Karen Mulvany

Karen Mulvany
Contributor since: 2009
Resellers compete with their suppliers, and their business plans are throttled by the excess capacity of their suppliers.
Google is too big a player to roll out plain old wireless service at a national level using the reseller model. There is not enough sustainable excess capacity.
Google may be experimenting, goosing the wireless market to lower data rates, or planning a value added cloud based service layered on top of plain old wireless service. The implications are quite different.
If you're a reseller, your supplier is your competitor. Reseller business plans are inherently throttled by the capex decisions of their suppliers.
This would be a smart business plan for Google if they were planning a differentiated service, as opposed to a me-too reseller. I can imagine a variety of cloud based value added services married to plain old cellular service. The conclusion would then be different.
Actually, it's CLWR that has now indicated that LTE may be in its roadmap. If Sprint's mentioning it too, that's because Clearwire IS Sprint's 4G network.
So will things change after T and VZ launch 4G services? Yes. Customer acquisition may get more expensive for CLWR. But then again it might not. Oddly enough, when the big kahunas ultimately enter a next-gen market, sometimes it makes it easier for the newer entrants to compete, because then the market is validated and new entrants get to compete on actual metrics rather than incumbent FUD.
What are incumbents going to be able to offer that will be superior to CLWR offerings? Not more bandwidth, that's for sure. And probably not lower pricing either.
Both AT&T and Verizon are already talking about the need to migrate to metered pricing for mobile broadband -- and that means higher pricing. It's a necessity for incumbents because data is a lower margin business than their legacy voice businesses, which are now on the decline, and to compensate, data will have to make up the difference. Newer entrants that aren't saddled with a declining legacy voice business are advantaged IMO.
A concern might be that incumbents could enticingly bundle circuit switched voice with mobile broadband. But A) CLWR can do that too, with Sprint, and B) voice over mobile broadband (otherwise known as voice over IP, or VOIP) is one heck of a lot cheaper than legacy wireless voice.
Having said all that, I think that competive fears are usually overblown in the early stages of new technology adoption. 4G mobile broadband is going to be a rising tide that lifts all boats, and IMO the challenge will be to service demand (i.e. supply). Both AT&T and Verizon have stated publicly that there's not enough spectrum allocated in the industry to satisfy surging mobile broadband demand. Look at the growth of data usage in wired networks; mobile data will serve those applications plus more. 4G mobile broadband is a last mile technology with few barriers to adoption of new applications. The ecosystem is exploding. We're only beginning to scratch the surface of the productivity enhancing value of 4G.
Thanks. Interesting questions.
While Morrow noted that Harbinger's network plans esentially validated the CLWR opportunity, he also questioned the quality of their spectrum and whether the company had everything necessary to execute.
I don't know the Harbinger folks and can't say whether they really intend to go for the brass ring or whether they would be better off just laying out a credible story and selling sometime soon.
It would seem obvious to combine the Harbinger network with Clearwire and leverage CLWR expertise across more spectrum. But there are impediments to an M&A transaction since CLWR can't use existing cash (which is needed for its own network expansion) and can't issue stock without diluting Sprint's position (which would endanger Sprint's ability to consolidate results in the future). Would Sprint buy the Harbinger network and operate them independently of CLWR? Possibly, but it sounds expensive, and without the ability to leverage the CLWR team, messy and inefficient.
There may be ways to work around these issues if the willpower is there. But the need for additional spectrum is more acute at other players. AT&T and Verizon may be off the table due to the agreement with the FCC to limit their usage of the Harbinger network to 25% or less, but others remain.
The risk that a competitive entity might purchase the Harbinger network would make it too risky (IMO) for S/CLWR to cooperate in network expansion plans without securing control. All the legal agreements in the world don't substitute well if economic inducement goes away.
Belated answer to David's question:
Honestly, I'm not sure whether companies would prefer links to their own blogsites over direct inclusion on Seeking Alpha pages. Clearly links to their own sites would allow companies to retain full control -- which their GCs would be more likely to endorse. On the other hand, as an investor, I would much prefer to stay on the Seeking Alpha site and see company content embedded directly. Much of the benefit of aggregating company blogs on Seeking Alpha would be lost by merely including links -- it's too hard to scan.
