No Clear Path for Clearwire

Clearwire is undergoing a capital squeeze that may leave it unable to continue as an ongoing business.  The issues that face the company are clearly set out in its most current SEC 10Q report (dated 11/4/10), which contains this passage:

Liquidity Issues

We are at an early stage of implementing our business strategy. Since formation, we have invested significantly in our business and experienced substantial losses from operations and negative cash flows. During the first nine months of fiscal 2010, we incurred $1.55 billion of net losses. We utilized $840.8 million of cash in operating activities and spent $1.96 billion for capital expenditures in the development of our network. We do not expect our operations to generate positive cash flows during the next twelve months.

As of September 30, 2010, we had available cash and short−term investments of approximately $1.38 billion. Based on our current projections, we do not expect our available cash and short−term investments to be sufficient to cover our estimated liquidity needs for the next twelve months. Without additional financing sources, we forecast that our cash and short−term investments would be depleted as early as the middle of 2011. Thus, we will be required to raise additional capital in the near−term in order to continue operations. Further, we also need to raise substantial additional capital over the long−term to fully implement our business plans.

We are actively pursuing various initiatives aimed at resolving our need for additional capital. We are in discussions with a number of our major shareholders and other third parties about a number of options, including  potential strategic transactions, additional debt or equity financings and/or asset sales. A special committee of our Board of Directors has  been formed to explore strategic alternatives, including transactions that may involve a sale or other realignment of the ownership and governance of our company.  Additionally, at the same time, we are holding discussions with various parties with respect to securing additional  financing. Any financing transaction would likely include selling additional equity or debt securities issued by us or our domestic or international subsidiaries. Any additional debt financing would increase our future financial commitments, while any additional equity financing would be dilutive to our stockholders. Our ability to raise sufficient additional capital in the near and long−term on acceptable terms, or at all, remains uncertain. Lastly, we believe that the fair market value of our spectrum portfolio exceeds our outstanding liabilities and that a portion of our spectrum is not essential to our business. Thus, we have initiated a process whereby we are seeking bids to potentially sell the excess  spectrum assets to raise additional funds to continue to operate.  However, the process is at an early stage, and there can be no assurance that we will be able to sell a sufficient
amount of spectrum on terms acceptable to us.

We are also actively pursuing a number of initiatives intended to reduce costs and conserve cash, including: suspending development activities for sites not required for our current build plan; delaying the launch of new end user devices such as Clear branded smartphones; substantially reducing sales and marketing spending; making reductions to discretionary capital projects; substantially reducing the number of contingent workers and reducing our employee numbers by approximately 15%. We currently have thousands of sites in various stages of planning and construction beyond our current build
plan, and we intend to suspend zoning and planning in a portion of those sites. These contemplated initiatives are intended to result in potential cost savings of between $100 million to $200 million in 2010 and again in the first half of 2011. However, we may not realize the full amount of savings we expect as a result of these initiatives. Even if these initiatives do result in the anticipated cost savings, we will still be required to obtain sufficient additional capital.

Our ability to continue to operate our business is substantially dependent on our ability to raise additional capital in the near term. As discussed above, we are actively pursuing a number of possible funding options, but there can be no assurance that these efforts will be successful. Our expected continued losses from operations and the uncertainty about our ability to obtain sufficient additional capital raise substantial doubt about our ability to continue as a going concern.

Clearwire’s next steps are outlined, but it is far from clear that this technology firm will continue in business, or continue as it currently exists.

The impact on Clearwire site landlords cannot be overstated.  If Clearwire goes into bankruptcy, site landlords without specific lease protections may find themselves out of rent, and out of luck for months or years, any may only collect a percentage of rent due, if any.

These are trying times for Clearwire; hopefully the firm will survive and provided needed competition in the wireless arena.

If you would like to read the entire 10Q report, you can do so by clicking here:  Clearwire Corporation’s SEC 10Q Report dated 11-04-2010 (PDF format).


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