Clearwire: Strengths, Weaknesses, Opportunities, and Threats

There are many ways of analyzing a business. But perhaps one of the best ways to do so is by creating a SWOT analysis. This sheds light on the good and bad points of a business in terms of its strengths and weaknesses, which are mostly internal in nature, as well as its opportunities and threats, which are external in nature.

In an earlier article, I gave a wrap-up of what happened in 2011 for Clearwire (Nasdaq: CLWR  ) along with what lies ahead. In this article, a SWOT analysis will help make things clearer for investors. So, let's take a brief look at the results for Clearwire.

Strengths

  • Clearwire possesses a huge amount of unused spectrum. Over the years, the company has gathered many licenses in the 2.5 Ghz spectrum throughout the country. And a good chunk of them are in large cities where it can roll out high-capacity networks.  
  • Revenue is growing consistently, thanks to the booming demand for its existing WiMAX services from smartphone users. The company posted record revenue of $332 million in the third quarter, and expects higher fourth-quarter revenue of $362 million.
  • The company secured a bailout to the tune of $1.6 billion from Sprint, which it plans to use to roll out a new 4G TD-LTE network.

Weaknesses

  • Clearwire has been incurring losses since its inception due to the costs of maintaining and expanding its network.
  • The company is sitting on $5 billion in debt and has added another $300 million at an exorbitant 14.75% coupon rate in January. So the $128 million interest it's already dishing out every quarter is set to increase.
  • Clearwire currently uses old WiMAX technology, while competitors such as Verizon (NYSE: VZ  ) and AT&T (NYSE: T  ) already have the latest 4G LTE technology. This has resulted in Clearwire losing wholesale customers.
  • Not only is a significant portion of Clearwire's 2.5 Ghz spectrum leased out, the higher frequency cannot penetrate obstacles easily and requires more cell sites to maintain a reasonable quality of service. Verizon's and AT&T's 700 Mhz spectrum does not have these issues.

Opportunities

  • Clearwire can resell its spare spectrum capacity to other carriers, such as Verizon and AT&T, who face shortage of spectrum.
  • Wholesaling is not only a high-volume business but also a cost-effective one. Clearwire's recent wholesale deals include companies such as Best Buy (NYSE: BBY  ) , United Online, and Locus Communications.
  • The 4G TD-LTE network that it's going to roll out would be more efficient than the FDD variant being used by competitors Verizon and AT&T. It would effectively give Clearwire the opportunity to add twice the number of subscribers that it would normally have.

Threats

  • Building a 4G network is an expensive affair and could tell on Clearwire's already bad financial standing. On the other hand, its rivals are financially more capable, as well as profitable.
  • If Clearwire's 4G network rollout begins to cost more than what was anticipated, it could stall the company's path toward profitability. Moreover, if its services receive fewer takers, the company could run into further losses.

The Foolish bottom line
While Clearwire has many underlying strengths, such as its huge stash of spectrum, it would have to address immediate problems such as customer attrition as well as other long-term issues. These include overcoming the inherent drawbacks of its high-frequency spectrum and securing funds for its future operations.

Don't forget to stay up to speed with the latest on Clearwire by adding it to your watchlist. It's free and 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.The Motley Fool owns shares of Best Buy. Motley Fool newsletter services have recommended writing covered calls in Best Buy. 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.


Read/Post Comments (6) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 06, 2012, at 1:09 PM, ReTeacher01 wrote:

    Sorry that you didn't include the higher frequency advantage on download speed of data to go with the dissadvantage of penetration.

  • Report this Comment On February 06, 2012, at 1:25 PM, plainspeaking wrote:

    Bailout? Looks to me that Clearwire is selling a valuable service to Sprint in exchange for a fair price.

  • Report this Comment On February 06, 2012, at 2:41 PM, spokanimal wrote:

    Re: "clwr losing wholesale customers (to vz & at&t)"...

    Clearwire added 1.9 million and 900,000 net new 4G subs in Q3 and Q4 respectively... compared to Verizon's 1.2 million in each quarter for ALL net-new subscribers. VZ didn't dare break out it's LTE net-new from it's I-phone 3G because it would have been embarrassing that Clearwire beat them at 4G as soundly as they did.

    Re: "building a 4G network is an expensive affair"...

    The infrastructure is all built at CLWR for 135 million POPs. It's all IP/digital and "network vision" quality. All that's left is the TD-LTE overlay for a comparatively in-expensive $600 million...

    ... a service that will absolutely scream at 110 to 120 megabit speeds once CLWR transitions it to LTE-Advanced in 2013... nobody else has the spectrum to fully exploit LTE-Advanced as CLWR will be able to do.

    S

  • Report this Comment On February 06, 2012, at 9:03 PM, lucasmonger wrote:

    Having jumped in on CLWR at $5 per share last year, I'm hoping that something happens to reverse their trend. With all that spectrum, it seems like a no brainer that they could find a way to be profitable with it. Yet, that profitability continues to elude them.

  • Report this Comment On February 07, 2012, at 5:11 PM, soundblaster16 wrote:

    Do 4G smartphones really communicate

    with cell towers using UHF (700 mhz) or

    Microwave (2.5 gHz) radio frequencies?

    Both UHF (television signals) and Microwaves

    (ovens, baby monitors, wi-fi routers, etc.) use

    a variant of radio wave frequencies. UHF and

    Microwaves are different kinds of radio waves,

    defined by their respective frequencies

    (wavelengths)... I suspect 4G smartphones

    use other kinds of radio frequencies to

    communicate with the cell towers. I suspect

    that the cell towers use UHF or Microwave

    signals to communicate with each other, however.

    That would make more sense. Because if

    a 4G smartphone emitted UHF signals, then

    you could turn them into portable TV broadcast

    stations, could you not? And if they emitted

    microwaves (a microwave oven emits microwaves

    with a frequency of 2.54 gigahertz), that does not

    sound safe to me. Engineers cannot be that

    stupid can they? Although one of the Apollo

    missions did use a pure oxygen atmosphere in

    their space capsule, and blew up on the launch

    pad. So, engineers can make mistakes... If you

    let 2 wavelengths stand for a '1' and 1 wavelength

    stand for a '0', then theoretically speaking,

    300 mHz should be both necessary and sufficient

    to achieve a transfer of data equal to 150 megabits

    per second, I think... And no, I do not have a degree

    in electrical engineering... Only guessing as to

    how this stuff might work.

  • Report this Comment On February 09, 2012, at 6:22 PM, soundblaster16 wrote:

    I think smartphones (4G) and cellphones (3G)

    communicate with cellular networks using

    the same frequency, or small range of frequencies,

    and I do not think they are in the microwave range.

    I think whether you use a Clearwire LTE service

    or a Clearwire WiMax service or a Verizon LTE

    service, your smartphone will be communicating

    with cell towers (the towers communicate with

    each other using various frequencies - microwave

    or UHF), on the same frequency.

    LTE and WiMax are hardware encryption schemes,

    I think.

    I say that because using microwaves to send

    a signal a fair distance away (the uplink) is

    dangerous when you consider the energy that

    was required to get that signal from the cell

    tower to your phone...

    If a business is interested in "profit maximization"

    then that business is going to be concerned

    with the welfare of their consumers, for that business

    desires "repeat business opportunities".

    But what if the government, or the business

    management was interested in population

    control rather than "making money"?

    What might "they" do with the respect to the

    provision of cell phones or cigarettes?

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