IRIDIUM WON'T HIT CASH FLOW BREAKEVEN, ANALYSTS SAY
(Mobile Satellite; 04/15/99)
Apr. 15, 1999 (MOBILE SATELLITE NEWS, Vol. 11, No. 8 via COMTEX) -- NEW YORK -
Responding to mounting criticism from Wall Street analysts, Iridium LLC [IRID]
CEO Ed Staiano reportedly told select analysts here last week that Iridium will
need $120 million in revenue per month for cash flow breakeven to meet its
projected 450,000 to 500,000 subscribers by year-end. Staiano made his closed-
door remarks following a panel session at the C.E. Unterberg, Towbin
conference.
But satellite analyst Marc Crossman of J.P. Morgan thinks the company will
fall short of those numbers.
"They will not break even for cash flow in 1999, and I seriously doubt that
they'll break even in 2000 because of the lack of subscribers-no one's using
minutes," Crossman said. "I believe the stock may even drop to single digits
by this summer if subscriber growth doesn't pick up."
Crossman projects that Iridium will snag only 250,000 subscribers by year-end
1999. He added that he will be surprised if the company nets more than 100,000
subscribers. Iridium has admitted that it is behind in ramping up its
satellite service, but would not confirm reports for cash-flow breakeven by
year-end.
"Iridium is currently revamping its business plan as part of its
renegotiating with the banks and therefore cannot speculate on cash
requirements for year-end until this effort is complete," said Iridium
spokeswoman Michelle Lyle. "Our slow ramp up is likely to push out the date of
cash flow break-even." Iridium's stock has rebounded and was trading at $19 at
our deadline.
What has hurt Iridium has not only been failing to meet first quarter
subscriber levels and a diminishing stock price, which slumped to an all-time
low of $15 last week, but a surprising demand for accessory equipment, such as
antennas that the company did not anticipate, sources said.
Also surprising is the number of subscribers who have threatened to
discontinue service with Iridium if they are not able to get complete global
coverage at all time when traveling. However, sources said Iridium should have
these problems under control by year-end.
"You can't use phones in the Bahamas because they don't have licenses for
coverage there," Crossman said. "Iridium hasn't even started shipping the CDMA
cartridges yet."
Despite these worries, Staiano said the industry can expect Iridium's next-
generation satellite phones in about 15 months which will retail for much
cheaper than current phones.
"Prices [for handsets] are unavailable but will likely retail for lower
prices than current phones, depending on the manufacturer," Lyle said, though
she would not confirm a timeline for the next generation of phones.
However, on the satellite side, according to sources, Iridium may replace
birds every six years. Already, Iridium has turned off satellites in orbit in
order to update the software, as well as move its satellites into different
orbits, which takes about 10 days per bird, but does not cause interference to
customers, sources said.
"In order to upgrade software, Iridium shuts down satellites over the poles
so as to guarantee global service and ensure no disruption in global
availability on the ground," Lyle said. "Over the poles, we have a convergence
of multiple satellites so taking a satellite out of service for a few minutes
has no impact on customers."
Iridium plans to release first quarter earnings April 26.
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Copyright Phillips Publishing, Inc.
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