We downgrade our recommendation on
NII Holdings Inc.
) to Underperform based on our assessment that the company's
downslide will continue in the near future. NII Holdings reported
dismal financial results for the fourth quarter of 2012 with both
the top line and bottom line falling well short of the Zacks
Why the Downgrade?
In the fourth-quarter 2012, NII Holdings added a mere 2,200
net subscribers compared with a net subscriber addition of
466,600 in the prior-year quarter and 152,500 in the previous
quarter. Average revenue per user (ARPU) was $36 compared with
$43 in the year-ago quarter.
Customer churn rate in the reported quarter moved to an
all-time high of 3.4% compared with 1.78% in the prior-year
quarter. Further, there was a huge drop in operating margin from
7.9% in the prior-year quarter to (25.9%) in the last
In synergy with the somber results, management provided tepid
financial outlook for 2013. This was primarily driven by the
volatile macro economic condition coupled with depreciation of
several Latin American currencies with respect to the U.S.
dollar. Moreover, stiff competitive scenarios in Latin American
markets are other impediments for such a reduced outlook. NII
Holdings currently has a Zacks Rank #5 (Strong Sell).
Other Causes of Concern
Key competitors of NII Holdings are aggressively deploying
next-generation wireless technologies in major Latin American
markets. For example,
America Movil SAB
) has completed the roll out of 3G services in Mexico and the
major cities of Brazil and has already deployed 4G LTE service in
) rolled out 3G services in several Latin American markets and
currently commands a major share of the Brazilian 3G market. NII
Holdings plans to launch its 3G service in Brazil not before the
middle of 2013.
NII Holdings is strapped to a single infrastructure supplier,
Motorola Solutions Inc.
). Thecompany confirmed its extended relationship with Motorola
Solutions for the supply of iDEN handsets and iDEN network
infrastructure through Dec 31, 2014.
iDEN technology is not as widely used as other wireless
networks and has fewer subscribers on a worldwide basis than
other digital technology formats. As a result, the company's
competitors, which use GSM or CDMA technology, benefit from
economies of scale and lower costs of handsets and infrastructure
Recently, Standard & Poor's Rating Services downgraded the
overall credit rating of NII Holdings from B to B-. This is six
notched into the junk territory of the agency's rating structure.
S&P cited intensely competitive Latin American wireless
industry conditions coupled with regulatory, economic and foreign
exchange are the primary reasons for this rating downgrade.
AMER MOVIL-ADR (AMX): Free Stock Analysis
MOTOROLA SOLUTN (MSI): Free Stock Analysis
NII HLDGS-CL B (NIHD): Free Stock Analysis
TELEFONICA S.A. (TEF): Free Stock Analysis
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