Finally, we start getting some confirmation on the serious technical risks confronting CDRD in Barron's article entitled "Siren Song". The technical risks to satellite-based radio transmission are huge and, unfortunately, many investors are being duped into thinking they will be easily overcome by CD Radio. Well let's outline some of the risks uncovered in the Barron's article which, by the way, is not an exhaustive list. They are many other risks involved including financial risks and strategic risks.
Excerpts from Barron's article "Siren Song":
"Perhaps the riskiest part of this venture is the technology."
"...a satellite-based radio service has never been tried before."
"...there are no satellites now in orbit that can broadcast radio on the frequency that will be used by CD Radio..."
"...there's no way to try out the company's plan."
"Given the untested technology, there's apt to be uncertainty...
Even a highly respected and completely objective industry trade group called the Consumer Electronics Manufacturers Association (CEMA), has scientific proof that CD Radio's technology will not work as planned. Here are some of CEMA's findings which are written up in the Barron's article:
"[CEMA] simulated satellite radio in San Francisco last year using a NASA satellite."
(timeout for a second...why didn't CD Radio perform this same simulation if they have all the technical know-how supposedly?? Answer: because they do not have the technical know-how and do not want to produce any evidence to show that the technology has serious flaws.)
more excerpts...
"That testing (by CEMA) "demonstrated significant technical problems" with satellite radio at the high frequency that will be used by CD Radio."
"The association's tests found "extensive signal blockage by terrain, buildings, foilage, and even street signs that would result in service outages in urban areas"
(time out again...wow, street signs block the signal...there may not be much terrain or foilage in Manhattan but there are sure a lot of buildings and signs in NYC...Gong!!! Not gonna work in NYC so there goes 8 million potential subscribers out da door right off the bat)
"The association estimates that CD Radio would have to install hundreds, if not thousands, of supplemental transmitters in urban areas to maintain a high-quality signal. The cost of such transmitters could prove prohibitive."
(time out...yes, isn't that the whole point of CD Radio..to provide a high-quality signal...if quality degrades at all such that the quality is anything less than that produced by a conventional CD player, then the whole concept of CD Radio is a bust and a failure. Also, being an engineer myself, I can almost guarantee that any potential technical shortcomings that you can identify by brainstorming will inevitably show up in the final product. Murphy's Law is alive and well in the world of high tech, my friends...what can go wrong, will go wrong.)
let's continue to educate the longs with more of CEMA's findings...
"...there could be reception problems in vehicles traveling at more than 30 miles per hour, regardless of terrain."
(comments again..well, obviously 30 mph is not a problem in midtown Manhattan on a typical day...but I think most cars travel faster than 30 mph on average and so this is truly a very, very fundamental issue...obviously, CEMA has identified speed as a potentially serious obstacle to CD Radio's technology. This has to been taken seriously by investors.)
"...CD Radio officials acknowledge that supplemental transmitters will be needed in core urban areas like Manhattan, and that even with transmitters in place, there will be certain "dead zones"."
(Question: these transmitters will add tremendous complexity and cost to this venture. Who is going to make these transmitters? These are not off-the-shelf items.)
Sure, I'm an optimist. This technology might work one day but don't believe that it will work AS PLANNED and AS EXPECTED by the end of 1999. Even the Wright brothers failed to really fly on their first attempt. Sure, their efforts were a step in the right direction but their experimental plane was not being supported by a $260 million market cap either. With such a huge and unjustified market cap, any semblance of failure by CDRD is going to met by a severe and punishing selloff. Look how the Street unmercilessly punished EFII, ORCL, and AMAT to name a few in the last few weeks...and these are very successful tech companies that have real revenues and earnings to support their market caps.
OK, longs, you've been given some harder evidence by CEMA that, if anything, at the very least indicates that CD Radio's plan is not going to be a walk-in-the-park by the end of 1999. In addition, there are still financial risks with the venture which alone can easily undermine CD Radio's venture.
You've been warned. Cut your losses or take your profits now.
As Mr. Bary of Barron's writes at the end of this article:
"Is CD Radio on the leading edge? To us, it looks like the bleeding edge."
Yes, there will be some more "blood-on-the-street" with CD Radio.
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