To follow up on Alan von Altendorf's position that companies should abide by the same requirements as other contributors, the problem is that other contributors are not subject to litigation for what they write. Without control companies will not be able to participate. Period.
If the q&a's were posted by people who used their real names and also disclosed their own short and long positions on all stocks mentioned by them and in the article, perhaps companies would be willing to let all posted q&a's stand. But if any anonymous short seller can post a "when did you stop beating your wife" type question that's basically entrapment, the format will be seen as problematic, and to my mind, rightfully so. Sure, some companies will nix tough questions that they don't want to answer. But how is that worse than having no information from them at all?
Lastly, I agree with Keith Shaefer's comments. Almost everybody who posts on Seeking Alpha is biased, or else they wouldn't bother to post. That's a given. It's ensuring that readers know where the bias lies that's important.
Personally, I think it would be tremendously useful to see company sponsored articles on Seeking Alpha. Sure, your readers want to know what investors think about stocks. But - indisputably - they want to know what companies have to say too. While your concerns about reader confusion with contributor opinions are understandable, you can easily set up your site so that it's clear what content is coming from companies and what content is coming from commentators.
Having worked as a sell side analyst, an IR consultant and as an officer of a public company, I believe that a company IR blog area within Seeking Alpha would indeed be tremendously useful for both companies and investors. From time to time companies may need a forum that is more informal than a press release yet meets the test as a media outlet for Reg FD requirements. Some companies such as GE have IR blogs on their own websites but these need to be aggregated to be useful and noticeable to investors.
However, Seeking Alpha would need to make some changes:
1. Seeking Alpha should differentiate company input in the same way you differentiate transcripts from other articles, so that it is set apart from other commentary both to indicate that the content adheres to different guidelines and to make it easy for investors to locate.
2. Seeking Alpha, as others have mentioned, will need to create a new set of rules for company sponsored content. For example, company officials will not be willing to disclose their investment positions in any other companies mentioned in their commentary. Also, for obvious legal reasons, Seeking Alpha's right to modify titles or content would not be viable for company sponsored input. I suspect that companies will need to retain the right to modify or delete their internally generated content at any time for legal reasons as well. Seeking Alpha will need to establish which individuals at a given public company are authorized to provide IR commentary, and ensure that you have secure authentication procedures in place so that Seeking Alpha does not inadventantly publish fraudulent information from some short seller posing as a company officer.
3. I like the Q&A idea too but companies will probably want to review the Qs and select the ones they answer (for example, "when did you stop beating your wife" type questions won't make the cut.)
Brilliant title. A great summary of how conflicted incumbent wireless carreirs are and why femtocells are ultimately going to be subsidized by them.
Maybe this device will be WiFi only, similar to the iPOD Touch, and your source is referring to not to AT&T's cellular business, but to AT&T's WiFi hotspot business. (It would be odd for AT&T to be the chosen carrier for a data-only Google device, since AT&T's 3G network is the most congested, thanks to the iPhone.) Also, as I understand it, Google Voice isn't a VOIP solution -- yet. Google Voice phone calls are still fulfilled over ordinary telephone lines (the calls are just set up over the internet.) But with their recent acquisition of Gizmo5, Google will presumably be positoned to deliver this.
All part of Google's Everything, Everywhere as a Service for You for Free strategy. For that Google obtains critical user activity and location info which can be monetized in the existing search and emerging mobile advertising markets. This is just the beginning.
The evolution occuring in the wireless sector towards a broadband data-centric model was inevitable. To blame Apple for the demise of the historical voice-centric wireless business model misses the importance of underlying industry trends. Although Apple is a catalyst, the traditional voice-centric wireless business model has been positioned for disruption for years, with or without Apple, as consumers have been awaiting a combination of an appropriate platform and a fast enough wireless service to satisfy the latent and unmet demand for wireless data applications, VOIP among them. AT&T is getting hammered now because they are not providing enough wireless bandwidth for their customer base, which is necessary to success in the emerging wireless broadband world. There is, or will be, an affinity towards wireless carriers, but ultimately it will be towards those that can meet consumer demand for wireless bandwidth, not those that happen to have a short-term exclusive on a particular handset.
