I apologize if I am accidentally reposting any of Readware's comments. I was away for a week, so I am just going to post them all. I saw one in an earlier post, but don't remember which one it was...
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Subject: ViaSat
Date: Sun, Dec 7, 1997 19:14 EST
From: Readware
Message-id: <19971208001401.TAA01815@ladder02.news.aol.com>
ViaSat (to answer three emails), along with Globecomm, declined in the past few weeks because of concerns about satellite networking growth in Asia. ViaSat has no real business in Asia, and is a leader in satcom networking software through its StarWire Aurora system. StarWire provides redundancy advantages and lower hardware costs to satcom network users.
As it moves to commercialize its applications, its revenue growth rate should continue above 35%/annualized for the foreseeable future-- especially if it develops the appropriate software for satcom delivery of data and video-audio streams to multi-dispersed LANS that are without copper or fiber access. This satcom ability is a necessity for IP Multicasting to be used by such LANS, and ViaSat is a member of this industry group initiative-- among
whose other members are Microsoft, SunMicrosystems, IBM, Bolt Beranek Newman, Loral Cyberstar.
Good sales of StarWire should improve the 35% growth rate figure. But you have to call ViaSat distributorships for that sales growth rate number. The distributorships are both domestic and international. ViaSat's desire for growing commercial success (as opposed to military business) should help the StarWire sales effort.The company's backlog (currently mostly military now) is now over $100 million-- which is quite an achievement for an 8 million
share company.
As for why the stock rose to $24/share in the first place I can't say. Globecomm dropped from $20/share to $10 1/2 recently before rebounding last week. Its fundamentals are not that closely followed here-- others are more capable of discussing that company.
Subject: Re: Readware: Why isn't Iridium a Short??
Date: Mon, Dec 8, 1997 15:29 EST
From: Readware
Message-id: <19971208202901.PAA28727@ladder02.news.aol.com>
You forget that Iridium makes the phones it is selling, which is a source of earnings.
Also, I have seen marketing studies for Iridium and Globalstar-- Iridium wants only the well-heeled traveller, and he/she will pay the cost for the Iridium phone. The travelling exec who wants no truck with hotel phones or airport phones or shipping line phones, who wants his/her own phone number for the world-- will pay for the convenience. I know people in the US, and I am sure you do, who pay over $1,000/month just for a US cellular phone-- they
don't care what their cost is. I think it is absurd to pay such fees, but there are hundreds of thousands who don't really care. Businesses pay the bills in many cases, anyway.
That is the market for Iridium. While you are very right to be concerned about "studies: on mobile satcom telephony demand, when all the studies say the same thing-- all of them, mind you, not one or two or three or four-- but seven out of seven-- one can have some confidence that there is some validity to estimates by Iridium and G*.
I do not in any wise see Iridium losing money, as you suggest. While it appears that they "overbuilt" their system for the actual technology that was needed, their subscriber demand is looking solid at this stage.
I believe if you travel the globe and see the markets waiting for communications infrastructure, see this all first-hand-- you may have a different outlook on the companies' projections. Fiber is not going to meet those needs, because the costs for fiber are astronomical relative to satcoms. Only satellites are cost efficient, and if the supply is there for pent-up demand, revenues should follow.
Remember that these satellite powers are committing billions of dollars to these satcom efforts-- their managements did not get to where they are today by being incontinent with shareholder monies and taking on absurd "pie-in-the sky" risks. And when Iridium's own management buys stock for themselves at the $22, $36, and $46 level either they are complete idiots or they have material knowledge of the system's profitability.
Subject: Re: G* Insider Transactions
Date: Mon, Dec 8, 1997 15:41 EST
From: Readware
Message-id: <19971208204101.PAA29830@ladder02.news.aol.com>
Less anyone be mistaken about the G* chairman's G* shares holdings, prior to his recent purchases of G* in November 1997 he already owned, if I am not mistaken, 275,000 shares of G*. Actaully, I believe it is now more than that because some of the shares he bought were pre-split. The point is he owns a bit more than the 40,000 shares recorded in his recent SEC filings. He owns a lot more.
