Clearwire’s Future Clouded with Financial Fears
Many analysts offered gloomy outlooks for Clearwire after the company disclosed that it has only enough liquidity to get through next year. Clearwire shares plunged as much as 16 percent Thursday after the company announced that it lost $139 million in Q3, versus $82.4 million a year earlier. That’s the company’s biggest intraday drop in a year. Shares rebounded later in the day and closed down 24 cents, 3.35 percent, at $6.93.
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Unresolved funding issues, complicated by a seemingly tense relationship with the majority shareholder, Sprint Nextel, are clearly bad news for Clearwire’s long-term strategy, growth and competitive position, said McAdams Wright Ragen analyst Sid Prakh. He cut his rating on the stock to hold from buy. Clearwire will consider selling debt, equity or assets, including some wireless spectrum that isn’t crucial to the business, CEO Bill Morrow said on a conference call late Thursday. Clearwire also is talking with its major shareholders, he said. The company can’t comment on how much funding it needs, a spokesman said.
Clearwire is also cutting 15 percent of its work force and reducing marketing spending, among other measures, to save $100 million to $200 million this year. RBC Capital analyst Jonathan Atkin cited three reasons for his downgrade of Clearwire: “Diminished 4G differentiation” as other carriers roll out competing services; heightened investor concerns about cash burn and the need for more funding; and slowing network expansion as the company conserves cash.
The company is expanding and the capital investments required at this stage of network construction are driving the financial performance, the Clearwire spokesman said. It added 1.23 million subscribers in the quarter, boosting the total to 2.84 million. The company expects to end the year with more than 4 million subscribers. It still expects its network to reach at least 120 million people by year-end.
A few analysts remained upbeat on Clearwire’s financing options. The company probably will raise additional capital, including most likely from Sprint, said Morgan Stanley analyst Simon Flannery. But the search for funding has taken longer than expected, he said. Clearwire’s actions also raise concerns for tower companies and Sprint, he said.
The company’s strong spectrum position is an advantage, said Pacific Crest’s Steve Clement. He said he believes that the company can get the funding it needs, but he doesn’t see any of the more likely outcomes as clearly favorable for Clearwire shareholders.