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.
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