rating Score Market Share Price Financial Position Consumer Loyalty Brand Awareness 0.10 0.25 0.20 0.30 0.15 Totals 1.00 4 3 4 3 4 0.40 0.75 0.80 0.90 0.60 2.75 2 4 3 3 3 0.20 1.00 0.60 0.90 0.45 3.15 3 2 4 3 3 0.30 0.50 0.80 0.90 0.45 2.95 Internal Audit Strengths 1. 2. 3. 4. 5. 6. 36 percent sales growth over 5 years compaired to 12 percent for the industry. ROA, ROI and ROE are all twice as attractive as the industry year-end 2003. Sports marketing contracts. Good brand awarness. Known for product innovation like their coast to coast walkie talkie. Net income increased over 12 percent in 2003. Weaknesses 1. 2. 3. Stock's beta is over 2, which is twice as volitle as the S&P 500. Historically have returned negative net income. Only major supplier is Motorola. IFE Matrix Internal Factor Evaluation Matrix (IFE) 1. 2. 3. 4. 5. 6. Strengths Weight Rating Weighted Score 36 percent sales growth over 5 years compaired to 12 percent for the 0.15 4 0.60 industry. ROA, ROI and ROE are all twice as attractive as the industry year-end 0.15 4 0.60 2003. Sports marketing contracts. 0.05 3 0.15 Good brand awarness. 0.10 4 0.40 Known for product innovation like their coast to coast walkie talkie. 0.10 4 0.40 Net income increased over 12 percent in 2003. 0.15 4 0.60 Weaknesses 1. Stock's beta is over 2, which is twice as volitle as the S&P 500. 2. Historically have returned negative net income. 3. Only major supplier is Motorola. TOTALS Weight Rating Weighted Score 0.05 1 0.05 0.10 2 0.20 0.15 1 0.15 1.00 3.15 Key Ratios Growth Rates Nextel Industry Sector S&P 500 Sales (MRQ) vs. Qtr 1yr ago 28.96 2.36 14.39 13.40 Sales (TTM) vs. TTM 1yr ago 24.07 3.55 15.92 11.90 Sales- 5yr growth rate 36.36 12.49 17.25 9.30 EPS (MRQ) vs. Qtr 1yr ago -59.68 -17.21 15.43 28.69 EPS (TTM) vs. TTM 1yr ago -9.51 -4.84 16.37 21.92 NM -1.81 15.23 12.15 -4.35 -2.37 2.61 4.06 EPS- 5yr growth rate Capital spending- 5yr growth rate Nextel Industry Sector S&P 500 18.27 27.90 28.90 24.01 P/E 5 yr high N/A 36.84 48.47 45.41 P/E 5 yr low N/A 10.16 16.09 16.26 Beta 2.14 1.28 .96 1.00 Price to sales (TTM) 2.47 1.93 2.80 3.33 Price to Book (MRQ) 4.63 2.59 3.89 4.29 Price to tangible book (MRQ) N/A 4.36 6.60 7.56 Price to cash flow (TTM) 8.43 6.92 17.03 17.32 Price to free cash flow (TTM) 21.18 16.18 33.11 28.97 % Owned institutions 76.07 38.23 50.48 64.19 Valuation Ratios P/E Ratio (TTM) Dividends Nextel Industry Sector S&P 500 Dividend Yield N/A 4.20 2.14 2.04 Dividend yield 5yr Average 0.00 2.34 1.43 1.48 Dividend 5yr Growth rate NM -0.87 -0.89 6.48 Pay out ratio (TTM) 0.00 33.73 15.54 26.78 Quick ratio (MRQ) 1.15 1.01 0.93 1.26 Current ratio (MRQ) 1.31 1.22 1.47 1.76 LT Debt to equity (MRQ) 1.64 0.84 0.74 0.68 Total debt to equity (MRQ) 1.72 0.95 0.82 0.85 Interest coverage (TTM) 2.70 3.18 7.84 11.86 Financial Strengths Profitability Ratios % Nextel Industry Sector S&P 500 Gross Margin (TTM) 70.88 60.97 42.84 47.32 Gross Margin-% Yr Average 65.00 54.17 42.06 47.01 EBITD Margin (TTM) 36.70 31.75 22.32 20.79 EBTID 5 Yr Average 22.30 30.70 21.97 20.82 Operating Margin (TTM) 21.04 12.99 12.90 20.33 Operating Margin5Yr Average 1.24 13.72 11.21 18.35 Pre-tax Margin (TTM) 15.25 10.68 10.37 17.27 Pre-tax Margin 5yr Average -9.88 10.57 11.77 17.54 Net Profit Margin (TTM) 14.21 7.03 7.54 13.12 Net Profit Margin 5 Yr Average -10.37 5.18 7.62 11.59 Effective tax Rate (TTM) 6.85 