WashPost. Stockholders Wait for Iridium to Achieve Orbit
washingtonpost.com
Thursday, February 25, 1999; Page E05
It's been a long, long fall and a harsh winter for stockholders of Iridium
World Communications Ltd., the Washington-based company that has
launched a network of satellites that can provide mobile phone service
anywhere in the world.
You can't make those calls unless you have an Iridium phone, however,
and the company is suffering from a shortage of phones that has delayed
the the recruitment of subscribers and exacerbated a drop in the stock that
has cost investors more than $6 billion.
In a little more than nine months, Iridium shares have fallen from more than
$72 to $28.56 1/4 at the close of yesterday's trading on the Nasdaq Stock
Market.
Slipping steadily since the first of the year, the stock hit what investors
hope is the bottom at $24 a share on Monday. It bounced back in the past
couple of days as Wall Street analysts lined up to reassure investors that
the company's setbacks are only temporary.
The phone shortage is a particular embarrassment because most of them
are being made by Motorola Inc., the nation's biggest portable phone
maker. Motorola dreamed up the Iridium system and is one of its three big
investors, along with Sprint Corp. and Lockheed Martin Corp. of
Bethesda.
Analysts say the shortage of phones means Iridium will not meet its goal of
having 27,000 in use by the end of March and will fall short of its targeted
88,000 phones at the end of the first quarter and 173,000 by the end of
the third.
More than just benchmarks, the targets are written into the terms of loans
the company got from a group of big banks. Fear that the banks would
restructure the loans and raise the interest rate has helped knocked down
the price of the stock recently, analysts said.
Assuring investors that the banks are not putting on the pressure, Salomon
Smith Barney analyst John B. Coates reiterated his "buy" rating on the
stock Tuesday.
"Iridium has simply not had enough time to attract subscribers," he said.
"Delays in handset availability have stifled Iridium's ability to enlist
subscribers, but do not, in our opinion, indicate that there's insufficient
demand for the service."
As analyst Tom Watts of Merrill Lynch & Co. said in a report issued
Monday: "The one big question is, is there enough demand to meet
projections over the longer term?"
As big as a brick, with a stubby antenna, the phones cost around $3,400
and calls run $3 to $7 a minute. That's a general improvement over
old-style satellite phones, which are the size of a laptop computer, have an
antenna that has to be aimed precisely, and cost about $3,000.
Journalists, explorers, globe-trotting business executives, disaster relief
workers and government officials are obvious target markets. But are there
the millions of customers who will be needed for Iridium to make money?
Analysts insist there are. "At the first sign of incoming handset orders, we
would view the price weakness as a buying opportunity," Coates said.
Wall Street firms have plenty of reason to want investors to believe in
Iridium, because they've earned millions of dollars by selling both stock
and junk bonds for the company. Bonds issued by Iridium in January were
trading for about 80 cents on the dollar yesterday, yielding more than 18
percent to investors willing to take the risk that the company will succeed.
© Copyright 1999 The Washington Post Company
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