(S) Sprint and Motorola Seize 4G Frenzy

The third-largest U.S. wireless carrier Sprint Nextel Corp. (S) plans to launch 10 new wireless devices (smartphones and tablets) in collaboration with Motorola Mobility Inc. (MMI).

The “Motorola Photon 4G” smartphone is on the top of the 10 new device list.  The Photon 4G will be the first WiMAX device with a dual-core 1GHz processor. The second handset “The Motorola Triumph,” is the first Motorola device to be sold through Sprint’s Virgin Mobile and Boost Mobile prepaid brands. Both handsets will run on Google Inc.‘s (GOOG) Android operating system and are slated for a summer launch.

The company’s first Motorola smartphone “Motorola XPRT,” launched on June 5, includes push-to-talk features. In addition, the company currently offers WiFi Motorola Xoom and “Motorola Clutch + i475.” Two more handsets “Motorola Theory” and “Motorola i412” will be available later this month with Boost Mobile’s Monthly Unlimited with Shrinkage plan. Motorola Clutch + i475 and i412 are the latest walkie-talkie phones to offer push-to-talk service. Further, the “Motorola Titanium” is slated to launch late summer and will use push-to-talk features.

We believe both Motorola and Sprint entered into a group effort to gain an edge over their competitors. Motorola is trying to differentiate itself from Apple Inc. (AAPL) and Research In Motion Ltd. (RIMM) as well as other handset makers that use the Android software such as Samsung Electronics Co. and HTC Corp.

Sprint is facing competition from its two largest rivals AT&T Inc. (T) and Verizon Communications (VZ). Additionally, Sprint’s business may be at risk with the proposed AT&T/T-Mobile merger, as it will increase competitive pressure among the top three U.S. wireless operators. The merger might bring the turning post-paid wireless business to a halt and shrink Sprint’s profitability.

Sprint will retain its primary focus on the 4G network, which is a major prospect in the wireless market and may boost revenues. Earlier this week, the company announced the launch of a 4G handset “HTC EVO 3D” and a 4G tablet “HTC EVO View 4G”. Both devices will use Clearwire Corp.’s (CLWR) mobile WiMax (a wireless broadband technology) network.

We believe an attractive wireless product and service mix, wider 4G network footprint, prepaid brands like Assurance Wireless and Virgin Mobile, Boost Mobile’s Monthly Unlimited plans as well as the Network Vision initiative will continue to add opportunities in the wireless businesses.

Sprint continues to focus on device leadership, especially in 4G. Sprint’s 3G/4G netbook and notebook, MiFi 3G/4G Mobile Hotspot, Overdrive Pro 3G/4G Mobile Hot Spot, BlackBerry 4G PlayBook and three 4G smartphones –– EVO 4G, Samsung Epic and HTC EVO Shift 4G are gaining popularity in the U.S. market. In addition, the launch of  4G tablet –– the BlackBerry 4G PlayBook –– and another handset, the Nexus S 4G, are on the company’s cards this year. These devices are expected to boost margins and earnings going forward.

However, we believe Sprint is now no longer the only major carrier offering 4G network. The company’s market advantage for its 4G wireless service eroded as other carriers started offering competitive services. Verizon already covered approximately 38 markets with around 110 million people by the end of December 2010. Additionally, AT&T plans to roll out its 4G services this summer.

Additionally, we remain cautious due to lower margins in wireless and wireline businesses, higher payments made to Clearwire, increased subsidies, heavy investments and aggrevated competitive threats.

We are currently maintaining our long-term Neutral recommendation on Sprint supported by the Zacks #3 (Hold) Rank.

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