Will Clearwire Make It?

It's easy to look at a Clearwire (Nasdaq: CLWR  ) chart since last week's fourth-quarter earnings report and conclude that the high-speed wireless operator is on track to a full recovery. After all, its shares jumped more than 10% on the announcement.

Then again, the jump erased all of 48 hours' worth of price declines, and the stock still finished down by 4.2% for the week. After a steep drop today, the stock once again trades at pre-earnings levels. Moreover, Friday's spike wasn't based on terrific financial results but on optimistic management comments, which may or may not come true when all is said and done. In the end, I can't blame the enormous cadre of Clearwire short-sellers for their bearish view of the stock.

The tale of the tape is rather grim: Revenue more than doubled to $181 million, but analysts wanted at least $196 million. Non-GAAP losses per share widened by 47% to $0.81 -- far worse than the $0.53 consensus.

The good news consisted of raucous subscriber growth and a rosy outlook on 2011. Specifically, management expects that a reworked wholesale agreement with joined-at-the-hip partner Sprint Nextel (NYSE: S  ) is "imminent" and should improve Clearwire's revenue per customer to a "substantial" degree. Assuming that these issues work out the way Clearwire wants them to, management sees the company becoming profitable in EBIDTA terms in 2012.

To put that plan into perspective, consider that Clearwire's adjusted EBITDA was a negative $497 million this quarter on $181 million in sales – that compares with an adjusted EBITDA loss of $295.7 million in last year's fourth quarter. The Sprint talks have to end up in an absolutely mind-blowing Clearwire win in order to produce that kind of drastic turnaround.

Meanwhile, the company burned $1.2 billion of operating cash last year, before you even look at the $2.7 billion it spent on capital improvements. Clearwire is selling its long-term investments and taking on new debt to finance it all -- and remains in dire need of either stronger operations or fresh cash (and ideally a bit of both).

Clearwire made a big bet on WiMax technology early on, but it's becoming increasingly clear that LTE will be the hands-down winner. The company is hedging its bets by running LTE tests on its networks and talking hardware makers into producing chips that work with both standards.

Clearwire may survive into the era of widespread 4G networking and beyond, but it'll be a close call. AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) saved themselves a heap of headaches when they decided on LTE support years ago. Clearwire and Sprint had a shot at turning their early 4G readiness into a competitive advantage, but the competition is catching up fast and the window of WiMax opportunity is closing.

Like any other turnaround bet, Clearwire could make you drastically rich when you buy in at today's pessimism-tinged prices. On the other hand, the risks are high, and you could end up losing it all. Me, I'm not touching Clearwire's stock with a 10-foot pole.

Want to follow this boom-or-bust story closer? Add Clearwire to your watchlist by clicking here.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (7) | Recommend This Article (3)

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  • Report this Comment On February 22, 2011, at 10:24 PM, Aryabod wrote:

    Lets get a few facts straight. As of last year Sprint, according to its own website owns 56.6% of Clearwire. Combined both companies are loaded with a very precious resource called Spectrum, which we all know is finite. Owing to this Clearwire will have no problem surviving but rather the million dollar question should be who will own it? My guess is Sprint, so the next question will be at what price. This is all based on brinksmanship. What may appear to be dire to the average person also manifests opportunity to the those with perspicacity. My take is Sprint is playing its cards very wisely.

    On another note, Sprint 'Network Vision' for the next few years will ensconce the company very well as it builds out its network. It is technology agnostic and should have no problems having a dual platform of WiMax & LTE 4G, since both standards can be incorporated into a single 4G chip. Remembering that WiMax and LTE are 85% similar technologies; all IP, OFDMA and upgradable to their next generation, WiMax 2 & LTE advanced. What is equally important is Capacity, ie need for spectrum. Sprint is positioned well regardless of network standard it chooses to employ.

    My conclusion is that Sprint will eventually purchase Clearwire at a fraction of the price many Anal-cysts have predicted, however only when the Shorts have brought the company to its knees.

