LEH: 11/11/97 Research Report on GSTRF (page 2)
Globalstar is delaying the launch of its first satellites from December 4,
1997 to February 4, 1998, a two month postponement. The reason given is that
the satellite telemetry and tracking and control systems in California that
are the responsibility of SSL/Loral are not ready. These systems monitor the
launch and the satellites in orbit, and the Globalstar engineers felt they
needed another three to four weeks of testing. The delay is NOT due to the
satellites, the launch vehicles, or the ground segment hardware/software. We
spoke with CEO Bernard Schwartz this morning and he said Globalstar could have
launched within 30 days, however Boeing's launch queue allowed for February 4,
1998 at the earliest, as opposed to January.
The initiation of service, previously scheduled for late 1998, is also being
postponed until the first quarter of 1999. This is the key issue in terms of
the impact on value of the company. Bernard Schwartz indicated to us that
this could mean about $100 million of lost revenue in 1997 and perhaps one
month of lost revenue in 1998, at worst. He stated the company could possibly
make up some of the lost time on the back end. The delay has de minimus
impact on the cost to launch the service, so the only real financial concern
is the start point of the revenue vector.
Our calculations indicate that this delay has minimal impact on the valuation
of the company, as the back end of the DCF model is what really drives the
value. We have shifted the 200,000 net subscriber additions we had
anticipated being added in 1998 to 2002 and 2003. Because our forecast of |
