The World Needs WIMAX - And WIMAX Needs Clearwire

Device and chip-makers, as well as net-based software and content providers, are drooling if not frothing at the mouth not only for seamless mobile internet connectivity at broadband speeds, but connectivity at commodified prices. In order to get seamless connectivity at commodified prices they need new competitors and probably the easiest way to do that is by aiding WIMAX. Other technologies don’t yet have the data transfer speeds at comparable costs.

Despite this, few are willing to place their money where their hopes lie. Some (like Google (GOOG) or Apple (AAPL)) would rather not support WIMAX because by doing this they would be declaring war on the mobile operators that they still need to play nice with to get into the mobile market.

Nevertheless, Clearwire (CLWR) can help to make seamless mobile internet connectivity at broadband speeds happen because of Intel (INTC) and Motorola (MOT). They backed Clearwire and will probably be the investors of last resort. Because of this, other device and chip-makers are building gadgets to run on WIMAX.

Sprint (S) has also been investing in WIMAX infrastructure but it is going through troubles in its core business and the resignation of their CEO makes it seem like they may be pulling back on WIMAX. I don’t think this will be the case, but whether Sprint keeps Xohm (their future WIMAX offering) or spins it off or sells it, Xohm needs Clearwire. This is because investors don’t have the stomach to spend billions to build out a country-wide WIMAX network on their own as well as one that will have to compete with another WIMAX network.

Soon enough, some mobile operators and/or fixed broadband providers will partner or bid to be able to combine WIMAX with their offerings.

Still, there are big risks. At a time when investors seem to be questioning whether Clearwire will survive, the company along with Intel and Motorola must keep investors confident enough to keep financing its WIMAX rollout.

If Clearwire succeeds, eventually competition from other technologies combined with interoperability of devices will hurt its margins, but that won’t happen until Clearwire’s shares have traded much higher than they are currently.

If Clearwire fails I think the downside is very limited. I would give a worst case scenario of a 50% loss from these levels but it’s much more likely that the floor has been reached.

Disclosure: Author has a long position in CLWR

Comments

[tb:]

exactly. i am long the stock also, so have just worn a 30%-40% loss, but no sweat, I'll just buy more. There is no other technology which will be able to provide blanket mobile connectivity, it will truly change the world. mobile operators could be screwed if someone was to start offering VoIP over WiMax...VoIP mobile phones are already available, its merely a case of making it simple for consumers to get working. Plus as you mention Intel are dead-set on this technology working...just imagine, the chip in your laptop will allow you broadband internet wherever you go in the world. Once this gets going properly it will truly snowball, one of these days when the crowd catches on, ClearWire stock could go parabolic.

2007 Nov 14 05:50 PM

[Rusty:]

Wow. Totally clueless analysis. Ever think that maybe, A) the business case doesn't work for wireless broadband without a mobile phone add-on, or, B) WiMAX is a poor technology choice for wireless broadband anyway because low signal areas will compromise the performance of all subscribers?

Whether it's from a business perspective or a technology perspective, Clearwire is in bad shape. And there's nothing that front page love poems in the Journal can do about it.

2007 Nov 14 06:34 PM

[Timothy Per...:]

Rusty,
WIMAX enabled mobile phones are being made. Can you expand on your second point? If what you say is true and performance in some area is slow, the company will obviously build out more because the demand is there.

2007 Nov 15 12:48 PM

[User 122942:]

there is always 3G or 3.5G.. I am seeing them deployed and offering at abt USd 25/- per month unlimited usage. The base station equipment are made in China. licences hv ben issued and yet, none are deployed by any carrier in this region. I am having a rethink as to the mass adoption of this technology. Perhaps it may work out but not at the Cellco level?

2007 Nov 15 07:10 AM

[Timothy Per...:]

I have never seen 3G or 3.5G at $25 per month for unlimited usage. If this is true, post a link.

2007 Nov 20 11:04 PM

[Donk:]

The world does not need WiMax. HSPA is already here, being rolled out by operators around the world, and is a superior technology to begin with. Unfortunately WiMax has such good marketing that even as a dead-before-its-born technology it still keeps reporters interested.

2007 Nov 17 08:28 PM

[Timothy Per...:]

So what makes it superior?

2007 Nov 20 11:05 PM

[Donk:]

The world does not need WiMax. HSPA is already here, being rolled out by operators around the world, and is a superior technology to begin with. Unfortunately WiMax has such good marketing that even as a dead-before-its-born technology it still keeps reporters interested.

2007 Nov 17 08:28 PM