Clearwire's Double Whammy

With the stock market showing little but red the last several days, it's tough even for companies showing strong earnings to overcome the pessimism. It's no wonder, then, that heavily leveraged wireless broadband upstart Clearwire (Nasdaq: CLWR  ) had its stock shellacked for a 25% loss last Friday when it reported more losses in its third-quarter report.

But losses at Clearwire were largely expected. What really knocked investors for a loop was the confirmation that the original partnership announced with Sprint Nextel (NYSE: S  ) to build out a nationwide WiMax network has been scrapped. There's now a high level of uncertainty about what type of help -- if any -- Sprint Nextel will provide in the massive build-out.

On the earnings front, Clearwire reported progress that included adding 49,000 net new subscribers to its current network, which covers 48 markets. Service revenue more than doubled from a year ago to $41.3 million, but heavy losses continued to the tune of $328.6 million. But the massive bleeding this quarter achieved new heights, thanks to the brutal sting from the high levels of debt Clearwire maintains, leading the company to take a $159 million charge for the refinancing of its senior debt.

The double whammy of news sent Clearwire's stock to its lowest point since the March IPO. Even though the company maintains more than $1 billion in cash and short-term investments, investors are skeptical that Clearwire will be able to attract additional funds in light of the less favorable credit markets.

But as I stated in the earnings preview, Clearwire still has many strategic partners that want to see WiMax networks succeed commercially, including Intel (Nasdaq: INTC  ) , Nokia (NYSE: NOK  ) , and Motorola (NYSE: MOT  ) . Also, Clearwire still maintains agreements with satellite providers DirecTV (NYSE: DTV  ) and EchoStar Communications to mutually provide each other's services, although this doesn't help foot the massive bill for the burgeoning network.

While the alternatives may look less attractive, there are still ways Clearwire can muster up financial support, including finding new partners that may also have a vested interest in the disruptive broadband platform -- Google (Nasdaq: GOOG  ) , for instance. And a future collaboration with Sprint Nextel is not completely ruled out, though any new deal will likely be an alliance, with more costs shouldered by Clearwire.

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