The technical impediments to making a given handset available for multiple carriers are the problem of the equipment providers to solve. Un-tethered (unsubsidized) handset pricing will be higher of course, but in all likihood carriers will offer lower cost un-tethered service packages in response with the ultimate cost to the consumer over time no higher, and probably less. Semiconductor companies serving the wireless industry forsee handsets that will serve multiple frequencies and technologies. It seems unlikely that handset manufacturers would not welcome the opportunity to expand their total available market to address multiple carriers.
Decades ago when AT&T was a monopoly, the company was required to open up the CPE market to competition to eliminate the tethering of telephones to service. The factors underlying the current political and regualtory inquiries are much the same. Consumers clearly want choice, both of handsets and service providers. Congress and the FCC are under pressure to give it to them, regardless of near-term technical impediments.
Some of the data provided by public databases on closely held ownership is a bit confused, probably because the total shares outstanding include both A shares and B shares (held by strategic investors). Check out Clearwire's most recent proxy statement (p.17) for clarity: as of Feb 28, Sprint alone owned 51% of the outstanding vote and other long term investors owned 39% of the vote, including Intel (13.2%), Comcast (8.5%), Eagle River (controlled by Craig McCaw 5%), Google (4.1%), Time Warner Cable (4.5%), Motorola (2.3%) and Bell Canada (1.8%). That leaves only 10% of the outstanding shares for float. Consequently the short interest at 1% of the outstanding shares amounts to 10% of the float.
Note that Clearwire ended the quarter with $2.8 billion in cash and equivalents. Short term debt was not included in that figure.
Actually, I'd disagree. Skype is an application, not a bandwidth provider like Verizon, Sprint or T-Mobile. Joel is right: attempting to thwart VOIP is an unwinnable fight, just as AT&T's attempts (in its prior incarnation) in the 1970s and 1980's to thwart long distance competition and competitive CPE were unwinnable fights. The government -- meaning the FCC and the DOJ -- will advocate for the consumer & competition every time.
After decades of predictions calling for the commoditization of voice, this is only now starting to occur. Traditional voice services are vulnerable to disruption due not only to VOIP availability on high speed internet but also to Google Voice which will disaggregate value-added voice services from plain old telephone service.
On Apr 07 12:43 PM Et tu, Brute! wrote:
> Jim Cicconi, AT&T's top public policy executive, says:
>
> "Skype is a competitor, just like Verizon (seekingalpha.com/symbo...)
> or Sprint (seekingalpha.com/symbol/s) or T-Mobile," he says,
> adding, Skype "has no obligation to market AT&T services. Why
> should the reverse be true?"
>
> ~~~~~~~~~~~~~~~~~~~~~~...
>
> What a whining company eBay and components are. The old adage comes
> to mind: Do as (what) I say, not as I DO.
Clearwire has not been cash flow positive as a company. That is because they are incurring expenses to expand the network. They have been cash flow positive on a market (think "city and surrounding area") basis for their first 25 pre-WiMax markets for several quarters, and more recently, all of their pre-WiMax markets as a whole. That analysis excludes the expenses/cash flow associated with new WiMax markets and other WiMax markets not yet in service. The point is, they know how to achieve positive cash flow in a given market over time.
The company is targeting coverage of up to 120 million POPs by the end of 2010, using existing capital. I don't know how much of that coverage is in the US with its population of 305 million but I'd assume most of it. But keep in mind that "nationwide" coverage will be achieved through a combination of Clearwire WiMax and Sprint or other 3G networks tapped by dual-band or multiband devices. WiMax doesn't need to be everywhere to achieve traction.
On Mar 24 11:59 AM Geddy wrote:
> Is it REALLY true that Clearwire has ever been cash flow positive?
> My understanding is that they haven't turned a profit yet in almost
> 6yrs of existence (yes, I believe everyone forgets they've had pre-WiMax/Expedience
> technology in markets for years now). With the economy currently
> in turmoil which affects borrowing & just over 3 billion in the
> bank to invest, I have a hard time believing they are even close
> to having enough cash to build out a significant nationwide market.
