For clwr life has always been a race, but I'm not referring to LTE and WiMAX. Clearwire's race has always been against itself and itself. By that I mean the triple competition between how much cash it can raise, how fast it can spend that cash to build out the infrastructure, and how quickly subscribers sign on to use it. In yesterday's earnings release, we saw awesome subscriber growth, steady spending and building, but a faltering effort to raise money to keep it all going. And unless they fix that last part, the race will soon end - so they took some drastic actions to give themselves some breathing room.
Net subscribers grew by a very impressive 1.23M, of which some 1.1M came from wholesale partners. That gives them 2.84M in total, and they now expect to hit 4M by the end of the year. The buildout now covers some 100M people, including areas not yet commercially launched, and will hit 120M by the end of the year. But revenues necessarily lag spending, and this quarter's $147M remained pitiful alongside the company's expenses - EBITDA margins of -225% (shudder). They don't win until subscriber growth catches up, and they need cash to make that happen.
Since they haven't figured out the funding, the company decided that prudence require the wielding of a rather large axe. Or was it a broadsword or a scythe... Whatever, it was sharp:
- a 15% reduction in the number of employees,
- a substantial reduction in sales and marketing spending,
- a suspension of additional retail channel market launches of the CLEAR-branded operations in select markets including Denver and Miami,
- delays in the introduction of CLEAR-branded smartphones,
- a substantial reduction in the contractor workforce,
- discontinuation of development activities for sites not required for its current build plan.
- suspension of zoning and permitting in a portion of sites not required for its current build plan
Ouch, that 15% workforce reduction will hurt. They expect these actions to save $100-200M in 2010 and again in the first half of 2011. That will make a dent in their cash burn, but it won't cure it. The easiest way to bring back the good times will be for them to raise some money. Perhaps they will follow through with that possible spectrum sale after all.
How far behind is subscriber growth in the race? How many subscribers does Clearwire need to make its network at least come close to paying for itself sustainably? It's hard to separate their ongoing costs from buildout costs, so I can only guess. Looks to me like that number is in the range of 15-20M, something that is a few years off yet unless they continue to accelerate. Anybody have a better number? If they had sufficient funding, where would they break even?
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