Clearwire Drops After Disclosing `Going Concern' Risk

Clearwire Corp., the company building out a high-speed WiMax wireless network, fell in Nasdaq Stock Market trading after disclosing that it may not have enough funding to keep operating its business.

“Our expected continued losses from operations and the uncertainty about our ability to obtain sufficient additional capital raises substantial doubt about our ability to continue as a going concern,” Clearwire said yesterday in a filing.

Clearwire is cutting 15 percent of its workforce, reducing sales and marketing spending and delaying its Clear-branded smartphone as part of a plan to save between $100 million and $200 million this year. The Kirkland, Washington-based company has 4,200 employees, putting the cuts at about 630 jobs.

Clearwire fell 24 cents, or 3.3 percent, to $6.93 at 4 p.m. New York time. The stock has risen 2.5 percent this year. Sprint Nextel Corp., which owns 54 percent of the company, lost 10 cents, or 2.4 percent, to $3.99 on the New York Stock Exchange. The shares have gained 9 percent this year.

Clearwire said it may run out of cash as early as mid-2011. The plan should save $100 million to $200 million more in the first half, the unprofitable company said. That still won’t be enough to cover the shortfall, according to the filing.

Photographer: Daniel Acker/Bloomberg

Bill Morrow, chief executive officer of Clearwire Corp. Close

Bill Morrow, chief executive officer of Clearwire Corp.

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Photographer: Daniel Acker/Bloomberg

Bill Morrow, chief executive officer of Clearwire Corp.

The company isn’t disclosing how much money it will need, said Mike DiGioia, a spokesman.

Exploring Options

Clearwire said in the filing it formed a special committee of its board to explore strategic options, including a possible sale or other shift in ownership. Sprint said it doesn’t intend to sell its stake in the near future, according to the filing.

Sprint said in a separate filing there could be a “material adverse effect” from Clearwire’s financial situation, if Clearwire is considered to be its subsidiary and defaults. Sprint said it could take actions to ensure Clearwire isn’t considered a subsidiary, without giving specifics.

“We expect Clearwire to continue to generate significant net losses in the near term,” Sprint said. Cristi Allen, a Sprint spokeswoman, declined to comment beyond the filing.

Sprint may be forced to fund Clearwire to keep it from defaulting, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. He said Sprint may need to invest $1 billion to $2 billion in Clearwire in the next three to four years.

“They may have no choice but to be the financier of last resort,” said Moffett, who rates Sprint shares “underperform.”

Last Year’s Financing

Clearwire will consider selling debt, equity or assets, including a portion of its wireless spectrum that isn’t crucial to the business, Chief Executive Officer Bill Morrow said on a conference call. Clearwire also is talking to its major shareholders, the company said.

Clearwire is taking bids for its excess spectrum, though the process is at an early stage, Sprint disclosed in a filing. The company is seeking to raise $2.5 billion to $5 billion in the auction and has attracted interest from carriers including AT&T Inc. and Deutsche Telekom AG, people with direct knowledge of the plan said last month.

Clearwire got $1.56 billion from Sprint and other investors last year to help it expand its high-speed mobile Internet network to cover 120 million people.

The company may need to raise $1 billion next year and a total of $4 billion by 2014, according to Michael Nelson, an analyst at Mizuho Securities USA Inc. in New York who rates the shares a “buy.” That amount would let the company reach 270 million people with its network by 2018, he said.

Third-Quarter Loss

The third-quarter net loss widened to $139.4 million, or 58 cents a share, from $82.4 million, or 43 cents, a year earlier, while revenue more than doubled to $147 million, Clearwire said. Analysts had estimated $158.3 million in revenue, the average of 12 analysts in a Bloomberg survey.

Clearwire said it expects to have more than 4 million customers by the end of the year, an increase from 2.84 million at the end of the third quarter.

Clearwire reshaped itself into a WiMax company in 2008 with a $3.2 billion investment from Overland Park, Kansas-based Sprint, along with Intel Corp., Google Inc., Comcast Corp., Time Warner Cable Inc. and Brighthouse Networks.

The company was remade as service provider using the WiMax technology by wireless pioneer Craig McCaw, who sold his cellular-communications company for more than $11 billion to AT&T in 1994 and helped build Nextel, now part of Sprint.

McCaw, who still serves as Clearwire’s chairman, and his team cobbled together spectrum from schools and nonprofits, as well as contributions from Sprint, to create the network, which is advertised as four times faster than the so-called 3G networks used by the largest U.S. wireless carriers.

Inferior Technology?

The technology is being threatened as carriers including Verizon Wireless, the biggest U.S. mobile-phone operator, prepare to roll out fourth-generation services. Verizon will begin selling 4G on rival long-term evolution technology later this year.

Clearwire’s product may have trouble competing for technology reasons, Moffett said. The type of spectrum it has does a poor job of penetrating buildings and windows, so it needs to have a denser network buildout, he said.

“In order to have a viable product they would have to have a very, very dense network, and in order to have a very dense network they would have to spend an enormous amount of capital,” he said. “That may be technically possible, but it may not be financially feasible.”

Some of Clearwire’s partners, including Sprint, sell the wireless service under their own brand names. This year, Sprint introduced a smartphone, the Evo, which uses the high-speed technology.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net;

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net

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