Daniel, you and I actually agree that Intel is not interested in WiMax for any other reason than to sell processor chips. For many years Intel has targeted "adjacencies" -- silicon that is adjacent to the core processor -- and their strategy has not been to make money on adjacencies, but to add value to the processor at little to zero cost to their customers. Over the years, Intel has deployed this strategy with various ethernet implementations and wireless as well, notably WiFi, which they single-handedly shoehorned into worldwide adoption. I believe it is Intel's long term strategy to offer WiMax connectivity at little to no cost with a processor purchase. Intel will certainly support other wireless technologies, but the cost to OEMs will be higher. Why? The alternative wireless approaches are burdened with proprietary IP (intellectual property) -- meaning some company is at least getting a royalty and jacking up the price of wireless connectivity. WiMax's lack of IP "overhead" was a core strategic reason for Intel's support.
This is the "trojan horse" element (in the classical sense, not the viral sense) of the Clearwire story. It's dramatically different from any existing phone-centric market today. Nobody would buy a mobile phone without wireless connectivity because it has no useful purpose without the service. This is not true of laptops. The trojan horse strategy is to sell the laptop on its own merits with connectivity thrown in for free. When you look at the traditional wireless players, growth is concentrated in the smartphone sector where the equipment subsidy cost per user is high, up to $375 per user in the case of the iPhone. This is why existing mobile service carriers must obtain a long-term contract to subsidize the cost of the phone. What will the marginal WiMax connectivity cost be? Ultimately, zero, or close to it.
Half of all mobile PCs in 2008 shipped with WiFi connectivity, and the adoption of WiFi has spilled over into the smartphone market. Most phones are multiband already, and the number of bands that each will support is expected to increase, not decrease, in the future. Intel's support for WiMax will, I believe, ensure that one of the supported bands will be WiMax. But even if you forget about the smartphone market, the market for connecting laptops and netbooks offers plenty of opportunity for Clearwire.
On Mar 20 05:25 AM Daniel Bizo wrote:
> Karen, thank you for pointing out some important facts, I am sorry
> for being too sloppy to make a quick background check of my mistaken
> knowledge.
>
> I am not trying to make it an LTE or WiMAX question, however, I fail
> to see how WiMAX remains important for the majority of its supporters,
> and I am thinking about Intel and Google particularly. Intel's core
> business is very clear: selling highly differentiated silicon estate,
> and that is microprocessors. The logic behind WiMAX has never been
> that it become a successful financial invetsment for Intel, or sell
> WiMAX chips. I was to stimulate demand for mobile computing devices,
> and for Intel's mobile processors through that. With WCDMA and CDMA2000
> networks flourishing around the world, and over 200 million with
> over 100% growth in 2008 YoY, and projected CAGR 30%+ through 2013.
>
>
> For Intel, there is really no strategic point in WiMAX any more.
> Mobile broadband is here anyway, without WiMAX. I expect Intel to
> cut back or completely seize investments in WiMAX, and might turn
> R&D to LTE. It's only politics and face saving now, and not business
> interests.
>
> The same goes for Google and other media companies, the difference
> is, that they have even less motivation for WiMAX, they only need
> decent mobile broadband services for highly personalized and location
> based contents and services.
>
> I am not suggesting risks. I am suggesting the majority of the opportunities
> for WiMAX are not there any more. They are passed and missed. I am
> suggesting that integrated communication packages are the future,
> and not standalone services. I highly doubt that with Sprint in the
> background, Clearwire will be allowed to offer multi-play service
> packages. I am suggesting economies of scale and opex efficiency
> is king.
>
> Of course, I may be mistaken, and Clearwire will become a huge financial
> success. I just don't see it coming.
>
> On Mar 16 10:45 AM Karen Mulvany wrote:
STEC makes Fiber Channel, SAS and SATA SSD controllers for the enterprise market, and they sell to the major storage array suppliers. Historically, the bottleneck in storage system performance particularly from an I/O per second (IOPS) perspective has been the disk drive itself, so STEC is enabling storage OEMs to eliminate this bottleneck inside of their arrays. At the moment most of the implementations appear to be drop-in replacements of legacy HDDs + some system level tweaking to maximize performance, with OEMs supporting replacement of drive shelves within their arrays -- partial HDD replacement to keep costs down -- and directing IOPS sensitive traffic to the SSDs. This is a natural first step, and STEC should be well positioned to ride the early wave of SSD enterprise adoption. For the long term, ideally the company would be working to move up the food chain & over time develop more subsystem level solutions for array OEMs based on SSD technology.
