SOUNDVIEW FINANCIAL CUTS IRIDIUM SUBSCRIBER FORECAST:
Soundview Financial reduced its Iridium subscriber forecast and price target today, and made some fairly damning remarks about the company as well.
1999 subscriber numbers go down to 115,000 from 339,000; remember that Ed Staiano said in a conference call that cash flow breakeven was expected in the third quarter with something like 300,000 subscribers (or was it 500,000?). Soundview's number means the company will disgorge cash all year this year, and in my opinion that means trouble. First quarter subscriber number goes to 9,000 from 25,000 (violation of bank covenant a certainty at that number).
The 1999 price target goes from $69 to $48. That's not a bad return from the current price, but tell that to someone who paid $45.
As for customers, the analyst (Tim O'Neil) said the "U.S. government is still its best short term prospect". That inspires no confidence in me, at all.
O'Neil believes, as I do, that Iridium, to sell product, must give away the phones (are you reading this, Maurice?). As for the government as a buyer, he says that until Iridium can offer fax, data and STU-III(security), it isn't likely the defense department will be a big buyer. "The largest forseeable contract from the U.S. government is two to three months out. This contract is for a few thousand handsets to be spread between the Army, Navy, Airforce and Marines..." The assets (satellites) are wasting away in space, being "under utilized today - every minute wasted will never be regained".
There was some commentary about the complexity of Iridium's pricing structure (don't I know it!) and a strong suggestion that a COO in charge of marketing would be a good idea (that's what I said, too...)
The Soundview analyst said in the report that this update on the company calls for a "shift in subscriber growth and usage expectations".
"...we do not expect a significant ramp until early 2000."
"Many of the issues mentioned in this note are being addressed by Iridium management but time is of the essence."
"Model changes:
Increased ARPU for satellite only customers to $383 from $300
Decreased subscribers in 1999 from 339K to 115K
Decreased overall subs in 2006 from 7M to 3M"
This is not a good report on the current state of Iridium and is the first of many such reassessments in my opinion. It is difficult to see how the company will pay for the system with these numbers. One might argue that the price decline to $20 adequately discounts these numbers, but if cash flow breakeven does not occur this year, I do believe there are other financial issues that will arise and require a major restructuring of the company before year-end.
What a shame... a wonderful infrastructure practically wasted by poor marketing and execution. My opinion, of course... |
