for your leisure reading....
(PS--RIG jumped up large and OSX jumped up large in last few minutes today...fwiw...which ain't much)
Tuesday June 29, 12:38 pm Eastern Time
Company Press Release
SOURCE: The Wall Street Transcript
The Wall Street Transcript Publishes
Satellite Communications Issue
NEW YORK, June 29 /PRNewswire/ -- Leading analysts
examine the Satellite Communications Industry in the latest issue of
The Wall Street Transcript. In a definitive review of this sector for
investors and industry professionals, it features:
1) In an in-depth roundtable forum on the satellite communications sector (13,000+ words), three
prominent analysts: John Coates of Salomon Smith Barney, William Vrattos of Georgica Advisors
and Thomas Watts of Merrill Lynch examine commercial satellite launches and recent failures,
technology transfer issues, system design concerns, satellite Internet/broadband issues,
point-to-multipoint transmissions, supply/demand issues, the regulatory outlook, and investor
concerns.
Investors have done a poor job differentiating between sectors and firms in regards to risk, Vrattos
states, ''There are a few sectors that have outperformed because the fundamentals of those
businesses are excellent, and the risk in those businesses has gone down significantly. However, I
still think there are sectors of the satellite industry that tend to be grouped together by investors who
don't differentiate between different companies or different sectors and instead assume that launch
risk or any other risk of a given company is directly comparable to failures or issues at another.''
The problems at Iridium have created an unfair malaise toward the sector, Coates declares, ''It's
been more of an execution issue with Iridium (Nasdaq: IRID - news). It's problems that have been
company-specific or outside of Iridium's control but specific to Iridium itself, namely the handset
availability and getting service providers trained. And this has put pressure on the rest of the industry
without regard for the underlying fundamental outlook.''
Liquidity concerns are plaguing the sector following the Iridium difficulties, Watts asserts, ''Iridium is
going through a restructuring right now where we could see public investors diluted. Clearly, in the
longer run there's the question of whether the equity gets wiped out or not. Just at the end of last
week we had ICO (Nasdaq: ICOGF - news) unsuccessfully try to do a financing, so there are
reports of that venture folding unless the strategic partners step up. And then Globalstar (Nasdaq:
GSTRF - news) still has to raise $600 million by September in an environment where both of its
competitors seem to be fouling the water.''
Fears of impending Congressional action have begun to damage U.S. satellite firms, Watts states,
''They're taking foreign satellite manufacturers that clearly are fourth in the market at best and
handing a global market to them. The U.S. government has done two things. Already they've
transferred approval of satellite exports from the Commerce Department back to the State
Department. Then secondly, the current export approval process has already led to the cancellation
of the Asia Pacific Mobile Telecom project. That's already more than a $100- million cost to U.S.
companies.''
Vrattos concurs that investors' fears of legislative actions are hurting the sector, ''To the extent
investors are looking to a Loral (NYSE: LOR - news) or a Hughes (NYSE: GMH - news) to be the
backstop financier to an ICO or a Globalstar, every hundred million or so of cash counts. And to the
extent that those companies have to take write-offs because of legislation, it does weigh on investors'
minds.''
A positive for the satellite sector is the ability to deliver broadband service to remote areas currently
unserved by wireline. The Post Office decided they needed a data network connecting most of the
post offices in the U.S. Watts states, ''They ran a competitive bid. MCI (Nasdaq: WCOM - news)
originally won it, and MCI was going to do frame relay to most of the post offices in the country.
When they went out and actually looked at where those post offices were located and how close
they were to the MCI fiber backbone, as well as the availability of local frame relay connections
from hundreds of local telephone companies, they threw up their hands and went to Gilat (Nasdaq:
GILTF - news). So in fact MCI will only do the top 7,000 post offices, the so-called large area
offices, and the next 28,000 they have subcontracted to Gilat, because Gilat can do high speed data,
they can do it today, they can do it regardless of where the post office is located, and they don't
have to go through a local carrier. They just go out and set up a dish.''
