How Low Can Clearwire Go?

Shares of Clearwire (Nasdaq: CLWR  ) hit a 52-week low recently. Let's look at how it got here and whether dark clouds are ahead.

How it got here
The past several years have not been kind to Clearwire, with shares down nearly 93% over the past five years. The company made a big first mover bet on WiMAX as the 4G standard of choice, but unfortunately LTE ended up winning as the de facto standard for the domestic wireless industry.

Longtime partner Sprint Nextel (NYSE: S  ) had been making eyes with LTE upstart LightSquared, but conflicts with GPS systems proved to be too much to swallow and the Federal Communications Commission wouldn't sign off. Sprint cut ties with the smaller company and went back to its old flame Clearwire, and LightSquared has just filed for bankruptcy this week.

Larger rivals AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) already have their own respective LTE deployments proceeding as we speak, while Clearwire and Sprint are scrambling to catch up after all but abandoning WiMAX.

Clearwire reported first-quarter earnings last month to investor cheers, but the glow was short-lived, as shares have traded to new lows. Included in the income statement for the quarter were $80.4 million in abandonment losses, which are related to "any projects that are not required to deploy LTE technology." That's less than the $171.9 million in abandonment losses a year ago, but the failed WiMAX bet continues to be painful.

The company is also saddled with $4.2 billion in long-term debt to fund its network expansion, adding more pressure to its turnaround.

How it stacks up
Let's see how Clearwire stacks up with some of its peers.

CLWR Chart

CLWR data by YCharts

We'll add some fundamental metrics for more insight.

Company

P/E (TTM)

Sales growth (MRQ)

Debt/Equity (MRQ)

ROE (TTM)

Clearwire NM 36.2% 4.2 (62.4%)
Sprint NM 5.1% 2.1 (26.8%)
AT&T 48.5 1.8% 0.6 3.8%
Verizon 44.2 4.6% 1.3 7.0%
CenturyLink (NYSE: CTL  ) 41.2 171.8% 1.0 3.7%

Source: Reuters, Morningstar. TTM = trailing 12 months. MRQ = most recent quarter. NM = not meaningful.

Clearwire and Sprint both carry much more debt than AT&T and Verizon, in addition to their respective net losses. Local provider CenturyLink recently acquired Qwest and Savvis, which is largely why its revenue jumped so much.

What's next?
Clearwire needs a lot to go in its favor for this turnaround to work. The renegotiated deal with Sprint is a step in the right direction, even as that carrier has troubles of its own.

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Fool contributor Evan Niu owns shares of AT&T and Verizon Communications, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On May 15, 2012, at 2:25 PM, spokanimal wrote:

    Regarding your phrase: "after all but abandoning WiMAX"... you're relying too much on words from last fall instead of actions from 2012.

    Obama's declaration that "the gulf of mexico drilling ban is hearby lifted" 3 weeks before the 2010 mid-term elections was followed, after the elections, by his refusal to issue any drilling permts.

    Similarly, Sprint's statements about phasing out WiMax last fall have been met by WiMax's emergence as the discount, 4G service of choice.

    As FreedomPop and NetZero signed on as new, WiMax wholesale customers, Sprint itself has launched unlimited, WiMax plans on it's Boost and Virgin subsidiaries. Even before the launch of all of those new, WiMax service options, Clearwire was still able to add almost 600 thousand net-new WiMax subs in the first Quarter.

    Now, as sprint looks at 3G, I-phone subsidies that make new I-phone subscribers practically profitless, sprint's fixed-rate, all-you-can-eat WiMax access makes new subscriptions highly profitable on that platform... and truly unlimited at no extra cost to sprint.

    If you're a profitless, cash-poor company like sprint, what are you going to do?

    Meanwhile, as Clearwire pushes it's subscriber count towards 11 million, the level of dependency that that places on it's network... never mind the absence of additional revenues from sprint's fixed-rate contract... means that clearwire will be in a solid position for bargaining on future contracts in 2013... on both it's new TD-LTE network running on multiple, fat, 20x20 channels... AND it's bargain-basement, WiMax network that's proving it's resiliency thus far in 2012.

    Spokanimal

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