This may explain the stock price....
IQC.COM News
ORBCOMM TRIES TO PUT POSITIVE SPIN ON SLOW UNIT
INSTALLATIONS
News provided by
Phillips Business Information
Sep 30, 9:59 pm
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Sep. 30, 1999 (MOBILE SATELLITE NEWS, Vol. 11, No. 20 via COMTEX) -- Lagging unit installations have dealt a
short-term setback to satellite-based global, messaging service Orbcomm Global L.P. [ORB], but company officials remain
confident of long-term success.
Not only have unit installations occurred slowly, the cost of ramping up those activities has been unexpectedly high, said
analysts who have been writing reports about the company. However, Orbcomm officials said the company is reporting strong
demand that is manifested through growing orders.Orbcomm projected that it would have 200,000 units installed or on order
by year-end, said Wende Cover, Orbcomm's director of marketing communications. Among the 200,000 units, the number
that Orbcomm expects to install by year-end is about 50,000, leaving 150,000 in the pipeline that will not be installed until at
least next year.
Rather than acknowledge a lingering problem, Orbcomm officials claim that legitimate reasons exist for the current pace of
installation. Much of the explanation is due to circumstances beyond Orbcomm's control and the wishes of its customers, Cover
said.
...Orbcomm Officials See No Installation Faux Pas
Reasons only 25 percent of the units will be installed by year- end are:
* First-Time Customization - Customers often require minor changes in the product hardware configuration. They also tend to
customize the format of information they receive and how the system works with their own computer networks.
* Installation logistics - Installation on mobile units in many cases is conducted on a phased-in approach to avoid idling all the
trucks in a fleet at the same time.
"The installations are moving along at a pace that fits each customer's needs and there is not an issue with a lack of available
units," Cover said.
"Orbcomm is making great headway in several key markets such as the transportation, rail and oil, chemical and propane tank
monitoring industries," Cover said. For example, in the transportation industry Orbcomm customers include Schneider National,
J.B. Hunt, Atlas Van Lines and UPS. In the rail industry, Orbcomm is working with Union Pacific, Burlington Northern
Railroad, and it was recently announced that Orbcomm's satellite service will be part of the G.E. Harris Pinpoint Locomotive
Tracking System. Orbcomm service has also been recognized as a smart business solution for tank monitoring by several
companies that are leaders in the industry.
Wall Street analysts, however, have been unimpressed by the explanation Orbcomm officials have given for the slow
installations.
William Kidd, of C.E. Unterberg, Towbin, recently issued a report that projected total subscriber activations of about 23,000
for third quarter 1999-meaning that the company will bring in only 10,000 new subscribers for the quarter.
"On a six-month installation cycle, we would expect the company to have 50,000 to 60,000 activations as of third-quarter
1999," Kidd said in the report.
...Strong Demand Is Paralleled By Sluggish Installations
Orbcomm has been finding strong demand for its non-voice service, despite the lagging installations. Orders totaled rose more
than 80 percent from about 63,000 units in March to more than 116,000 by June.
Kidd reduced his year-end stock price target for Orbital to $25 from the $31 he estimated earlier. The company's 52-week
high was 45 5/16.
Lehman Brothers analyst John Bensche, also lowered his estimates on Orbcomm subscribers by year-end to 50,000
subscribers, down from 85,000 to match recent guidance from company executives.
Orbcomm's drag on Orbital Sciences' [ORB] earnings also led him to scale back the outlook for third-quarter results to a loss
of 31 cents per share, down from an expected loss of 20 cents per share, due to the likelihood of lower-than-expected
subscriber numbers from Orbcomm in the third and fourth quarters. Lehman also lowered fiscal year 2000 earnings estimates
for Orbital to 52 cents per share from 62 cents per share.
Kidd, in his report, said the recent rash of difficulties in the mobile satellite industry, led by bankruptcy filings by Iridium LLC
[IRID] and ICO Global Communications [ICOGF], may prompt Orbital to limit the amount of money it invests in Constellation
Communications Inc., which plans to begin service in 2003. He added that Orbital may be forced to take a charge to reflect the
reduced value of its estimated $15 million investment in Constellation.
Constellation executives countered that Orbital has invested more than $20 million in CCI and additional investments may
follow soon.
Orbcomm Projections By Year-End:
* Orders: 200,000
* Installations: 50,000
* Backlog: 150,000
Source: Orbcomm
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