Clearwire (CLWR) Should Drop Another 67%, Is 'Risky Investment' -Morgan Stanley

Clearwire (Nasdaq: CLWR) shares are trading in the red Tuesday as Morgan Stanley believes the stock may be worth only one-third its current valuation.

In a note to investors, Morgan Stanley made a case for the stock moving from the current $3 level to just $1. The firm believes Clearwire faces several problems including "the need to obtain further funding, a rapidly vanishing lead in the 4G race, and the potential of a Sprint (NYSE: S) iPhone."

Apple's (Nasdaq: AAPL) wildly-popular iPhone would run on a different Sprint network, 3G CDMA rather than the 4G WiMax format, which could cut into sales of other smartphones. Sprint is partial owner of Clearwire and its biggest source of revenue.

Morgan Stanley said both unproved ability to disrupt current technology and limited visibility into market expansion make Clearwire a "risky investment." The firm cut its net wholesale adds by 4 percent to just under 5 million for 2011, and slashed the 2012 number 31 percent to 2.9 million.

Clearwire recently eschewed trying to build out a WiMax 4G network in favor of the more popular LTE format. As a CNET article argued, the move makes sense as more investment is going into LTE, and carriers like Verizon (NYSE: VZ) and AT&T (NYSE: T) have already adopted the technology. One of the main problems is getting financing for the move, which Clearwire estimates could be north of $600 million.

CNET also said Clearwire derives wholesale revenue from smartphones sold to run on the 4G WiMax network, meaning more iPhone sales would pressure margins further.

Other items of interest to investors include recent word Sprint might seek a buyout of Clearwire. The rumor suggests Sprint may partner with internet and cable service providers like Comcast (Nasdaq: CMCSA) and Cablevision (NYSE: CVC) on any potential deal.

At the end of August, Clearwire was rumored to have tapped Blackstone (NYSE: BX) as an advisor in any potential restructuring move.

In June, Sprint announced a partnership with LightSquared to build and operate a new wireless network. LightSquared plans to build a 4G LTE network, and is aiming for coverage to 92 percent of the U.S. by 2015.

Clearwire shares are 3 percent lower during Tuesday's session.

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