Soleil analyst Michael Genovese is predicting "significant cuts back on cash capex in 2H10" from the Kirkland, Wash.-based operator in a research note issued early Thursday afternoon. Genovese is basing his prediction on reported results and modeling of the revenues of two of Clearwire's hardware suppliers, DragonWave Inc. (AIM/Toronto: DWI; Nasdaq: DRWI) and Ciena Corp. (NYSE: CIEN).
First up, microwave backhaul supplier Dragonwave reported results for the first quarter of fiscal 2011 yesterday with net income of 9.7 million compared with a net loss of $2.4 million in the first quarter of fiscal 2010. Digging into the results, Genovese writes that microwave backhaul sales to Clearwire fell quarter-on-quarter, a trend that is expected to continue:
- May quarter microwave backhaul sales to Clearwire came in down 29% Q-Q to $38 million. More importantly, DragonWire's Clearwire sales are forecast to drop 84% to only $6 million in the August quarter as the carrier significant[ly] cuts back on cash capex in 2H10.
Ciena, meanwhile, got a $30 million bump in Ethernet backhaul sales in the April quarter from Clearwire. Genovese reports that this was the main driver for 85 percent quarter-on-quarter growth at Ciena's Carrier Ethernet Solutions Division (CESD).
Clearwire's rumored capex crackdown, however, is likely to put Ciena sales at risk, Genovese writes:
- For the July quarter we are modeling Ciena organic revenues to increase 5.0%-7.5% to $210-$215 million. However, the rapidity at which Clearwire has frozen capex is a negative surprise in our view. We have been expecting about a $10 million decline in CESD sales Q-Q but now think the drop could be $20-$25 million. We believe DragonWave's comments on August guidance are likely correlated with Ciena's July quarter demand from Clearwire.
What is not yet clear is how the capex freeze that Genovese says is happening will actually affect Clearwire's 2010 rollout plans. The company has said that it wants to cover 120 million people by the end of this year with its mobile WiMax service, which is also used by Sprint Corp. (NYSE: S) and others.
On the face of it, the operator's commercial deployment continues apace, with 10 new markets launched last week. The next hurdle for Clearwire is launching in huge new markets like New York City, Los Angeles, and the Bay Area.
It is possible that Clearwire already has backhaul installed in these major markets. It certainly has WiMax base stations running at cell sites in NYC, as pre-launch signals have been spotted.
"You will be able to see our 4G signal in cities, including NYC, as we activate sites and test/tune the network," a company spokesman told LR Mobile last week. The company currently covers 51 million people in 44 cities in the US.(See Clearwire Coverage Tops 50 Million People.)
"That is definitely possible," Genovese says in response to our question about whether the backhaul is already built out. "I also think they bought a lot of equipment in the first half of the year so when the network is available and customers sign on they already have the equipment needed to add capacity."
— Dan Jones, Site Editor, Light Reading Mobile