**Unterberg comments on G*
(thanks to the yahoo thread)
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Services>GSTRF (Globalstar Telecommun.)
Unterberg Comments:
by: badhabit_99
11456 of 11457
FYI-
* Upgrading to Strong Buy on price weakness. Despite our own concerns, we
believe Globalstar's fair value remains near $29 per share. As we have
earlier published, we believe Globalstar will have to produce subscribers
in order to justify a higher valuation level than $29.
* Iridium (retail model) and ICO (no funding) raise clear concerns. ICO's
recent bankruptcy seems to have rattled the market's confidence. While we
agree there are reasons to be concerned, as there are with any new
opportunity, Globalstar's low fixed cost structure and large capacity still
offer GSTRF shareholders the potential of considerable returns.
* We think Globalstar's business will evolve at rates slower than presently
anticipated, taking longer than expected to hit milestones, but at the end
of day, we believe satellite telephony systems offer consumers sufficient
value to warrant their presence. Even under a slower development scenario,
the end opportunity remains the same: Globalstar has the potential to
produce $3 to $5 billion in cash flow in a peak year, which could easily
translate into a $50 billion-plus opportunity after capitalizing the cash
flow. In the end, it is that opportunity that has investors bullish.
Although we feel the company has been aggressive with its subscriber and
minutes of use targets, we believe the market will be quite understanding
and supportive of smaller achievements as long as they always point to a
business opportunity that is progressing.
Posted: 9/2/1999 5:27 pm EDT as a reply to: Msg 11451 by RcktScntst3
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Unterberg Comments Part 2
by: badhabit_99
11457 of 11457
* Globalstar is a funded, wholesale model. We believe phone sales are likely
to be more difficult than early cellular, placing more emphasis on the
distribution channel. The genius of Globalstar is that it wisely gives its
distribution channel the incentives to move product, by selling them
minutes at the low cost of 35 to 50 cents per minute to market the product.
From a distributor stand point, satellite minutes are more profitable than
cellular minutes and are entirely incremental because satellite minutes are
only generated when terrestrial services are unavailable - no
cannibalization.
* Globalstar's key to success will be the fact that its distributors have the
economic incentives to subsidize the handsets. Globalstar distributors are
planning to set service prices at $2 (in country) to $3 (long distance) per
minute. At those rates, distributors should be able to justify significant
subsidies even if consumers last only 3 years and use the phone only 30
minutes per month, which is a conservative estimate compared to most. We
believe that a significant market opportunity will exist for satellite
phone systems once handsets fall below $500. We believe that can occur
within one to two years of Globalstar's start, if its channel is only
moderately successful. Satellite systems offer the clear benefits of global
service; but it's a question of at what price and not is there a need?
* Unlike most, we believe the target markets of all satellite telephony
systems are the same. Iridium was initially designed to service the "global
traveler", the VIP executive. Globalstar was thought of almost
altruistically as the emerging market telephony provider. We feel the truth
of the matter is that the VIP market is too small and the emerging market
customer base has no need for a phone that costs as much as $700. Like most
new consumer technologies with price points in excess of $100, industrial
markets will likely lead the way, meaning the U.S. and Europe. However,
with satellite telephony, we are concerned that the strong success GSM has
had in Europe will make satellite telephony more a U.S. and Asian
phenomena.
Posted: 9/2/1999 5:28 pm EDT as a reply to: Msg 11456 by badhabit_99 |