On Mar 15 09:52 PM User 375729 wrote:
> Any thoughts on STEC's SSD chip for the enterprise market? Zeus IOPS
> is on its way to being adopted by the 5 biggest SSD resellers by
> the end of q1. thanks for any input.
Thanks for commenting.
Even though the stock is up 24% from its 3/12 close, I'd strongly agree that this is a longer term story. In this market, I am looking for a five year play -- a game-changer technology that is a multi-year phenomenon - so, my commentary was not meant to target a short term trade as much as a longer term venture capital type opportunity.
So I'd agree that HDDs enjoy pricing and other advantages today. In the long term, though, growing consumer volumes for flash applications will drive SSD pricing down. Along the way, I'd expect OEM suppliers that incorporate SSDs into a subsystem or system solution will generate enterprise adoption -- similar to the pattern in HDDs. The qualification cycle for OEM adoption, followed by enterprise end user adoption, is a multi-year phenomenon. But long before the actual enterprise revenues start flowing, SSD suppliers will start reporting on design wins at the OEM level. Those design wins will move stocks. And if you miss the OEM design win phase of market adoption, you've missed the major upleg in the stock. So while I'd agree with you that on a revenue basis, it's early to be looking for meaningful SSD numbers, I think waiting for that to happen would risk missing much of the upside opportunity.
On Mar 13 12:45 PM jsam wrote:
> I'm impressed the author hasn't fallen for the hype about consumer
> adoption of SSD's.
> As for the enterprise market, it's the one last hope for this "technology
> of the future".
> There are still enormous hurdles to overcome technically; a lot of
> performance metrics (such as 'sustained write performance') were
> not even an issue for HDD, are suddenly a bottle neck for SSD. Some
> sort of hybrid solution can overcome these, but the complexity of
> that handshaking and the tradeoffs are not trivial.
> Bottom line-- if enterprise is willing to pay 5X the price for a
> not-quite-mature technology, it will take off. But in this economy,
> as enterprise is more risk averse. At best, this is a five-year play.
> Eli even said as much in his conference calls.
I went looking around theStreet.com for Cramer's rationale for selling Clearwire and could only find a "sell, sell, sell on this bounce." Other than that, there was a more dated Street.com article on Sprint which concluded that Sprint was looking into LTE, not for competitive information gathering purposes as the company stated, but because Sprint had a secret strategy to dump WiMax and deploy an LTE network. Sprint's inquiry into LTE specs was cited by theStreet.com author as the “nail in the coffin” for Clearwire. Perhaps the author thought that in merging its WiMax operations with the old Clearwire, Sprint was unloading its WiMax investment? In reality Sprint now owns 51% of the new Clearwire.
Of such stories buy opportunties are made.
Hi Zach, thanks for the follow up.
I'd agree that an improvement of only 50% from current CLWR stock prices would still be well below book value, and would render an equity transaction unattractive. What's nice is, that goes for strategic investors too.
If the company were to do a dilutive equity deal, strategic investors would be diluted too, and they own the vast majority of the company. This makes it likely that the company will work with its strategics to consider other financing options. The strategic investors are among the most cash-rich companies in the US. Google has about $16 billion and Intel has about $12 billion in cash & equivalents on their respective balance sheets, and there is more on the balance sheets of Comcast and Time Warner Cable.
Having deep pocket strategics who are shareholders too gives investors a measure of antidilution protection. This is not a guarantee, but the incentives and the cash resources are aligned in the right direction.
If there's any creative financing to be done -- maybe debt with warrants? -- it could well be a strategic deal.
On Mar 18 04:54 PM Zachary Scheidt wrote:
> You have a good point. I honestly think that the company should be
> able to raise the necessary cash - and likely on terms that would
> not be dilutive to stockholders who buy at these levels.
