All,
From bloomberg,
Iridium LLC (IRID): The company, which runs the first global
satellite-telephone network, has sold far fewer phones than
expected to the U.S. military, a customer that analysts expected
to be one of the struggling company's biggest. Iridium fell 5/8
to 5 3/8.
The U.S. military owns an Iridium ''gateway,'' which connects Iridium's satellites to public-telephone networks and is capable of handling 125,000 subscribers. Yet the military signed up only a few hundred users, J.P. Morgan analyst Marc Crossman said. He wasn't able to provide a specific count, though he said he expected the military to have 500 to 1,000 users by now.
The lack of military demand is another blow for Iridium and its biggest investor, Motorola Inc. Analysts hoped U.S. military sales would encourage other countries to adopt the system, which features a $3,000, brick-sized phone. The meager military sales represent just the latest difficulty for a debt-ridden company whose stock has dropped 91 percent in the past year. ''The military was supposed to be one of Iridium's cornerstone customers,'' said Crossman, who has a ''market underperform'' rating on its shares. '' I don't think they bought a gateway to only put a few hundred subscribers on it.''
Scant military sales is a ''microcosm'' of the problems facing Iridium, Crossman said. The Washington-based company doesn't have the money to pay off $800 million that it owes banks, and Motorola wants to see a revised business plan before adding to the $1.67 billion in financial guarantees that it already pledged to the company.
Shares of Iridium World Communications Ltd., the publicly traded vehicle of Iridium LLC, fell 5/8 to 5 3/8 after earlier touching 4 31/32, their lowest price since its initial public offering two years ago. They traded at a record high 72 3/16 in May 1998.
Y2K Concerns
Iridium declined to comment on the specific number of phones sold to the U.S. military. The company said the government is delaying purchases because it wants all products that it buys to be Year 2000 compliant, Iridium spokeswoman Michelle Lyle said. Iridium phones are now Y2K compliant.
Motorola, which also declined to comment on the exact number of phones sold, expects to have secure units for testing by the government by December, said Ron Taylor, vice president and general manager of Space Systems and Services Division with Motorola's Systems Solutions Group. ''We are very optimistic about the things in place with the government,'' Taylor said. ''We are looking forward to the U.S. government as a big user on the system.''
The United Nations and the governments of the United Kingdom and Australia also have shown interest in the phones, he said.
Arrangement
Iridium's telephones allow callers to place or take calls from practically any spot on earth though a constellation of 66 low earth-orbit satellites and conventional cellular-telephone networks.
Iridium had 10,294 subscribers at the end of the first quarter, far short of its estimates and target for the year of 500,000 to 600,000 users.
Iridium isn't yet providing secure phones for the military and Crossman doesn't expect the security level for at least a year. Iridium has said that it expects the secured phones to be ready by the third quarter, Crossman said.
Motorola announced in April that it won a three-year contract valued at potentially $219 million from the U.S. Defense Information Systems Agency to supply Iridium phones, pagers, accessories and phone service to the military. Motorola Worldwide Information Network Services is Iridium's service provider for the military.
Indefinite Value
The type of contract that Motorola received is by no means definite. Instead, it gives the government the ability to buy as much as $219 million in services and phones over a three-year period, with no obligation to do so.
The price of the phone service, which has ranged from $2 to $7 a minute, is another reason the government hasn't bought more phones, Crossman said. Iridium will announce its new pricing plan soon, which analysts expect will include price cuts for both the phones and the service. ''Many people believed that the government would not let the project fail since it needed it for secure military communications,'' Banc of America Securities analyst Armand Musey wrote in a research report. ''If there is little government use of the gateway, however, the military may not have found a compelling need for the service and could let it die.''
Brian H.
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