Karen Mulvany

Google Phone May Be Data Only, VoIP Driven Device

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.

Google: The Not-So-Gentle Giant Steps into Mobile Apps

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.

Forget the Feds, Apple Is Doing Just Fine Wrecking the Wireless Business

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.

Clearwire's Popularity as a Short Is Growing

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.

Clearwire Q1: Revenues In Line, Losses Keep Piling Up

Note that Clearwire ended the quarter with $2.8 billion in cash and equivalents. Short term debt was not included in that figure.

Skype and Telecom Carrier Denial

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: Potential for Improvement

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.

Clearwire: The Highway for Mobile Internet Devices

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:

SanDisk: SSDs Gain a Toehold in Enterprise Storage

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.

SanDisk: SSDs Gain a Toehold in Enterprise Storage

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.

Cramer's Lightning Round - Taking a Shot at HSBC (3/17/09)

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.

Clearwire: Potential for Improvement

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

Q1 Earnings: Potential Winners and Losers

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.

17 True 'Bottom Rung' Companies

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.

Clearwire: Potential for Improvement

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.