Clearwire: Strengths, Weaknesses, Opportunities, and Threats
There are many ways of analyzing a business. But perhaps one of the best ways to do so is by creating a SWOT analysis. This sheds light on the good and bad points of a business in terms of its strengths and weaknesses, which are mostly internal in nature, as well as its opportunities and threats, which are external in nature.
In an earlier article, I gave a wrap-up of what happened in 2011 for Clearwire (NAS: CLWR) along with what lies ahead. In this article, a SWOT analysis will help make things clearer for investors. So, let's take a brief look at the results for Clearwire.
- Clearwire possesses a huge amount of unused spectrum. Over the years, the company has gathered many licenses in the 2.5 Ghz spectrum throughout the country. And a good chunk of them are in large cities where it can roll out high-capacity networks.
- Revenue is growing consistently, thanks to the booming demand for its existing WiMAX services from smartphone users. The company posted record revenue of $332 million in the third quarter, and expects higher fourth-quarter revenue of $362 million.
- The company secured a bailout to the tune of $1.6 billion from Sprint, which it plans to use to roll out a new 4G TD-LTE network.
- Clearwire has been incurring losses since its inception due to the costs of maintaining and expanding its network.
- The company is sitting on $5 billion in debt and has added another $300 million at an exorbitant 14.75% coupon rate in January. So the $128 million interest it's already dishing out every quarter is set to increase.
- Clearwire currently uses old WiMAX technology, while competitors such as Verizon (NYS: VZ) and AT&T (NYS: T) already have the latest 4G LTE technology. This has resulted in Clearwire losing wholesale customers.
- Not only is a significant portion of Clearwire's 2.5 Ghz spectrum leased out, the higher frequency cannot penetrate obstacles easily and requires more cell sites to maintain a reasonable quality of service. Verizon's and AT&T's 700 Mhz spectrum does not have these issues.
- Clearwire can resell its spare spectrum capacity to other carriers, such as Verizon and AT&T, who face shortage of spectrum.
- Wholesaling is not only a high-volume business but also a cost-effective one. Clearwire's recent wholesale deals include companies such as Best Buy (NYS: BBY) , United Online, and Locus Communications.
- The 4G TD-LTE network that it's going to roll out would be more efficient than the FDD variant being used by competitors Verizon and AT&T. It would effectively give Clearwire the opportunity to add twice the number of subscribers that it would normally have.
- Building a 4G network is an expensive affair and could tell on Clearwire's already bad financial standing. On the other hand, its rivals are financially more capable, as well as profitable.
- If Clearwire's 4G network rollout begins to cost more than what was anticipated, it could stall the company's path toward profitability. Moreover, if its services receive fewer takers, the company could run into further losses.
The Foolish bottom line
While Clearwire has many underlying strengths, such as its huge stash of spectrum, it would have to address immediate problems such as customer attrition as well as other long-term issues. These include overcoming the inherent drawbacks of its high-frequency spectrum and securing funds for its future operations.
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At the time this article was published Keki Fatakia does not hold shares in any of the companies mentioned in this article.The Motley Fool owns shares of Best Buy. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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