Subject: Re: G*projections re Asian devaluations
Date: Mon, Dec 8, 1997 21:28 EST
From: Readware
Message-id: <19971209022800.VAA10664@ladder02.news.aol.com>
The devaluation effect on a business occurs only after earnings have been recorded-- not before. Asia's current (1997) currency devaluation has no income effect on G* since G* has no earnings. The devaluation has effect only if the dollar appreciates after earnings have been recorded in a currency that has declined in value against the dollar.
Now take the case of the devaluing currency as it affects G* operations in, say, Malaysia. The example will serve for any country outside the US where its currency has been devalued against the dollar and what it means to G*.
Our example is Malaysia: Malaysia's currency is the ringet. The ringets's decline against the dollar today in 1997, or any year for that matter, does not indicate a decline in the domestic purchasing power of Malaysia for Malaysian goods purchased in Malaysia. Your statement assumes it does. It assumes a ringet devaluation means less business for G* in Malaysia. Only if the ringet's decline in Malaysia against the US dollar made domestic goods
made in Malaysia more expensive would one have to wonder if G* would be impacted. But currency devaluations do not make a domestic good bought domestically more expensive-- it makes goods produced outside the country whose currency has devalued more expensive against that country exporting the good whose currency has risen in value against the country to which it is exporting.
A G* phone call in Malaysia today or 1998 or 1999 or 2000 is a domestic good made in Malaysia and paid for by a Malaysian. The G* call is not "manufactured", "made" in the US. Therefore, currency devaluations do not make the domestic "made" G* call more expensive to the Malasyian. He will still be able to make all the G* calls he would have made if the US currency had never appreciated agains the ringet.
The ringet's (or any other country's currency you choose) devaluation becomes a factor to the G* shareholder only at the time that earnings from Malaysia are translated into US dollars, G*'s earnings being reported in US dollars.
Subject: Brokerage recommendations
Date: Wed, Dec 10, 1997 21:57 EST
From: Readware
Message-id: <19971211025701.VAA15242@ladder02.news.aol.com>
I am told that Oppenheimer broker Marc Crossman recommended G* today with a $72 1998 year-end price target. There is a Marc Crossman that writes occasional satellite articles in ViaSat-- he must be the same person.
Also, Stein Rowe Partners recommended Loral today "as the stock for 1998", as did American Express Investment Management. I am told the recommendations came today on the CNBC televsion business show. I am also told that on Bloomberg television Axiom Brokers recommended Loral today as a the telcommunications stock for 1998. These are the same brokers that recommended the stock this past summer.
Readers of the posts here might want to check this information out.
As for the DAMA email and ViaSat-- DAMA means Demand Assigned Multiple Access. Think of it as a celestial router system that efficiently and economically directs transponders to the correct ground-based VSAT channels every time, and only when needed. That increases efficiency of the VSAT network, and saves the satellite provider money. A satcom internet provider-- like C*, or Astrolink-- will need such an "aerial router" at some point in time-- when
the traffic starts picking up, which should be in 1999. The demand for VSAT internet off satcoms is extraordinarily strong in many areas of the world. Deregulation of VSATs will hasten interet access for these areas. In this regard Gilat is an important VSAT company, along with GE Spacenet.
The genius of DAMA is that it sorts out all network channels everytime correctly, and that is critical for a satcom internet/data/videoconferencing provider. Now, Scientific Atlanta has a DAMA system, called SkyLink. However, ViaSat has a DAMA VSAT system called Skywire, which is state of the art. It originated from its UHF DAMA for the military, and is a perfect candidate for use by a satcom internet provider in areas without access to fiber or
copper. It is superior to microwave, and much more economical to maintain.
That does not mean that Skywire (soon to be Skywire Calypso) will be used by a satcom provider. It is just a technology that I like in ViaSat, and which, in my opinion, has a lot of merit. As for the stock price of ViaSat I have no educated opinion-- I do think, though, to answer the further email questions, that it is going to be a fast growth company as it develops and enhances Skywire even more.
