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Latin American wireless operator NII Holdings Inc. (NIHD - Analyst Report) declared poor financial results for the third quarter of 2011. In synergy with the somber results, management slashed its fiscal 2011 financial outlook mainly due to volatile macroeconomic condition coupled with significant depreciation of its local currency in comparison to U.S. dollars. Moreover, stiff competitive scenario in Brazil is another impediment for such reduced outlook.

Reported net loss was $2.9 million or 2 cents per share compared with a net income of $118.5 million or 68 cents per share in the prior-year quarter. Third quarter 2011 EPS of a loss of 2 cents missed the Zacks Consensus Estimate of a profit of 60 cents per share by a distant margin.

Quarterly total revenue was $1,751 million, up 21.1% year over year, but missed the Zacks Consensus Estimate of $1,777 million.

Quarterly operating expenses increased 25.7% year over year to $1,538.6 million. Operating income in the third quarter of 2011 was $212.4 million, down 4.5% year over year. Operating margin in the reported quarter was 12.1% compared with 15.4% in the prior-year quarter. Quarterly consolidated OIBDA (Operating Income Before Depreciation and Amortization) stood at $381.4 million, up 5.3% year over year.

At the end of the third quarter of 2011, NII Holdings had $2,636.5 million in cash, cash equivalents, and marketable securities compared with $2,305 million at the end of fiscal 2010. Total debt at the end of the reported quarter was $4,455.6 million compared with $3,265.4 million at the end of the previous year. At the end of the third quarter of 2011, debt-to-capitalization ratio was 0.58 compared with 0.50 at the end of fiscal 2010.

Operating Metrics

At the end the third quarter of 2011, total digital subscriber base at NII Holdings was10,24,5,400, up 19.3% year over year. During the reported quarter, the company added 433,3000 net new subscribers, down 0.6% year over year. Customer churn in the third quarter was 1.78% versus 1.64% in the prior-year quarter. Quarterly ARPU was $49 compared with $47 in the year-ago quarter. However, quarterly costs per gross subscriber added was $335 compared with $267 in the year-ago quarter.

Fiscal 2011 Financial Outlook

Management forecasts 1.6 million net new subscriber additions for fiscal 2011. Consolidated operating revenue is expected to be $6.8 billion. Consolidated OIBDA is projected at will be $1.6 billion. The company expects capital expenditure to be $1.7 billion.


Reduced financial outlook coupled with increased promotional expense and stiff competition from America Movil(AMX - Analyst Report) and Telefonica (TEF - Analyst Report), who are aggressively deploying next-generation wireless technologies in major Latin American markets, may hinder its near-term growth.

We, thus, maintain our long-term Neutral recommendation for NII Holdings. Currently, NII Holdings has a Zacks #5 Rank, implying a short-term ‘’Strong Sell” rating on the stock.

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