Clearwire to buy Wimax gear from Cisco

Olga Kharif/BusinessWeek
19 May 2009

Clearwire has a knack for lining up powerful partners and patrons. The communications service provider has the backing of such tech titans as Comcast, Intel, and Google. Now Clearwire has a new ally: The company announced on May 13 that it would begin buying devices and equipment from Cisco Systems, the world\'s No. 1 maker of networking gear.

Financial results released the same day show why Clearwire needs friends in high-tech places. The company faces slowing subscriber growth, widening losses, and concerns over the pace at which it can enter new markets.

In the first quarter, Clearwire added 25,000 subscribers, just over half the number of new users signed up a year earlier as it shifted emphasis to a newer product mix. Clearwire, a leader in a technology known as Wimax, which delivers high-speed wireless Internet access, ended the period with 500,000 subscribers. Sales rose 21%, to $62.1 million, while its loss ballooned to $260.6 million, from $97.4 million. Shares tumbled 10.5%, to 5.09.

Co-founded by wireless pioneer Craig McCaw, Clearwire has an ambitious plan to introduce its service in 80 markets by the end of next year. But given how quickly it\'s burning through cash, the company may need to raise funding in addition to the $3.2 billion it recently secured from Comcast, Intel, and other investors. Clearwire is likely to spend $1.5 billion to $1.9 billion this year. It may need an infusion of $800 million in 2010, estimates Michael Nelson, an analyst at Nelson Alpha Research.

Can Cisco gear seed corporate demand‾

To gird for the challenges, Clearwire CEO Bill Morrow announced sweeping management changes. Chief Operating Officer Perry Satterlee stepped down, with the company not announcing a replacement. Morrow, who took over in March, brought in former Lenovo executive G. Michael Sievert as the company\'s new chief commercial officer. Before his stint at Lenovo, Sievert worked in marketing at software giant Microsoft and carrier AT&T. Clearwire also appointed a new chief information officer, Kevin Hart, and a new chief people officer, Laurent Bentitou, amid plans to expand staff by more than 50% this year.

Clearwire reserved the most fanfare for its Cisco announcement. Buying gear from the vendor could help Clearwire expand into the market for corporations and small businesses, says Clearwire Chief Strategy Officer Scott Richardson. Currently, Clearwire\'s offerings are mainly targeted at consumers.

Cisco\'s Linksys division, maker of Wi-Fi access points for the home, will provide Clearwire with a range of devices based on Wimax technology. The first will become available later this year. Cisco has been expanding its consumer device repertoire, recently acquiring Flip camcorder maker Pure Digital Technologies.

The companies didn\'t go into detail about their planned products or other terms of the arrangement. But Linksys could produce Wimax consumer electronics devices that wirelessly transmit movies, music, and data. Cisco gear could help carriers such as Clearwire beam movies wirelessly into homes via set-top boxes, says Godfrey Chua, a research manager at consultant IDC. Clearwire customers could use Cisco gear to send recorded footage directly from a camcorder to the Web.

Cisco could even use Wimax to test its own line of smartphones, says Susan Eustis, CEO of consultant WinterGreen Research.

Cisco eyes Wimax network business

Clearwire is already expanding its lineup of end-user gadgets, and expects Samsung to release Wimax-enabled laptops this summer.

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