I've written extensively about Clearwire, and it's trials and tribulations. To me, it is the most interesting ongoing stories in the telecom sector. As a quick review, Clearwire, best known for its 'Clear' wireless 4G internet products was started by a consortium of technology companies, the largest of which is Spring (with a 54% stake). Sprint has since been renting CLWR's 4G network for it's cell phone service. However, for several years now, CLWR has faced challenges reaching profitability as subscriber growth hasn't been strong enough to offset the large capital expenditures. Through all this, however, the company was still able to rely on the steady revenue stream from Sprint - their biggest customer.
The more recent issue with CLWR, however, is related to its technology. CLWR adopted WiMax as its technology standard very early on. Now, when it made that decision, it was unclear if WiMax would be the industry standard going forward. A WiMax alternative - LTE - also waited in the wings, and many thought that this would ultimately win out. Well, fast forward a few years, and those people were right. LTE was later adoped by both Verizon and AT&T, and it's quickly becoming apparent that WiMax will go the way of Betamax and HD DVD. CLWR has long maintained that, even if LTE won out, it would not be difficult to make the switch, something I doubted then, and doubt even more today.
And Things Begin to Get Ugly
Last week, Sprint announced that it is ending its agreement with CLWR and will, instead, build its own LTE network. After 2012, CLWR will lose its biggest customer, and will need to scramble to find a way to survive. I have my doubts it will be able to do so at this point. With 4x more debt than it has equity, and no expectations for profitability until at least 2014, the company will have difficult time finding the capital needed to make a switch into LTE. The company has just under $900million in cash and last year lost over a $1 Billion in operating cash flow. Things are grim, things are very grim.
The Chances of Survival
I think it will be nearly impossible for the company to make a switch to LTE in its current financial state. There a couple of alternatives that I feel are more likely. 1) They are bought out by one of their parent companies. Spring may even be willing to let the company go into bankruptcy, shed the debt, and take over the remaining assets - of which the spectrum and customer base still likely have value. 2) Get bought out by a minority shareholder or by a competitor looking for spectrum. Sadly I still think this won't happen until bankruptcy hits. In other words, stay far far away from this stock - even if it is trading at a paltry $1.42 vs. a 52 wk high of $7.44
Everything I've written above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
Clearwire and Sprint have stated that they will be moving to LTE. Sprint is using its 1900-MHz Frequency Division Duplex spectrum (FDD). Clearwire is using its existing Time Division Duplex Spectrum (TDD).
ReplyDeleteOn TDD spectrum the name for LTE is TD-LTE and it is being pushed hard in China so Clearwire will be able to take advantage of that work. Add to this that some of Qualcomm’s chipsets already support both the FDD and TDD flavors of LTE and that the TDD WiMAX devices that are on the Clearwire network can be easily reworked for TDD LTE and both Sprint and Clearwire should have little trouble moving from their existing WiMAX systems to LTE. All it will take for both of them is money, which may be a big deal for Clearwire and which has some of Sprint’s shareholders jumpy, but in the end it is the correct move for both companies.