The Outlook Continues To Look Dim For
Globalstar
May. 18, 2000 (Mobile Satellite News, Vol. 12, No. 10 via COMTEX) -- At the recent Satellites and the Internet v.4
conference, Doug Humphrey, chairman and founder of Cidera Inc. (formerly SkyChache Inc.) said that the satellite industry as a
whole has an increased margin of error when it comes to failure because no matter how bad things get, it won't be as bad as the
Iridium LLC failure.
Well, that may be true for everyone in the satellite industry, except Globalstar L.P. [GSTRF]. If Globalstar does manage to
succeed, then the Iridium failure will be remembered as a technological achievement and good idea that took to long too develop
and was marketed poorly.
On the other hand, if Globalstar follows the same path that Iridium did, it could spell more disaster for the mobile satellite industry
and give the satellite business as a whole another black eye...something it does not need right now.
And judging by the release of Globalstar's first quarter results last week, the satellite telephony provider seems closer to Iridium's
fate than financial success.
But some are not ready to write off Globalstar yet. "Globalstar has a better chance than Iridium to succeed," said Ahmad Ghais,
president of the McLean, Va.-based Mobile Satellite Users Association.
...Low Revenues Tell The Tale
In what had to be one of the most highly anticipated quarterly results in satellite financial history, the numbers on Globalstar's
quarterly report did not paint a rosy picture.
Globalstar reported a net loss of $216 million in the first quarter of this year. The mobile satellite telephony provider also reported
550,000 billable minutes and revenues of $609,000 (including royalties) during the same period ending March 31.
Globalstar executives downplayed the low numbers in an official release stating that "since service did not begin in any significant
degree until March, the numbers reported for utilization of service are low for this reporting period. Important markets such as
Canada and Brazil were in full commercial service for only a few weeks of the quarter, and another, Australia, began service only
on March 30. Moreover, full commercial service is soon to be initiated in other key markets such as China, Russia and South
Africa."
But the slow ramp-up can be turned around. Ghais noted that the Globalstar system is fundamentally cheaper than its failed
competitor. But the slow rollout of the gateways is not helping right now.
"Globalstar depends on the gateways. [The rollout] is not proceeding as well as one would have hoped," said Ghais. "There is a
lot of demand that is going unmet and will be unmet for a long time."
Globalstar did mention that problems plaguing the company during the early days have been cleared up.
According to the company, phone manufacturers Qualcomm [QCOM], Telit, and Ericsson [ERICY] are expected to meet
production schedules for 2000, and as of the end of April, the three companies have shipped approximately 67,000 phones.
However, the number of phones shipped is not as important as the number of paying subscribers the company has, a number
conveniently left out of the official release.
Overall, company reports remained positive. "Our service partners have also demonstrated continued confidence in our service.
For example, during the first quarter France Telecom and Alcatel provided and additional $170 million in capital to TE.SA.M,
their joint venture service provider, to further its operation, and Vodafone Australia is now in discussions with us for the
construction of a new, previously unplanned gateway in New Zealand," said Globalstar Chairman Bernard Schwartz.
...Analysts Not As Positive As Schwartz
Globalstar's first quarter financials did nothing to improve its rating with Banc Of America Securities. In fact, the numbers released
by the mobile satellite telephone service provider failed to meet the reduced expectations of the New York-based investment firm.
"Globalstar announced revenues of $609,000 and 550,000 minutes of use in 1Q00, far below even our reduced expectations of
$3.6 million," reported Banc of America.
The investment firm was not satisfied with Globalstar's explanation that the low numbers were primarily due to the fact that
commercial service did not begin in a significant degree until March. "We believe that the extremely slow ramp-up for subscribers
and revenue is a major disappointment for the satellite telephony venture, and we are very hesitant concerning the company's
prospects going forward," Banc of America reported.
But Ghais offered a different point of view. He said that many companies have aggressive business plans and do not meet original
projections but go on to success in the long term.
Banc of America also raised concerns over Globalstar's liquidity going forward. "According to our analysis, Globalstar has cash to
last it into 3Q00, but there are definitely uncertainties concerning Globalstar's liquidity going forward," BOA reported.
"Globalstar's funding through year-end is dependent upon the renewal of a $250 million credit facility with Chase Manhattan in
June."
Right now, Lockheed Martin Corp. [LMT] is currently guaranteeing $206 million of the credit facility, but is not obligated to
continue guaranteeing any credit facility going forward. "It is not clear how Globalstar will renew the facility if Lockeed Martin
refuses to extend its guarantee, as we expect," BOA said.
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