Uncertain times for Clearwire investors

These are uncertain times for investors in Clearwire's stock-which is heavily influenced by the turmoil surrounding Sprint's WiMAX business.

On the one hand, investors are hearing that Sprint is considering several options for its Xohm business, including a merger with Clearwire--which could create a bigger company solely focused on WiMAX. (The company's stock was up on Friday, presumably on this assumption.) On the other, many analysts have downgraded the company's stock, fearing that Clearwire's current deal with Sprint, which involves the two companies pooling their resources to build out a nationwide WiMAX network and hasn't been consummated yet, could not materialize as planned. This could result in some significant changes in Clearwire's fundamentals. In particular, analysts at Bear Stearns fear that Sprint will slow down the business, which could result in a slower rollout for WiMAX in the U.S., poorer economies of scale for Clearwire and a less attractive proposition for consumer electronics companies to embed WiMAX. Bear Stearns downgraded the stock in early October from an outperform to a peer perform.

Pali Research's Walter Piecyk last week dumped more disappointment on Clearwire shareholders. It downgraded the operator's stock from neutral to sell, partly on the belief that the company's recently launched PC card isn't accelerating sales. Piecyk also believes Clearwire's WiMAX deployment could cost significantly more than first thought. He now estimates a cost of $35 to $40 per POP, which could result in more than $1 billion of capex in 2008.

All this comes as mobile WiMAX begins to enter the reality stage-that is the deployment of the technology likely won't match up with the intense hype that has been surrounding it for several months.

Unfortunately for investors, Clearwire's uncertain agreement with Sprint dictates the direction of the company. It might not be pretty if Sprint is slow to move and keeps Clearwire hanging. -Lynnette

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