29.08 32.18 31.31 Effective Tax Rate 5Yr Average 14.43 35.99 36.04 34.20 Management Effectiveness % Nextel Industry Sector S&P 500 Return on assets (TTM) 7.24 3.21 5.91 6.40 Return on assets 5yr Average -2.10 2.87 5.49 6.79 ROI (TTM) 8.44 3.84 7.98 9.97 ROI 5Yr Avg -2.46 3.70 7.59 10.93 ROE (TTM) 36.82 13.28 13.51 18.71 ROE 5Yr Avg -4.79 9.79 13.18 19.22 Revenue/Employee (TTM) 636,471 405,314 479,338 622,866 NI/Employee (TTM) 90,412 102,467 90,606 81,707 9.45 7.39 17.23 9.76 14.39 21.63 17.53 10.46 0.51 0.47 1.17 0.29 Efficiency Receivable Turnover (TTM) Inventory Turnover (TTM) Asset Turnover (TTM) 1. 2. 3. 4. 5. 6. 1. Opportuni ti es - O 141 million possible investors in Europe, UK, and Germany. 1. 2. Low P/E ratio which should attract value investors. 2. 3. Sports marketing can be luring for younger customers. 3. 4. Growing Hispanic population in the US. 5. Increased desire for wirelsss service. 1. 2. 3. 4. 5. 6. Threats - T New regulatory complaints (new phone 1. # portability). Rising costs of healthcare. Global unrest- economic monetary and financial. Consumer privacy rights being attacked. Weak Consumer spending. Decreasing demand for traditional voice lines and fixed lines. 7. Increasing overlap of telecommunication territories. 8. Increasing competition for providers of web search directories. 9. Increasing providers of wireless services. 10. Brand recognition. Strengths - S 36 percent sales growth over 5 years 1. compaired to 12 percent for the industry. ROA, ROI and ROE are all twice as 2. attractive as the industry year-end 2003. Sports marketing contracts. 3. Good brand awarness. Known for product innovation like their coast to coast walkie talkie. Net income increased over 12 percent in 2003. Weaknesses - W Stock's beta is over 2, which is twice as volitle as the S&P 500. SO Strategi es Expand wireless services into Europe, UK and/or Germany (S1, S4, O1, O5) 1. WO - Strategi es Purchase international wireless providers such as MMO2 (W3, O5) 1. WT - Strategi es Layoff part of the workforce to reduce overhead costs. (W2, T3, T5) Historically have returned negative net income. Only major supplier is Motorola. Form new contracts with professional athelties to market products (S1, S2, S3, O3). Acquire small domestic wireless providers such as Powertel or Aerial (S1, O5) ST Strategi es Expand to overseas markets to hedge the falling price of the dollar (S1, O5) Space Matrix Y axis: Financial Strength Environmental Stability X axis: Industry Strength Competitive Advantage +3.2 -2 -2 +4 +1 worst to +6 best Y axis: 1.2 -1 best to -6 worst X axis: 2 +1 worst to +6 best -1 best to -6 worst FS Conservative Aggressive 6 5 4 3 2 1 CA -6 -5 -4 -3 -2 -1 1 2 3 4 -1 -2 -3 -4 -5 -6 Defensive ES Competitive 5 6 IS BCG High 1.0 High +20 Stars Medium Low 0.5 0.0 Question Marks 18% New Subscribers 10% Wireless Medium 0 Cash Cows Low -20 Dogs IE Matrix The Total IFE Weighted Scores Strong 4.0 to 3.0 4.0 I Average 2.99 to 2.0 II Weak 1.99 to 1.0 3.0 IV V VI VIII IX III High The EFE Total Medium Weighted Scores 2.0 Low 1.0 Nextel VII Grand Strategy Matrix 1. Market Development Rapid Market Growth 2. Market Penetration Quadrant II Quadrant I 3. Product Development 4. Forward Integration Weak Competitive Position Strong Competitive Position 5. Backward Integration 6. Horizontal Integration 7. Concentric Diversification Quadrant III Quadrant IV Slow Market Growth QSPM Expand into International Markets Increase Domestic Prescence 1. 