Light At The End of The Tunnel For Clearwire

Last year was a roller-coaster ride for wireless major Clearwire (Nasdaq: CLWR  ) , as it narrowly escaped bankruptcy. Although the company posted record-breaking top-line growth during the first three quarters of 2011, it consistently lost money throughout the year as well.

The bright side
Clearwire's revenue was boosted by a steady flow of 4G broadband wholesale deals to reach a record $332 million in the third quarter of 2011 from $236.8 million in the first quarter. Some of the notable ones included deals struck with Best Buy, United Online, and Locus Telecommunications. Clearwire also reduced its operating costs by 13% from the first quarter of 2011 to $411 million in the third quarter, but this was woefully inadequate.

And the not-so-bright side
Now for the bad news. Clearwire suffered losses totaling $480 million for three consecutive quarters in 2011. This was mainly due to high operational expenses to the tune of $1.3 billion during the same period.

In addition to this, the company had $4 billion as debt along with dwindling cash reserves, which fell to just under $700 million in the third quarter of 2011. The dangerously low cash level prompted Clearwire to threaten default on $237 million in interest payments for the month of November 2011 unless someone bailed it out. At this critical juncture, Clearwire's largest customer and investor, Sprint (NYSE: S  ) came to its rescue with deals for its wireless services worth $1.6 billion.

The additional fund from Sprint not only secured the company's operational future, but also boosted its plans to roll out a LTE network, something which competitors Verizon and AT&T (NYSE: T  ) already possess.

Hoping against hope
Given the shortage of spectrum the industry is facing at present, Clearwire definitely has an edge over its rivals, as it possesses a good chunk of 2.5 GHz unused spectrum. A lot of this spectrum covers large cities where the company can roll out high-capacity networks. This is not the case with AT&T, which faces severe shortage of spectrum despite possessing the required 4G LTE technology. Although AT&T did manage to clench a spectrum deal worth $1.9 billion with Qualcomm in December of last year, it may not be sufficient in the long run.

The Foolish take
Having had some cash relief courtesy of the Sprint bailout, Clearwire is now all set to upgrade itself from WiMAX to the next-generation 4G LTE network. But with rivals AT&T and Verizon already ahead in the 4G race, Clearwire needs to pull up its socks or else it might see customers exit.

So, what do you think about Clearwire's future prospects? Let us know by leaving your comments in the box below. Also, don't forget to stay up to date with Clearwire by adding it to your Watchlist. Don't worry, it's free and it lets you stay on top of the latest news and analysis for your favorite companies.

Keki Fatakia does not hold shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 31, 2012, at 8:29 PM, Aryabod wrote:

    Clearwire's relationship with China Mobile is huge especially knowing that China Mobile's 650 million subscribers will be a compelling factor to most smartphone manufacturers. The relationship between both carriers is based on their choice of platforms and spectrum band. Both carriers are proponents of TDD LTE, which is four times faster than FDD LTE being deployed by T, VZ and Sprint.

    Owing to China Mobile's size Apple and China Mobile are currently in negotiations to develope an iphone capable of roaming between TDD and FDD LTE. This should give Clearwire a game changing advantage once their networks are upgraded from WiMax to TDD LTE.

  • Report this Comment On February 01, 2012, at 11:59 AM, spokanimal wrote:

    I would note that Clearwire recently pre-announced key, 4th quarter data and it was very good.

    Most pleasing was that Clearwire became EBITDA positive for the first time in it's history. The company originally forcasted they would become EBITDA positive in March but backed away from that forcast when Sprint launched the I-phone and curtailed unlimited WiMax plans for devices other than smartphones last October.

    The fear that those measures by sprint would greatly reduce net-new WiMax subscriptions proved unfounded, however, when Clearwire, in their Q4 pre-announcment, reported ~900,000 new-new WiMax subs, which was more than any other US 4G provider.

    Finally, I note that you, as do most columnists, refer to Clearwire's LTE in the generic sense. I would qualify that, however, by stating that Clearwire's LTE is TD-LTE which, when paired with Clearwire's massive spectrum and adapted to LTE-Advanced protocol in 2013, will achieve real-world transmission speeds easily in excess of 100 megabits with broad capacitites...

    ... vs Verizon's sub-20 megabit FD-LTE speed that will likely be spectrum-constrained.

    Spokanimal

  • Report this Comment On February 02, 2012, at 12:44 PM, srcapital wrote:

    For more on Clearwire see this recent post at Seeking Alpha: http://seekingalpha.com/article/333222-wsj-article-on-clearw...

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