Analyst Maintains 'Neutral' Rating On XM Despite Widening Probe
Aug. 11, 2006
By Jeffrey Yorke
Merrill Lynch media analyst Laraine Mancini late Friday afternoon (Aug. 11) said she was maintaining her “neutral” rating on XM Satellite Radio despite the FCC’s widening probe into the satcaster’s FM modulators emission troubles.
But she does note that a “product delay could cause an inventory shortage or higher subscriber acquisition costs (SAC). And, she points out, that “with current inventory levels depleting, a prolonged manufacturing delay could result in retailers running out of radio supply in Q3, leaving XM with no product for the seasonally strong Q4 period.”
That’s when 60% of XM’s annual retail sales occurred in 2005, she says. “Even if XM is able to secure new approvals before inventory is consumed, the company may be forced to expedite shipments to the distribution outlets, likely increasing SAC by switching to more expensive shipping means (air freight vs. container freight shipping).” Mancini also suspects that any potential SAC increases would be temporary but could cause XM to miss its Q4 guidance.
On the other side of FCC inquiries into satcasters’ emissions, Mancini believes that Sirius was “more transparent with [its] FCC inquiry and characterizes the company’s response as “proactive “, contracting with XM’s handling of the initial inquiry. “Shortly after receiving the FCC inquiry, Sirius launched an internal investigation concluding that Sirius’ personnel had authorized the increase in emissions, a finding [Sirius CEO] Mel Karmazin readily took accountability for with the FCC.”
Mancini reasons that Sirius, which received an FCC grant of authority for its FM modulators, “also disclosed new internal controls to mitigate risks of further non-compliance. We believe it was this transparent approach that helped Sirius receive its approvals so quickly.”
radioandrecords.com
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Somehow this all sounds strangely familiar. |
