Wired. Iridium Reports Huge Loss
updated 4:45 p.m. 26.Apr.99.PDT
by Joanna Glasner
12:10 p.m. 26.Apr.99.PDT
Six months after launching the world's
first global satellite phone network,
Iridium LLC is falling deeper into the red
as it fails to come even close to meeting
sales targets.
On Monday, Iridium (IRID) reported that it
had a loss of US$505 million in the first
three months of the year. In the same
period, revenue was a scant $1.45 million.
More ominous, Iridium is down to just
$195.4 million in cash and cash
equivalents -- meaning that it might have
trouble paying the bills in coming quarters
unless it can quickly raise more cash.
The company blamed poor first-quarter
performance on several factors, including
a shortage of phones, distribution trouble,
and a lack of trained salespeople.
Executives tried to reassure investors
that next quarter will be better.
Last week, Iridium's CEO Edward Staiano
quit because of a "disagreement" with the
board of directors over strategy, the
company said.
"Clearly, we have a great deal of work to
do to improve our marketing, distribution,
and sales activities all over the world,"
said John A. Richardson, Iridium's interim
CEO.
Richardson said that the company plans
to ramp up sales efforts in places where
Iridium has already found customers and
to change its prices and service plans.
Currently, Iridium phones cost about
$3,000 each, which hasn't helped sales.
By the end of March, Iridium had only
7,188 satellite phone customers -- less
than a third of what it had forecast.
Another 2,078 customers signed up for
the company's satellite paging service
and 1,031 for cell-phone service.
Iridium said sales may perk up now that a
key manufacturer, Kyocera, is able to
supply satellite handsets. Kyocera and
Motorola are the main manufacturers of
Iridium phones, and that production
delays by Kyocera earlier this year hurt
Iridium's commercial rollout.
Leo Mondele, Iridium's vice president of
business development, hinted that the
company may cut phone prices, saying
that "in wireless, the evolution on the
product side is always downward in
price." Mondele didn't say when prices
might fall or by how much.
Iridium is also looking for a new head of
marketing, as well as a chief executive
and chief financial officer. The company's
prior CFO, Roy Grant, left the company
earlier this month.
The company's huge loss wasn't a big
surprise. Iridium had said in late March
that it had negotiated a two-month
reprieve to repay lenders. With phone
sales seriously lagging, Iridium said it
didn't have the cash to pay debts.
Nevertheless, just a few hours after
Monday's disastrous earnings
announcement, Iridium was hit with a
shareholder lawsuit. Filed by Wolf
Haldenstein Adler Freeman & Herz, the
suit accuses the company of defrauding
investors by withholding information
about handset production delays and
technical difficulties.
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