>
> Now if the stock trades up 50%, buyers could see their purchase diluted
> if the company decides to do an all equity offer. There are plenty
> of creative ways to go about financing growth, if the credit markets
> begin to operate more normally. It's definitely not a given, but
> I would expect the odds of capital being more liquid to be good over
> the next 18 months.
>
> Thanks for the comment!
> Zach
> zachstocks.com
For Intel, I think the real question is the guidance as opposed to the Q1 actuals -- whether management will guide for sequentially up Q2 revenues or down. Semis have been outperforming because the street is assuming the worst of the inventory contraction is going to occur in Q1 and that Q2 will deliver higher revenues. But if management punts on guidance, then investors will likely flee.
Given where we are in the cylce, the sequential comparisons will be of more interest than the year over year ones for the remainder of this year. It's sequential comparisons, ex seasonal factors, that will call the bottom.
Did you really intend to label Clearwire as a bankruptcy risk? The company has raised $3.2 billion in equity since their last 10-Q filing and only has $1.35 billion in long term debt. They have reported their December quarter to reflect the newly capitalized company but have not yet filed a 10-K. But, if you check their press release you will see that total cash & equivalents, net of debt, amounts to $1.75 billion.
Clearwire will certainly be unprofitable in 2009. That is by design, as they aggressively build out their broadband wireless network, which turns cash flow positive on a market-by-market basis over time. This is a well understood model executed in the past by cable TV and cellular companies decades ago, as well as by Clearwire itself in pre-WiMax markets to date.
The Q4 results reported on March 5 showed that the company had $3.1 billion in cash, equivalents and short term investments. This amounts to $4.47 per share. Book value -- all tangible -- was $10.80 per share. The book value of their spectrum alone was valued at $6.38 per share. So it's definitely a good idea to cover any short positions, as the stock at $3.80-$4.00, while up 50% from recent lows, is trading at a significant discount to any of these numbers.
The company has not yet filed their 10-K so many financial databases have not been updated to reflect the new financials -- the merger with Sprint's WiMax operations and the $3.2 billion investments from Google, Intel, Time Warner, Comcast and Brighthouse Networks. An information vaccuum of this magnitude is unusual and will not last much longer.
As for the need to raise capital, provided that Clearwire is able to demonstrate market positive cash flow within 18 months, as they were able to do with their pre-WiMax markets, this should put them in a strong position to raise capital. After all, the broadband wireless market, fueled by the explosion in mobile internet devices, is a no brainer from a growth opportunity perspective. The larger concern is the pricing of any additional capital raise, as opposed to its viability. But keep in mind that the strategic investors -- who have tens of billions in cash still on their collective balance sheets -- invested $3.2 billion in Clearwire at $17 a share in November of 2008, when the stock market was crashing all around them and the stock was trading at $7.
You do a great job summarizing market concerns about Clearwire. Let me see if I can address them.
1. First, Intel, Comcast and others -- including Google, Time Warner Cable, and Brighthouse - completed their investment in Clearwire at $17 a share in Dec 08 when the stock was trading at $7 a share (and the stock market was collapsing.) They quickly wrote off a large portion of their investment because GAAP (generally accepted accounting principles) require them to carry a strategic investment on their balance sheets at the lower of cost or market. So, the writedown does not reflect what the strategic investors actually think the company is worth; it reflects where the stock has traded down to. Clearly the strategic investors think the stock was worth a lot more than where it is trading today. Personally I find it remarkable that the deal held together in such extraordinarily turbulent times, and I view it as an indication of the strategic investor's confidence in the company.
2. The most recent round of strategic investment occured in December 2008 and Clearwire has not yet filed its 10-K for the year ending 12/08. So the public databases which rely on SEC filings for their numbers -- check out Yahoo Finance for an example -- have not yet been updated to reflect the capital structure of the new Clearwire, including the $3.2 billion cash infusion. Check the company's Q4 press release to see the reported numbers.
3. Clearwire's management change has been painted as a negative by some members of the press, but clearly Bill Morrow, the new CEO, has great credentials having been CEO Vodaphone's cellular buisnesses in the UK, Europe and Japan, as well as Pacific Gas and Electric. Surely a guy like this has some choices available to him, and he chose Clearwire. In my mind, I see this as another validation of the company's prospects from somebody who is industry savy and has surely done his homework. The former CEO is staying on, also a good sign. It's not bad news when a strong CEO is added to the team.