2. 3. 4. 5. Opportunities 141 million possible investors in Europe, UK, and Germany. Low P/E ratio which should attract value investors. Increased desire for wirelsss service. Growing Hispanic population in the US. Sports marketing can be luring for younger customers. Weight 0.06 0.06 0.02 0.06 0.10 AS 4 0 4 1 3 TAS 0.24 0.00 0.08 0.06 0.30 AS 1 0 2 4 4 TAS 0.06 0.00 0.04 0.24 0.40 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Threats New regulatory complaints (new phone # portability). Rising costs of healthcare. Global unrest- economic monetary and financial. Consumer privacy rights being attacked. Weak Consumer spending. Decreasing demand for traditional voice lines and fixed lines. Increasing overlap of telecommunication territories. Increasing competition for providers of web search directories. Increasing providers of wireless services. Brand recognition. Weight 0.10 0.07 0.12 0.02 0.10 0.05 0.06 0.02 0.06 0.10 AS 2 0 1 3 2 3 4 3 3 3 TAS 0.20 0.00 0.12 0.06 0.20 0.15 0.24 0.06 0.18 0.30 AS 1 0 3 2 1 1 2 2 1 4 TAS 0.10 0.00 0.36 0.04 0.10 0.05 0.12 0.04 0.06 0.40 QSPM Expand into International Markets 1. 2. 3. 4. 5. 6. Strengths Weight 36 percent sales growth over 5 years compaired to 12 percent for the 0.15 industry. ROA, ROI and ROE are all twice as attractive as the industry year-end 0.15 2003. Sports marketing contracts. 0.05 Good brand awarness. 0.10 Known for product innovation like their coast to coast walkie talkie. 0.10 Net income increased over 12 percent in 2003. 0.15 Weaknesses 1. Stock's beta is over 2, which is twice as volitle as the S&P 500. 2. Historically have returned negative net income. 3. Only major supplier is Motorola. TOTALS Weight 0.05 0.10 0.15 Increase Domestic Prescence AS TAS AS TAS 3 0.45 4 0.60 3 0.45 4 0.60 3 3 4 2 0.15 0.30 0.40 0.30 4 4 2 3 0.20 0.40 0.20 0.45 AS 0 1 0 TAS 0.00 0.10 0.00 AS 0 2 0 TAS 0.00 0.20 0.00 4.34 4.66 Possible Strategies • Expand coverage in underdeveloped rural areas • Expand and strengthen international markets i.e. Latin America • Penetrate the foreign market • Use advertising leverage with NASCAR to diversify markets • Focus on retaining current customers while attracting new customers Decisions • Primary – Concentrate on gaining more market share in the U.S. by achieving a merger with another wireless provider such as Sprint. • Possibilities – Progress into Foreign Market – Expand Target Market Implementation • Aims – Increase income by 55% within the next 3 years • Increase revenue by 25% within the next 3 years – Decrease long-term debt by 30% within the next 3 years • Match industry averages within the next 3 years – Increase research and development in order to maintain competitive advantage 2004 Financial Statistics • • • • • • Operating Revenues $3,000.0 million Net Income $3,000.0 million EPS $2.62 Capital Expenditures $(2513.0) million Total Debt $13,336.0 million Cash Flow from Operating Activities $4,288.0 million • Weighted Average Shares Outstanding $1,124.0 million Press Releases • November 12, 2004 – Nextel Gets Perfect Score • November 29, 2004 – Nextel Awarded With The Best Sports Business Integration • December 7, 2004 – Boost Mobile Passes One Million Customer Mark • December 15, 2004 – Sprint and Nextel to Combine in Merger of Equals