Clearwire's Costly Connections

There's a great scene in the 1983 movie The Right Stuff in which astronauts Gordon Cooper (played by Dennis Quaid) and Gus Grissom (played by Fred Ward) explain the economics of the space race.

Cooper: "You boys know what makes this bird go up? Funding makes this bird go up."

Grissom: "He's right. No bucks, no Buck Rogers."

I mention this by way of introducing Clearwire's (Nasdaq: CLWR  ) second-quarter earnings results because, if ever there were a project that needs funding, it's the nationwide WiMAX network that Clearwire and Sprint Nextel (NYSE: S  ) have planned. A broad partnership that includes Intel (Nasdaq: INTC  ) , Google (Nasdaq: GOOG  ) , Comcast (Nasdaq: CMCSA  ) , and Time Warner Cable (NYSE: TWC  ) has committed more than $3 billion to the project.

So far, the effort is paying off. Clearwire added 48,000 subscribers during the first quarter and 18,000 more in Q2. Revenue increased by 65%.

The bad news? Acquiring subscribers is expensive: $404 per addition, to be precise. That figure was down from $471 per last year, but over the same period, gross margin slipped to 28% from 34%. Meanwhile, Clearwire's per-share net loss rose from $0.72 to $1.21, and cash and short-term investments are down from $943.8 million in December to $528.1 million today.

Motley Fool CAPS investors know it takes funding to be a WiMAX leader. But that, apparently, is exactly what makes them skeptical of Clearwire:

Metric	Clearwire
CAPS stars (5 max)	**
Total ratings	384
Bullish ratings	319
Percent bulls	83.1%
Bearish ratings	65
Percent bears	16.9%
Bullish pitches	76
Bearish pitches	14

Data current as of Aug. 8, 2008.

"While it's going to be hard to underperform the S&P over the next year, the massive amounts of debt and poor [earnings per share] will depress this stock's price," wrote CAPS investor Zikar last month. "I would get in after the restructuring of the debt!"

Agreed. Deep-pocketed members of the tech industry have a lot to lose if WiMAX, and thus Clearwire, fails. They won't let it; Clearwire is going to get all the funding it needs.

Get your clicks with related Foolishness:

• Clearwire was on the ropes in March.
• Here's why Rule Breakers recommendation Alvarion (Nasdaq: ALVR  ) could be the real WiMAX winner.
• Will an extreme makeover be enough for Clearwire?