4. The amount of capital and revenue they need to get to cash flow breakeven is a function of the pace of network expansion (that they choose) and time. Over time (around 2 years), Clearwire has already demonstrated its ability to turn cash flow b/e in individual markets with a precursor service offering. What drags down profitability and cash flow for the company as a whole is the depreciation for the overall network, which in the early stages as they have more cities in the construction phase than they have in service, will be relatively high. Over time, as more of the construction phase cities turn into service phase cities, the depreciation charges will be covered by revenue and produce cash flow and profits. This is not bad, it's just how these business models work -- as anyone who was around for the original cellualr rollout will remember (yes, I'm that old).
5. No argument that the existing mobile wireless companies can afford to pay for the 4G rollout. So can Clearwire. It takes capital, not profits. Having been in my past both a sell side analyst and an investment banker that worked with cellular companies, I believe this company will have no problem raising additional capital next year, especially if the economy flatlines. By then Clearwire will have proven the economic model for initial WiMax markets and nobody will disagree that the mobile broadband services market is going to be a high growth story, regardless of the economic trendline. As for the pace of rollout, Clearwire is targeting coverage of up to 120 million people by the end of 2010, which is more aggressive than the LTE rollout (although, as you note, behind their original forecasts made a number of years ago).
6. Having said that, I believe the flaw in the LTE vs. WiMax debate is the presumption that one or the other will fail. History would suggest that mutliple technologies and service providers will succeed in large, growth markets, which the broadband market clearly is (as detailed above.) Clearwire's biggest advantages are 1) time to market 2) being a new entrant with pricing flexibility (no need to protect legacy revenue streams, especially in voice) 3) a laser focus on data with voice as a "piggyback" to the data stream 4) deep and broad spectrum and 5) the Intel sponsorship of WiMax which can deliver cheaper handsests and MIBs. But that's not to say LTE won't succeed -- of course it will. So will Clearwire. This is a huge market.
7. Lastly, on Sprint, I think they did a very clever thing. They offloaded their WiMax business which required a dedicated focus, took a majority interest in a new company which has the spectrum holdings and the management team to succeed, but structured their investment so that they don't have to consolidate the P&L for the time being. They can convert their stock to consolidate the P&L at a later date. All the other strategic investors except Google adopted the same approach.
In summary, you make a lot of good points about risks in the Clearwire rollout, and the stregth of the incumbent players who will be deploying LTE. But the risks relative to the rewards and the inherent value in the balance sheet remain extraordinarily compelling in my view.
On Mar 16 07:02 AM Daniel Bizo wrote:
> This article is puzzling. Karen, if Clearwire is on the path towards
> financial success, then tell me, why Intel, Google, Comcast wrote
> almost fully off the value of their investments in the company? I
> don't really understand what kind of strategic investments you are
> talking about which are not reflected already. It recieved the infusions
> years ago.
>
> Or why CLWR shook up the leadership recently? Or why they are telling
> they would need 2 billion more just to achive a cash neutral point?
> Or an order of magnitude bigger revenue for breaking even?
>
> The viability of the business model for Clearwire is so broken on
> many levels. Big mobile carriers are easily financing the massive
> upgrades of their existing networks from their current huge revenue
> streams, which CLWR doesn't have, so they can afford more aggressive
> roll outs while bearing any temporary operational losses associated
> whith the new or enhanced services.
>
> Carriers also have a huge advantage in scale of opex economics, more
> efficient capex through lower prices from their supplires, in marketing,
> like in reaching their customers, brand recognition, customer services.
>
>
> So, with that kind of handicap, Clearwire has to have some kind of
> advantage in order to be a reasonable effort. Finding market niches,
> having superior technology, or both.
>
> Since CLWR goes after the mass market, it is not a niche, it is a
> head to head battle. Nor does it have superior technology. Not any
> more. It tried to be a first mover with the advanced data-centric
> WiMAX, and started in 2004, when mobile broadband was still in its
> infancy, but we are in 2009 now, and the enhanced 3G networks are
> catching up, providing "goodn enough" services, so WiMAX is nothing
> "killer breakgthrough", while the pre-4G/Super3G LTE-rollouts are
> beginning next year, with evolved LTE, real 4G around 2012, which
> will make WiMAX completely pointless.
