XM Leaning on Carmakers
By Scott Moritz
Senior Writer
12/5/2006 1:29 PM EST
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Holiday shoppers aren't exactly clearing the store shelves of satellite radios as some industry players had expected.
"The retail environment is challenging," says an XM (XMSR - commentary - Cramer's Take - Rating) representative. The good news, at least for XM, is that its automaking partners are delivering on their promises.
About 1.8 million GM (GM - commentary - Cramer's Take - Rating) cars will have factory-installed XM radios in the 2007 model year, which is under way.
The news comes as pay-radio rival Sirius (SIRI - commentary - Cramer's Take - Rating) lowered its subscriber growth target for the first time Monday. Sirius now expects its year-end subscriber total to be around 6 million, down from the 6.2 million previously projected.
Sirius had enjoyed a lead in the retail race as subscribers flocked to shock jock Howard Stern. But now that the so-called Stern effect has cooled, the growth appears to be downshifting. Sirius was hit with two analysts' downgrades Tuesday in the wake of the subscriber warning.
"While this is bad news for both companies, we see more risk to Sirius than to XM," American Technology Research analyst Rob Sanderson writes in a note to investors Tuesday. Sanderson left unchanged his neutral ratings on both stocks.
For its part, XM has cut its year-end subscriber target twice this year, though it has stood pat since July.
The Washington, D.C., broadcaster has more than 7 million users. Citing increased competition and radio glitches, XM cut its year-end subscriber target to about 8 million in July. The company had originally planned on ending the year around the 9 million-user mark.
"While the retail market continues to be an important driver of our growth, the recent softness in this market underscores the validity of XM's automotive-centric strategy," XM said in a statement Tuesday.
Last week, XM said it expected auto partner Honda (HMC - commentary - Cramer's Take - Rating) to factory-install 650,000 radios in its 2007 model year vehicles, up from 550,000 in 2006.
Sirius shares fell 30 cents to $3.87 and XM was down 28 cents to $14.33 in early afternoon trading Tuesday.
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