    Now lets look at Clearwire's assets:

    120 million POPS of 4G in most of the major cities in the US.

    Over 150 Mhz of spectrum in the 100 most populated cities in America.

    Ability to use the second largest 3G network in the US (Sprint's).

    Sufficient resources to launch another 50 million POPS of 4G in 2011, bringing total POPS to over 170 million, which is more than half the US population.

    Ability to upgrade its WiMax network to WiMax 2, which will be backwardly compatible with its legacy WiMax and will have Download speeds in excess of 100 Mbps. All this a very minimal cost.

    Now lets look at Sprint. $5.5 billion in cash as of the end of 2010. Free Cash Flow over $900 million in Q4 10. 50 million subscribers. Improved line up of phones...

  • Report this Comment On February 23, 2011, at 12:20 AM, conradsands wrote:

    AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon (the 10th leading U.S. lobbyist) and AT&T (the 12th leading U.S. lobbyist) get all that money to run commercials 24x7, pay out huge “fat cat” executive bonuses and hire armies of lawyers and lobbyists to push the U.S. market into a wireless industry duopoly -- the American consumer.

  • Report this Comment On February 23, 2011, at 12:21 AM, conradsands wrote:

    Verizon Wireless pays $25M to end FCC fee probe

    Verizon Wireless has agreed to pay $25 million to the government to settle an investigation of the "mystery fees" it improperly charged millions of customers for data sessions they never intended to launch, the Federal Communications Commission said Thursday.

    The "voluntary payment," which the FCC said is its largest on record, comes on top of the refunds Verizon plans to issue to around 15 million customers, as it announced earlier this month. Those refunds will total at least $52.8 million, the FCC said.

  • Report this Comment On February 23, 2011, at 7:06 AM, jimiwart wrote:

    As a user of clear 4G internet and phone in the philly market until very recently, I can tell you that this is a terrible company to do business with. The service is down just about every 2 weeks and the speed is a small fraction of what they promise. Add to this the FACT that they give you great speed for nearly exactly 30 days so you don't cancel during the trial period and you have a company whose customers mostly hate them.

    I hope that there is a god and this company goes out of business fast.

    Also, take a look at clearwiresucks.com and you'll hear how bad it is to work there...

  • Report this Comment On February 23, 2011, at 9:26 AM, ghzguy wrote:

    Oh please, everyone knows that the clearwiresucks website is a shill for Verizon. CLWR has so much spectrum it's silly. If the market valued the company based on its spectrum holdings alone, it would be one of the cheapest stocks out there. Comparable FCC auctions of spectrum usable for 4G cellular communications will tell you what CLWR is really worth. Even if you believe the business model is flawed, the asset value is huge.

  • Report this Comment On February 23, 2011, at 4:05 PM, CLWRSpectrum wrote:

    Good post by Aryabod. The move to LTE makes sense for interoperable 700Mhz and 2.5Ghz. What I would like to see is Clearwire getting into the education business considering they have access to 152MHz of LTE ready Educational Broadband Service spectrum.

    They are missing the boat by trying to become another Verizon or AT&T. That was the greed of McCaw and now times are a changin'.

    I can't imagine why a carrier like Clearwire would not want to tap the huge growth that will be education reform and provide the core infrastructure that will support the reform criteria, apps and technology for millions of students, teachers, administrators, etc.

    http://outeach.blogspot.com

    Articles on this subject: http://www.digitalcommunities.com/authors/Bradford-Bowman.ht...

    @CLWRSpectrum on Twitter

  • Report this Comment On March 10, 2011, at 12:35 AM, kahakun wrote:

    I have been using clearwire since launch. I have no such reported problems; I run both my iPad and laptop on the service... I'm very statisfied!

    Aryabod, amazing job. You are a professional.

    CLEARWIRE becoming profitable! [Part 1]

    http://intelbarter.com/2011/03/04/clearwire-becoming-profita...

    CLEARWIRE wins, WiMax or LTE [Part 2]

    http://intelbarter.com/2011/03/07/clearwire-wins-wimax-or-lt...

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