Archive for March, 2010

Clear: Still Foggy, Then Stormy

It’s been quite awhile since I looked in on Clearwire (NASDAQ: CLWR), and their big bet on WiMax.  Frankly, not much has changed.  I believed back then—and do even now—that WiMax is a technology solution that’s somewhat overhyped.

Clearwire is still spending money.  Intel is still touting it.   So is Google.  Meanwhile, WiMax is enjoying adoption primarily in emerging markets that have little entrenched infrastructure.  In the U.S.?  Not so much.  The recent macroeconomic environment can’t have been good for CLWR, as it needs capital to maintain any lead it has on incumbent cellular providers.  Meanwhile, LTE is starting to come on board with the latter, and large-scale deployments are not far behind.

WiMax may find its niche—at least in the U.S. — as more of a backhaul technology for wireless clouds (LTE or WiFi) owned by the large incumbent wireless carriers than anything else.  We’ll see.

The efforts of Sprint (NYSE: S) and CLWR is all that’s kept WiMax afloat here.  It still looks a bit like Clearwire sold a self-serving bill of goods to Sprint, who has long been desperate for a magic bullet to solve its subscriber defection problems.

Here, you try it.  No way, I’m not gonna try it, you try it.  Hey, let’s give it to Mikey.  He won’t adopt WiMax, he hates everything.  Hey Mikey!  He likes it!

Check out the chart on the right, courtesy of Gridstone Research.

Since eloping with Sprint’s network business, Clearwire has managed revenue growth of 19% year-over-year, based on 2008 pro forma numbers and 2009 actuals.  However, in that same span costs have swollen by 27%.  As a result operating income has dropped by 29% (from a negative number, mind you).  Just the spectrum fees that Clearwire pays amount to 95% of its revenue.

Wait, let me guess.  They’re going to make it up on volume.

So besides shorting CLWR, is there any way to play this puppy?  As a matter of fact, there is.  No matter what happens between WiMax and the other competing technologies, cellular firms will need increasing capacity on their backhaul links.  The iPhone and Android have seen to that.  For some, fiber will come to the rescue.  For others, a wireless solution is the only one that makes sense to boost backhaul bandwidth.  (Holy alliteration, Batman!)

And the clear leader in wireless backhaul is one of my favorites, Ceragon Networks (NASDAQ: CRNT), who coincidently just announced a new solution at the CTIA conference on March 23rd.  Sure, competitor Dragonwave (NASDAQ: DRWI) has come on strong in the last year, but they’re still too strongly tied to Clearwire, who is responsible for the lion’s share of DRWI’s business.  Ceragon is more balanced, having a number of large customers–including last year’s addition of Hutchison 3.

In fact, despite the recent relative falloff in Dragonwave’s relative price, the pair trade of long CRNT and short DRWI may still have legs.

Either way, marrying Clearwire to Sprint is like a perfect storm.  A technology with limited utility serving as the foundation for a network with limited subscribers.

Disclosure: I hold no position, either long or short, in any stocks mentioned here. However, I do receive limited free service from Gridstone Research, in return for mentioning them when I use data from their site.

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March 23, 2010 at 11:20 am 1 comment

Art Fraud?

The band Pink Floyd won a court case in Britain yesterday over EMI.  The judge ruled their contract–written years ago–applied also to digital downloads.  This gives the band the ability to prevent the sale of individual songs on venues such as iTunes.

Many music artists claim that an album is designed as a single work that cannot be fully enjoyed in parts.  They must be appreciated as a whole.  According to the Wall Street Journal,

“This is an art debate, not a commerce debate,” said a band spokesman, who added that Pink Floyd plans to see to it that the albums are sold only as whole pieces.  He added: “The court has upheld our contractual rights that those tracks should not be unbundled.”

Sorry, but this is hogwash.

Don’t get me wrong.  I agree with the court’s decision.  Upholding Pink Floyd’s claims seems consistent with the intent of the original contract.  Nor do I disagree with the band’s rights to sell their wares as they see fit.  (Though I think it’s bad business, for reasons I’ll save for another time.)  I even think many albums are better appreciated in their entirety.

Nonetheless, this strikes me as being more about bands that have already made it big, now throwing their weight around.

I don’t recall Pink Floyd (or any one else) having such qualms about breaking up their albums when it came to marketing the music in the first place.  How far would they have gotten as a band, or as a business, if they didn’t allow individual tracks to be “unbundled” to be played on the radio?

Now maybe as a young, unsung music act, the band members agonized over such a decision.  Perhaps they felt they were betraying their principles by allowing their label to push individual tracks to radio stations.  Maybe they lost sleep for years, because their concert promoter convinced them to play live shows that weren’t performances of an entire album.


To its credit, Pink Floyd has led the way in doing these sorts of single-album concerts over the years.  But the fact remains that most bands have built their following, and their music sales, on the back of listeners appreciation of individual songs.  Having once “sold out” their artistic principles, it seems somehow disingenuous to get back on the high horse now that they are successful.

Not that they don’t have the right, mind you.  Obviously they needed to press their case in court to protect their legal rights.  Fine.  Let’s just not take it for something it isn’t, hmm?

Disclosure: I hold no position, either long or short, in any stocks mentioned here.

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March 12, 2010 at 4:22 pm Leave a comment

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