Online Investor. Iridium: Call Waiting?
Stock of the Day
May 11, 1999
How can a stock soar to $71.50 BEFORE it opens for business and then crater to $12.63
within six months of offering its services? This is the story of Iridium (Nasdaq:IRID - news)
a high flying stock in more ways than one, a stock with plenty of potential and plenty of
problems.
Iridium offers a unique service: buy its phone and you can receive or send phone calls, faxes, or data almost anywhere in the
world. With just that description, you can understand why the stock went to $71.50. That's the easy part. Now let's look at
why it went straight down from there.
Start with the phone: it weighs over three pounds. Compare that to the cell phones that fit neatly into a lapel pocket and weigh
ounces. Even without the weight problem, Iridium's Japanese manufacturer, Kyocera, couldn't make enough phones to keep
up with demand. Subscribers, willing to pay the $8 a minute fee for using the service, had to wait just to buy a phone. Who
would have thought the phone manufacturing would be the hard part when Iridium had to launch 66 satellites just to turn on the
switch to make and take calls?
But that isn't the end of the problems, only the beginning. Once the satellites were in orbit at a cost of over $3 billion, the
marketing had to kick in. It didn't. It kind of stumbled in, then fell. It was marketing by committee with every part of the global
network adding its preferences for what the campaign should be. There were ads placed that left people scratching their heads
as to what exactly Iridium was or why the service was needed.
Changes were made. The Chief Financial Officer and the Chief Executive Officer left the firm. The CEO is a brilliant engineer.
He took the company through the technically difficult days of deploying the satellites. Everyone agreed he was exceptionally
good at that. Everyone also agreed that he wasn't the marketing type.
So what is there now? A unique company, offering phone, fax, and data service globally (the only company to claim that); 66
low orbiting satellites, orbiting lowly in the sky waiting for people to call home or the office or anywhere, ample production
facilities for phones with Kyocera and Motorola (NYSE:MOT - news) which has invested over $2.5 billion in the project, a
number of class-action lawsuits against the company, a stock that is near its all time low, and debt so large that the company
couldn't make its regular interest payments because the revenues haven't been there. Should investors get near this thing?
Consider these developments: Iridium is going after large contracts with businesses and governments, lowering the price of the
service, starting a new marketing program, and is looking for a CEO that has a marketing background. The debt covenants
have been re-negotiated to save precious cash. More debt is being raised. In other words, this very expensive mousetrap isn't
going away. But will it make any money?
On the horizon are several companies that will give Iridium competition. That means pricing will have to come down further.
The weight of the phone is an issue that has to be addressed. While the company recently signed two large contracts, it needs
to go after the travelling business person with features that make it a necessity, not an additional gadget. Of course, it has to get
a new marketing program in place to let the world know what it does and why the world needs it.
As in every sector, the first name out of the box tends to get the majority of the market. But here's a company that built a
better mousetrap, got it working, and the world has not beaten a path to its door. Unless Iridium gets their phones in a lot more
hands, those orbiting satellites will be up in the sky, with plenty of capacity and no one to use it.
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