At one point yesterday, Clearwire's (
) stock shot up by about 20% on the news that it will collaborate
with China Mobile (
), the world's largest telecom player in terms of number of
subscribers, to accelerate the development of TD-LTE devices.
The stock ended the day up 7%. Clearwire is a leading provider
of 4G wireless broadband services in the U.S. while Sprint (
) has a 54% non-controlling stake in Clearwire and also
utilizes Clearwire's 4G wireless broadband network for
offering high speed broadband connection to its customers. As a
result these stocks generally have a high correlation, which is
something we discussed in our earlier note
Why Sprint is Getting Creamed
How does this affect Sprint?
Historically, Sprint's stock has been volatile compared to
wireless competitors AT&T (
) and Verizon (
). Interestingly the stock price did not show any sharp movement,
and in fact closed 1% lower in yesterday's session. So why was
there no positive movement yesterday given the historical
correlation to Clearwire's stock?
Primarily because this news does not directly affect Sprint as
it just entails Clearwire finding a new, global 4G partner.
However we do believe that it will ultimately be a positive for
Sprint should it come to fruition. The reasoning is twofold:
firstly, this new project and partnership could pave the way for
Clearwire implementing domestic LTE earlier than expected.
Secondly, the new partnership could reduce the amount of additional
funding the company will need from Sprint. A more rapid path to LTE
and a reduced investment in Clearwire would both clearly benefit
Sprint has scheduled a "strategy update" event for October 7th,
at which we expect the company to announce the release date of the
Sprint iPhone as well as discuss its 4G strategy in greater detail.
Our $4.75 price estimate for Sprint's stock
is about 30% above market price.
See our complete analysis for Sprint stock