SemiOT:Hughes Warns Subscriber Growth
Will Fall Well Short of Estimates
By ANDY PASZTOR
Staff Reporter of THE WALL STREET JOURNAL
Hughes Electronics Corp., hurt by softer-than-expected consumer demand and with its top executives distracted by merger negotiations, substantially reduced its U.S. subscriber-growth projections through the end of the year.
1EchoStar Finalizes Plan to Buy Hughes in Attempt to Trump News Corp. Deal (May 24)
2Hughes Slows Down Efforts to Add Subscribers, Posts Wider Net Loss (April 18)
Less than two months after initially warning of a general downturn in subscriber trends at its flagship DirecTV broadcast unit, Hughes yesterday disclosed the full extent of the anticipated falloff in new customers. With orders at its primary retail outlets sagging and results particularly weak in rural markets, the satellite broadcaster slashed its projected range of second-quarter subscriber acquisitions by 50%, down to about 175,000 from as many as 350,000 net additions in the U.S. For the full year, Hughes said it expects to attract 24% fewer subscribers than it told Wall Street barely a few weeks ago, which is likely to topple it from its leadership position as the country's fastest-growing direct-to-home broadcaster.
"The uncertainty … and the drawn-out nature" of the merger discussions "have been a major distraction," Jack Shaw, the recently installed chief executive officer of Hughes, told analysts. "We have not dedicated enough time to running the business," Mr. Shaw said, calling the latest results "unacceptable to shareholders."
The El Segundo, Calif., company, which relies on video-rental stores and other retail outlets to lure many of its new customers, is stepping up efforts to reduce accelerating subscriber turnover. Some of Hughes's latest problems reflect the sagging economy, while others show the company's difficulties dealing with customers who don't pay or opt to shut off the service after a brief period.
But the company's revised guidance -- featuring deeper cuts in growth rates than even some critics had anticipated -- also suggests a more fundamental shift in strategy. Hughes has devised various programs, from leasing equipment to more carefully checking the credit of prospective customers, to help create a more stable subscriber base. After years of supercharged growth during which one of DirecTV's major goals was to grab as many homes as possible to keep them from signing up with rival U.S. cable-television systems, Hughes also seems to be ceding some of those uncommitted customers. It is now "aggressively targeting" existing cable customers who have "experienced large rate increases or poor service." Hughes is a unit of General Motors Corp., which currently owns 30% of its shares but 100% of its assets.
The announcement isn't expected to have any significant impact on GM's effort to dispose of its stake, partly because it isn't a complete surprise. For months, many investors and analysts have projected declines in Hughes's new subscriber growth.
GM is currently negotiating a proposed transaction that would merge Hughes with global broadcasting operations controlled by News Corp. Chairman Rupert Murdoch. But at the same time, EchoStar Communications Corp., its largest U.S. rival, has been preparing a rival bid and GM has said it would consider such an offer. Unlike Hughes, EchoStar "has no plan to change its guidance" for 2001 subscriber growth, said Michael McDonnell, EchoStar's chief financial officer, and the company is now expected to snare at least 200,000 more subscribers for the year than Hughes.
In Latin America, a region where Hughes previously said it was enjoying particularly rapid expansion and strong financial success, second-quarter subscriber additions are expected to be reported as roughly 25,000, 75% lower than the company's earlier estimates.
While Wall Street traditionally has focused on growth, Hughes's balance sheet and cash flow nonetheless will benefit from the latest developments. It will enjoy heftier earnings before interest, taxes and other items, due primarily to reduced marketing expenditures. |