Watts has a preference for the DBS sector, ''Currently EchoStar (Nasdaq: DISH - news), as a
pure-play in the sector, is one of the most favorable. It's really had a lot of appreciation already. But
as we look forward, we think we could lose all of $9 a share this year but roughly break even next
year, and in 2001 do $5 a share and 2002 do $12 a share. So the wonderful thing about these
largely fixed cost businesses is once they've turned earnings-positive, there's a very dramatic effect.
So we continue to like that as one of our favorites. It has all of the reasons we like DBS in there,
from your local programming coming on, to potential alliances, to data and Internet services.''
Satellite radio, an emerging sector, requires investors to develop a long- term outlook. Vrattos
states, ''In terms of CD Radio (Nasdaq: CDRD - news), this company, I am certain, will have
numerous hurdles in terms of financing, in terms of technical challenges, in terms of marketing
execution. But it's run by some real entrepreneurs who have been able to raise almost a billion
dollars from nothing and made some real progress in creating what looks like will be a business. If
you believe in the product and in the industry becoming a reality over the next five to 10 years, and
you're willing to hold this for that time period, I think this will be a real home run for any investor with
a long time horizon.''
Vrattos cites another example of satellites superior reach to remote and rural areas with an
Indonesian telecoms firm, ''Pasifik Satelit Nusantara (Nasdaq: PSNRY - news) is a company in
which we are one of four or five institutional investors. It's very much under the radar screen. I think
it's one in the mobile satellite sector that could be a real sleeper with upside, given that it is taking an
even lower-cost approach than the rest of the companies by doing a GEO service, believing that
people who need communication in remote areas need it at an affordable price, first and foremost.
So they will have pricing closer to cellular pricing, with handsets closer to cellular size, and will be
launching their satellite this year, which obviously has its own risk. But they are fully funded.
Lockheed Martin (NYSE: LMT - news) is committed to the project now. And at $7.50 a share, an
investor can create its ACeS project, in which PSN owns 30%, at not that much higher a price than
at where Lockheed just invested $162 million. So it's an interesting way to ride along with Lockheed
at not much higher a cost and to participate in what could be a very exciting project that will actually
be launched in the near term.''
2) A review of management performance at 13 Satellite Communications firms asked market
insiders about the ability of management teams to create shareholder value. In a sector where many
management teams received harsh reviews, a few CEOs merited praise.
A buysider gives accolades to David Margolese, Chairman and CEO of CD Radio, Inc., ''Dave
Margolese is a pretty smart guy; he can sell a story without acting like he is. They are going to be in
every car in the United States and make billions of dollars. He's so low key about it. This is the best
idea and he's not even hyping it.''
Top marks for Charles Egren, Chairman, President and CEO of Echostar Communications, from an
industry executive, ''Charlie Ergen has proven to be a real maverick and a dynamic CEO that has
built EchoStar from the ground up and the fruits of their strategic moves over the past three or four
years are beginning to pay off. He is clearly at the top of the class.''
A money manager continues, ''When you talk about EchoStar you are talking about CEO, Charlie
Ergen. He is almost the entire management there. It's a very flat management structure. Ergen likes to
pretend he's a country bumpkin, but he's five steps ahead of everybody else. He's playing a chess
game and thinks he can see 12 steps ahead and knows he's got checkmate even if nobody else
knows he's got checkmate. And for one guy, he's been running circles around the competition
lately.''
For information on how to obtain a copy of this issue, see twst.com or call
212-952-7433. This special section is also included in the TECHNOLOGY Sector of TWST
Online.
The Wall Street Transcript is a premier weekly investment publication interviewing market
professionals for serious investors for over 35 years. Now available online to web users at
twst.com, TWST Online provides hundreds of free excerpts from our Interviews plus
new sector-based online subscriptions. Visit the web site for TWST's free new audio series -- CEO
Forums. The Wall Street Transcript does not endorse the views of any interviewee nor does it make
stock recommendations.
SOURCE: The Wall Street Transcript |