>
> WiMAX is a low-volume technology, having 2,7 million subscibers worldwide
> according to Maravedis, while LTE-precedessor networks have hundreds
> of millions data subscriptions. This makes WiMAX equipment offerings
> narrower, pricier, with less ongoing R&D. LTE is the natural
> evolution of 3G networks.
>
> CLWR should completely change direction and avoid engaging with other
> carriers, and find some real market niches, like providing broadband
> coverage in rural areas, with the possibility of using WiMAX only
> for backhaul, while using Wi-Fi or wire for access delivery. Oh,
> what Sprint did is offloading a "toxic" business and technology.
>
>
> To sum up, I don't see CLWR being in a strong position, or neccessarily
> in any competitive position by 2012.
Point taken -- you are absolutely right, the stock is down from where it was when I first recommended it. It's up today in a down market, but it could just as easily move down again. But I just bought more stock anyway.
Since there are few stocks that are working in this market other than inverse ETFs, I'm largely cash but have 15-20% exposure to what I'll call "disruptive" plays -- companies at the forefront of a technology change that delivers better & cheaper service or products. That's because I have more confidence in the growth of industries like broadband wireless than I have in the growth of world GDP over the next few years.
Of these disruptive plays, the stock that is the most protected by its underlying asset value is Clearwire. The stock is dirt cheap -- cheaper than dirt, because the assets are worth more than twice the stock price.
I also like the fact that Google, Intel, Comcast, Time Warner and Brighthouse put $3.2 billion in at $17 a share in November when the market was collapsing and the stock was trading at $7 a share.
And I also like the fact that since last spring insiders have not been able to buy stock because they've been in a a)merger and b)Q4 quiet period -- a lockup which I suspect will end very shortly.
This is a very, very thinly traded stock. It won't take much to make this stock move fast. On stocks like these, if you're not early, chances are that you'll miss the boat entirely. So yes, the stock is down from where I first recommended it. My recommendation: be greedy -- others are fearful!
On Mar 08 09:48 PM anarchist wrote:
> CLWR was finished at $3.98 which is the date of your last favorable
> article about CLWR, last Friday it finished at $2.82. I'm too lazy
> to figure the % of loss but it has to be significant. OK, I did calculate
> it and it is a loss of 29% and change-ouch! got any more recommendations
> I can short?
For cellular voice, at least in the next few years, I think that CLWR will partner with Sprint and cede that business to them, while CLWR looks to capture high speed data revenues. To that end the company is expecting dual mode devices that support both Sprint's 3G network and Clearwire's WiMax to come available later this year.
Ultimately, though, as 4G networks are deployed nationwide, broadband wireless will evolve to be a one-stop shopping solution for most personal communications requirements. That's the promise of the industry long term.
On Mar 08 12:54 PM pragmatic not autopilot wrote:
> Thanks for covering CLWR in professional depth. Did you look into
> the postential of VOIP over WIMAX to impact cell phone use?
Yes, "needing" capital is a relative term. Many worry about the lack of nationwide WiMax coverage (and hence the theoretical need for immediate huge expenditures) but dual-mode wireless which supports both WiMax and 3G via Sprint is how this market will take off -- just like it did in the early days of plain old voice wireless when nobody had nationwide coverage either. Furthermore for many non-business-traveler applications such as residential broadband, college campus connectivity, etc., the demand for broadband wireless will be geographically local and nationwide coverage will be of less importance. So there will not be a requirement to create nationwide WiMax coverage overnight in order for Clearwire to make its case.
What's important is that Clearwire does have the capital to deploy in a 1-2 dozen markets and prove to investors that its business model works -- i.e. achieving positive EBITDA in the early individual markets. That's what the $3.2 billion investment was structured to achieve. It is naive to expect companies to raise all the capital they will ever need before they demonstrate the business model case. Fortunately for Clearwire, by the time it has proven its case, financial markets are likely to be much improved.