Barrons followup: handset price cut, $ per min use up, correct market value
interactive.wsj.com
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After our column on Iridium last week, investors got some good news. Recall, the company launched 66 satellites to offer worldwide phone service. It ran into trouble after not meeting the number of subscribers required under its bank loans and its CFO resigned.
But last week, glad tidings rained on Iridium. It announced a new three-year contract, worth up to $219 million, to provide products and services to the U.S. Defense Department through Motorola.
Second, company officials attended a luncheon on Friday arranged by Chase Securities and gave investors some more details. The Iridium folks said the cost of a handset was cut to $2,300 from $3,000 and the company had higher net revenues per minute than expected: $2.48 versus $2.10, said Les Levi, a telecommunications and satellite analyst at Chase Securities, who's bullish about the company. In addition, Iridium management reiterated Motorola's commitment to the project.
"The challenges are obvious, but they have identified them and are beginning to address them," says Levi.
Iridium shares jumped last week to 20 3/8 from 14 3/8 and the 14% bonds due in 2005 rose to 57 from 50. However, at such a depressed price, the bonds still signal a distressed company, while the stock sees a strong future. The divergence is even larger than we initially reported, because we calculated the market value of the company incorrectly at $208 million. The market value is really closer to $2.7 billion.
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E-mail: jacqueline.doherty@news.barrons.com
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