WSJ article about Boeing's (possible) plans to enter satellite and communications stuff (sorry if already posted).
June 14, 1999
Boeing, in Strategic Shift, to Develop
Own Satellite Systems and Services
By JEFF COLE
Staff Reporter of THE WALL STREET JOURNAL
Boeing Co., in a strategic shift, will develop its own high-capacity satellite
systems and services, senior executives said.
The move by the Seattle-based maker of planes, rockets and satellites reverses
its earlier reluctance to be a service provider. Now, the aerospace company
expects to settle in the weeks ahead precisely how it will form strategic
partnerships to become a wholesaler of broadband, data and multimedia
services, as well as mobile telephone service, said Boeing President Harry
Stonecipher.
Seeking a niche in the increasingly crowded field
of expensive satellite communications projects,
Boeing will target "high mobility" customers,
including airline passengers and airlines,
business-jet owners, and military-aircraft crews
and operators, as well as globe-trotting users of mobile telephones.
"We have the money in our plan to do what we want to do," Mr. Stonecipher
said in an interview. He added that the big maker of aerospace hardware has
been "frustrated by the slow progress" of the proposed Teledesic LLC system
in which Boeing is an investor and expects to be a contractor. "As far as I'm
concerned, we're late ... ," said Mr. Stonecipher. "We just need to get started."
Mr. Stonecipher and other executives declined to discuss details of Boeing's
emerging plan. However, Mr. Stonecipher and Jim Albaugh, president of
Boeing's space and communications unit, said they are aware of the risks of
entering the services realm and are taking pains to reduce them. Mr. Albaugh
said his teams have been developing hardware, performing demonstrations,
meeting with potential partners and examining a range of business cases.
Costly Campaign
The move -- which includes a goal of establishing a new Boeing-designed
satellite system or devising one with partners -- marks a major strategic leap in
Boeing's costly campaign to take the lead in fast-growing U.S. space and
satellite-communications industries. Boeing officials are talking up their interest
in expanding in space-related markets with investors, and at this week's Paris
Air Show.
The maneuver also involves risks that Boeing has been unwilling to absorb in
the past. The first developer of a costly new-generation satellite system,
mobile-phone provider Iridium LLC, has hit its own strategic snags and has
failed to attract enough customers to make its service broadly affordable so
far.
Boeing already is pouring billions of dollars into new satellite launch systems,
including a new Alabama factory to produce them, in a bid to overtake the lead
in providing that hardware in competition against U.S. rivals such as Lockheed
Martin Corp. and Europe's Arianespace SA, based in France. Some parts of
that initiative have shown early signs of success.
Mr. Albaugh said in an interview that Boeing's shift results from its increasing
eagerness to tap deeply into "the real growth" in the market. The aerospace
industry projects that communications via satellite will triple by the early part
of the next century, reaching $160 billion a year in revenue.
Internet Access
Many competitors have been drawn by those projections and the related
prospect of double-digit profit margins. Beyond Iridium, which is backed by
Motorola and others, companies such as Loral Space & Communications Ltd.,
Hughes Electronics Corp., Lockheed Martin and TRW Inc. have committed
more than $13 billion to projects that aim to provide services ranging from
go-anywhere mobile phones to broadband, two-way corporate data networks
and high-speed Internet access. Teledesic, backed Microsoft Chairman Bill
Gates and cellular-phone pioneer Craig McCaw, is aiming toward the latter few
markets.
Mr. Stonecipher said that while he feels Boeing is late to the market, the
company may also benefit from the experiences of earlier entrants. He also said
that Boeing's investment strategy will be unique and that Boeing doesn't need to
bear the risk alone.
One space-communications option being studied closely by Boeing is a possible
acquisition of the low-cost Ellipso mobile phone system proposed by closely
held Mobile Communications Holdings Inc. of Washington, D.C. Mr.
Stonecipher has been somewhat negative about that prospect, while Mr.
Albaugh says it remains a possibility under the right conditions.
Services for Executive Jets
The decision fits with broader initiatives outlined in recent years by Boeing
Chairman Phil Condit, who said he is particularly enthused about broadband
services for executive jets. Mr. Stonecipher says the move reflects the notion
that traditional lines of military and commercial aircraft manufacturing are
stable, but that they can't produce the rapid growth and high profit margins the
company seeks.
Most recently, Boeing Chief Financial Officer Deborah Hopkins has led a study
that indicates Boeing must invest in specific high-margin service lines across
its businesses, while it sheds factory space and businesses that don't warrant
further investment.
Separately, Boeing's updated commercial-jet market forecast, details of which
are scheduled to be released Monday, highlights some of the difficulties the
company faces in its core business. Alan Mulally, who heads Boeing's jetliner
operations, said over the weekend that the total value of airplane orders for the
industry this year could fall as much as 40% below 1998 levels. Mr. Mulally
expects overall orders in 2000 to stay basically flat versus 1999, though he said
he is "cautiously optimistic" the market will grow again in 2001.
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