Iridium Report Reveals Five New Losses
Iridium LLC [IRIDF] has lost five more satellites, bringing to 12 the total spacecraft failures for the global mobile
telecommunications operator. The figures were revealed yesterday (1/25) in the company's fourth quarter and year-end financial
reports for the period ending Dec. 31.
Iridium reported a net loss of $440 million ($3.12 loss per class 1 interest) for the fourth quarter 1998, and a net loss of $1.259
billion ($8.91 per class 1 interest) for the year ended Dec. 31.
A five-week delay in launching its worldwide commercial service and a shortage of telephones and pagers during its first two
months of operations pegged Iridium's fourth quarter revenues at $186,000, the company today reported. On Dec. 31, there were
approximately 3,000 activated subscribers on the Iridium system - a far cry from the 200,000 the company had expected by year's
end.
The company said its constellation now includes eight orbiting spare satellites, signaling that a grand total of 12 Iridium satellites
now have failed - five more than the company previously had admitted. Iridium told us that it depends upon parent company
Motorola Inc. [MOT] to maintain the system and any questions regarding failures should be addressed to Motorola. When we
questioned Motorola on the number of failed birds, it said its policy was not to comment on individual spacecraft, but rather the
health of the constellation. That attitude will do little to boost the confidence of anxious investors and will only fuel rumors that
Iridium satellites are suffering a serious software anomaly.
Doing the math: Iridium has launched 86 satellites in total and needs 66 operational birds to provide global coverage. The company
previously acknowledged that seven satellites had failed, which should, of course, leave 13 spares, but it would not comment on the
demise of the additional five birds.
The company claims call establishment using the satellite network now is in excess of 90 percent, with the dropped call rate at
about 6 percent. The Iridium paging and cross-protocol cellular roaming services are operating at levels that exceed performance
standards, according to Ed Staiano, Iridium's vice chairman and CEO. "System-wide testing last week showed a 94 percent call
establishment rate with drop call rates at about 5 percent, and we are now seeing paging reception at 1 missed message per 1,500
sent," said Staiano.
The financial statement also revealed that by year-end, Motorola had produced and shipped more than 35,000 Iridium phones and
3,500 Iridium pagers, and has ramped up production to nearly 1,000 phones a day and 8,000 pagers a month. Late in the fourth
quarter, Motorola began commercial shipments of its CDMA/AMPS and GSM cellular cassettes, which enable Motorola's Iridium
phones to operate on terrestrial cellular networks around the world. Production capacity for these cassettes is now 42,000 a
month.
Meanwhile, Kyocera Corp. [KYO] Iridium pagers now are available to customers, and the Japanese company's single-mode and
dual-mode satellite phones are expected to begin shipping in the first quarter of this year, if they pass tests.
Referring to the fact that Kyocera has yet to ship a single working phone, Staiano admitted that the tests on those units are not
going well. "The latest results show that the Kyocera handsets are not meeting the performance standards that we require for
commercial release. System loading is suffering somewhat because of this problem since customers who prefer the Kyocera
products are waiting for their availability."
Staiano said Iridium's focus in the coming months will turn to its sales and distribution activities. "Our advertising campaign
generated a quarter of a million leads and nearly 18,000 phone reservations - the bulk of them from just four of our gateways," he
claimed. "One of our main tasks is to work down through our lists of potential customers and get them their equipment. I can tell
you that the number one question coming into our global customer care center is: when can I get my phone? We are working to
speed up this process."
Meanwhile, Iridium moved to address criticism regarding the pricing of a secondary share offering which last week devalued its
stock by nearly 10 percent after the company sold shares at a discounted price. The adjustment occurred Friday (1/22) after
Iridium completed the sale of 7.5 million new shares at $33.50 each - a 13.5 percent discount on the trading price of more than $38
per share. The company offered the shares at a cut-price rate to ensure it would raise $250 million to help repay its bank credit.
The company said the offering had three major benefits: it provided $250 million in cash to the Iridium balance sheet; it increased
its public floats to almost 20 million shares and it freed up restrictions placed on $300 million of the $350 million of Motorola
guarantees that bankers had placed on those [funds] as part Iridium's $800 million senior secured credit facility.
The discounted price didn't please Wall Street though and Iridium's overall share price suffered as a result. Iridium shares made
some ground back yesterday (1/25), closing the day at $34.62, up 88 cents from Friday's close.
(Thanks to Phillips Telecom)
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