Subject: Loral Block Trade
Date: Wed, Dec 10, 1997 23:52 EST
From: Readware
Message-id: <19971211045001.XAA01489@ladder01.news.aol.com>
Today's 2.46 million share of LOR "crossed" by Lehman brokers today is the sale, I am fairly certain, of a Euopean company that had to sell its Loral stock because of its being acquired by another European satellite manufacturer. The stock came for sale shortly after the SatMex acqusition, and I am fairly certain that todays' sale is the sale of that stock.
I would be very surprized if I was wrong. I would not read too much into the sale.
Subject: Re: G*projections re Asian devaluations
Date: Thu, Dec 11, 1997 16:53 EST
From: Readware
Message-id: <19971211215300.QAA08533@ladder01.news.aol.com>
No-- the local telco pays in domestic currency to G* for satcom time-- it does not pay in US dollars. When G* actually starts operating is when an unhedged currency effect (a rise or fall aganst the currency in which G* states earnings, namely, in US dollars) will have a possible effect on its earnings.
You may have been referring originally to the US dollar estimates of G* earnings that have been projected last year or this year by various analysts/conultancies. Would those estimates, I think your question is, have to be lowered now because the Asian currencies had declined, and thus their dollar value also? And would this not mean lower dollar earnings estimates for G* now instead of those made prior to the Asian currencies decline. That seems to
be what your original question addressed.
To answer that question-- we all took a dollar weighted currency basket and calculated the dollar earnings for G* that way. No analyst would assume dollar estimates in each country-- he assumes a dollar weighted currency basket from which to project earnings for an international company such as G*. This method is usually correct within 2-3% of the actual number that would have been arrived at doing a country-by-country currency-by-currency estimate
and then translating those results into dollars. Currency devaluations/revaluations have marginal impact on the final result, and is why the dollar weighted currency basket method is used.
Subject: Re: Readware: Why isn't Iridium a Short??
Date: Fri, Dec 12, 1997 22:40 EST
From: Readware
Message-id: <19971213034001.WAA11877@ladder01.news.aol.com>
One of the problems with making comments on Iridium World LLC is one's inability to get a quantitative grasp of Iridium's service subscriber count. Iridium World does not use local telcos like Globalstar, but instead all its subscriptions are handled by Motorola through Iridium sales personnel.
Motorola does not make any of its subcriber numbers public-- the only way one can get a reasonable estimate of Iridium World's subscriber base is finding out how many handset chips Motorola is making for Kyocera, the manufacturer of Iridium phones.
Last month Motorola announced that it was going forward with its plans, formerly put on hold, to finish its chip plant facility in Virginia. I have no idea what the Wall Street wizards thought of this in the teeth of alleged overcapacity in Korea for seminconductor chips-- but it appears most likely that the chip facility in Virginia was back on track again because the demand for Iridium phone service was found by Motorola to be substantial. No Wall
Street analyst has seen this.
Iridium World will be making its mobile satellite subscriber service numbers clearer some time in April, as I expect Globalstar to be doing also. Motorola has already started through Iridium sales people taking orders for the Iridium service, although what those numbers are have not been made public, as I mentioned above in alluding to Motorola's reticence on Iridium subscriptions.
While I do think that Motorola overbuilt the Iridium system for what was actually needed, I have read recent Wall Street reports on the company that I do find tendentious. One stated that Iridium paid Motorola three billion dollars for "peace of mind" in satellite construction and launches, implying that Iridium paid three billion dollars too much for its system. The comment is absurd. I think they could have built a system for about $700 million
less than what they actually did build.
Another report I read stated Iridium would start cutting prices in 1999 to gain subscription growth, and this would cut into its revenues and hence profits. I think that only three systems are going to be up between now and 2004. I do not think TRW Odyssey will be built. The licensing, money, and technological expertise for a satcom telephony system is a seven-eight year effort. If there is the scarcity of supply as I see it, Iridium will not need to
look at its pricing till some time in 2002, 2003. I do not see Globalstar starting a price war with Iridium, as some have written it will. I think that G* will not have the capacity it needs to meet the demand it will have for its services-- a price war would flood its system. Hence, it will not start this mythical price war about which one reads.
