Clearwire (NASDAQ: CLWR) reported substantial subscriber growth at 1.23 million during the 3rd Qtr of 2010 while looking at operating losses of $540 million during the same period which signals short-term trouble. It is reasonable to believe that growth has been at the expense of capital preservation for operations.
CEO, Bill Morrow is signaling a need to restructure operations while seeking additional capital with the following statement:
“While we continue to exceed our subscriber and operational goals, we have not yet secured future funding and prudence dictates that we take appropriate cash conservation steps to reduce costs. We continue to pursue all options for future funding including debt, equity or a potential sale of excess spectrum or other assets, and we remain cautiously optimistic that we will resolve our short-term funding needs in the near future. We continue to believe that our unmatched spectrum portfolio and our all-IP based network will keep us extremely well positioned in the dynamic and burgeoning market for mobile data.”
Those steps eluded to by Bill Morrow include a reduction of its workforce by 15%, a cut back in sales and marketing spending, sale of existing spectrum and a delay in projected WiMax launches. Clearwire has bet on its new 4G Network to not only increase sales but bring in substantial revenues at the same time. But are customers ready for 4G in those markets with a still lagging economy, and stiff competition in price? (See Clearwire Adds 1.23 Million New Subscribers: Though company cash concerns are beginning to escalate)
I am surprised that both senior management and the board of Clearwire do not seem to be taking a measured growth scenario into account when developing a viable operational forecast. Sales are great if the company can absorb the cost of growth, and at the same time, generate superior customer service while funding those operations through existing revenues.
Now, it seems the company is in a tight squeeze to produce capital to fund operations. Other companies have absorbed losses on the front end for substantial periods of time while building their infrastructures, including Google, but have on-hand financing and ready capital to continue on that pace. This is seemingly a long-term financing and forecast strategy miscalculation which raises questions about current management’s ability to guide Clearwire into the future.
While the 4G Network, (4th Generation of Wireless Communications) being deployed by Clearwire offers a higher quality of service, is geared toward better reception and less lost data, while prioritizing information exchanges, it is not the standard in industry technology. 3G Networks took 10 years to deploy, but the bet has been that 4G would take much less time. Evidently, this has not been the case with Clearwire’s vision which is currently using the more unpopular WiMax spectrum, even though it could transition to TD-LTE without extreme related costs. See (Intel’s WiMAX Office Closure Could Open Doors for TD-LTE)
Investors and Strategy
Sprint owns 54% of Clearwire and may be in a position to reel in the free spending that has now morphed into a virtual money-pit, and could involve a possible take-over. Other investors include Intel Capital, Comcast, Google, Time Warner Cable, and Bright House Networks which are all sources of additional capital funding. It seems that most, if not all, of Clearwire investors have been on board with the current business strategy, and if so, should be at the table to hand out additional cash and provide a more stable direction.
Clearly Clearwire and its investors have bet on the future of the 4G Network. Since market trending is not keeping pace with existing growth plans, then plans should include a cut back on that growth until sales and operations coincide; a cut back on operations and sale of existing spectrum, as it seems Clearwire is willing to do; or change technologies to the current standard and look at a 4G upgrade in the future.
These are all tough decisions that Clearwire management will have to make, sooner rather than later.
Clearwire stock closed at $6.93 per share on Friday down from a 52-week high of $8.83. See (Clearwire Investor Relations – Stock Information)