If satcoms get 2% of the growth in wireless predicted for and by 2002, it should have a real (not potential) user base of some 16-17 million.
Iridium's constellation will be fully in orbit by April of 1998. I believe that it will probably earn 70% of what G* earns in the year 2002, with the same EBITDA margins. I believe it will have a lower p/e than G* because it has one market-- the well-heeled traveller-- thus making its growth far more predictable (and smaller) than Globalstar's. I do think Globalstar will be a much larger satcom telephony system, with a much larger user base than
Iridium, and hence will have a substantially higher p/e. If G*, then, reached $300/share in 2002, I would think Iridium would reach half that price or a bit more (say $170) by the same year. Out of an actual user base of 30 million by 2006, I would not be surprized if Globalstar has 45%.
Iridium has received bad Wall Street press, it appears, in the last few weeks. However, after seeing the bearish behavior of the technology stocks of the past few weeks and hearing how all these technology companies were so favored by Wall Street analysts until-- and not before- these different technology companies announced bad news, I sometimes wonder if their comments have no more merit than those of the readers and posters on the Motley Fool. I
have pretty much ceased wondering, in fact.
Subject: Re: 2006
Date: Sun, Dec 14, 1997 13:25 EST
From: Readware
Message-id: <19971214182501.NAA08065@ladder01.news.aol.com>
I believe a $26 price claim for Loral by the end of 1998 is an absurdity. The market is a discounting mechanism, and the analyst or broker you quote is stating that on roughly $830 million in earnings (before income tax, depreciation, and allowance) in 1999, up from $240 million or so in 1998, the market will give LOR an EBITDA multiple of 8! (Divide $830 million by 280 million shares=$2.96/share in EBITDA/share, and then divide that result into
$26/share). Currently LOR has an EBITDA multiple of 20 ($240 million in EBITDA for 1998, divided by 240 million shares, etcetera). On a discount of future earnings in 2002 to current valuation model, using a 20 p/e on those earnings (for a company that is growing at a 33% growth rate till that year-- the greatest growth occurring from 1998 to 2000, and then dropping off, yielding a normalized p/e of 33) the stock today is worth $31-33/share. Even on
a normal p/e basis, using revenue growth as driver for the stock's valuation, the stock of Loral by the end of 1998 should be around $36/share-- this is the method we have used for the stock.
I do not know where he gets $98/share for G* by the end of 1998. That number assumes a 41 multiple discounting 2002 earnings of $15.83/share to 1998. That is a very high multiple. If, however, he assumes a $98/share price for G* in 1998, and Loral owns 39% of G*, how does he have Loral trading at only $26/share at the end of 1998? It is already $22/share, with G* at $47. We have G* reaching $71/share by the end of 1998.
As for my number of 13 million G* users by the end of 2006, I think that is reasonable since there will be two total LEO constellations in orbit by that time. However, that is years away.
Subject: Re: 2006
Date: Sun, Dec 14, 1997 21:39 EST
From: Readware
Message-id: <19971215023901.VAA00188@ladder01.news.aol.com>
Toothog-- The p/e of G* will decline probably in 2003 (nothing changeable is eternal, you know) because by that time there will be probably 5 satcom telephony systems-- Iridium, G*, ICO Global, Hughes GEO telephony (ICO is GEO also), and Alcatel (at the end of 2003)-- with Ellipso being the marginal fill-in [around 2001] (and also some by Asia Cellular, another GEO system). So that's 5 systems plus Ellipso (I do not think it will be global in scope,
its ten cents/minute claims notwithstanding), and Asia Cellular. (I am assuming Odyssey does not materialize-- it would not be on the scene till 2002, if it did, anyway). Hughes also invested 5% in ICO.
Pricing will probably start declining in 2003 (or late 2002) then, bringing more users in. P/e's will decline because while the user base expands it will take more users to provide upward revenue momentum (the marginal profit/user will be on the wane-- it will take more users to generate a dollar of sales, in other words). It does look as if the p/e expansion and then contraction of the satcom telephony providers will plot that of the ground based
cellular systems of the 1980's into the 1990s. |
