Rocket Scientist/Valueman
Thanks for the important clarification on the reasons for the Telstar delays. Component shortages is not something that came on my radar.
We get a lot of research, both inside and outside Wall Street, on the satellite companies. Most of the non-Wall Street research tends to be better than what we get from Wall Street. On this board, it seems really obvious that you, Valueman, Mr. Adrenaline, and Maurice Winn know a lot more than what is in the status quo research. Maurice Winn's explanations are extremely valuable. I doubt we could pay him for what he has given so freely to everyone on the Silicon Investor boards. Valueman has a good eye for numbers, and it is always good to check one's numbers against his. Valueman is an excellent example of what happens when you put your own money on the line. You check out everything.
As far as the "overpromise" and the businessplan. I have owned both the old Loral and the current Loral. I have been following Bernard Schwartz for quite some time, He is an honorable man, and it appears to me he has been taken hits lately that have been a bit unfair, to say the least. That is why I was giving my thoughts on what was going on in the last year in the satellite industry.
It seems to me what happened is that the end of the cold war got satellite providers into the "commercial" mode. The only problem is that satellite providers are not marketing types. A big drawback. When all the enthusiasm of the new technology, "satellites are us", came out two years ago, investors may have been expecting returns too quickly. It is hard to say. And once last year happened to an industry not too accomplished in "image" polishing, the bottom really fell out. I still think that the satellite companies need marketing savvy to the investment public. Just one example may help: how many people know that Loral is the backbone for cable? If I were running the new Loral, I can tell you right now some logo identifying my company as a cable backbone would be on every cable bill. That's just one example.
Back to the businessplan. Valueman correctly notes the rise in satellite leasing prices. I have seen the same reports that he has either seen or heard. What is supposed to get Loral out of the cyclicality of leasing prices for broadcast bands is the broadband market. Right now, it only has one satellite dedicated to that, and some transponders on one of the Telstar satellites. The more Loral satellites that are launched, the far better the future looks. You have SES in Europe that is marketing broadband capacity, and is successful. They have the satellites to do it, and I think that Loral can see its way to get the same booking growth once the satellites are secured in their orbits. If you believe that consumers want the internet to be as picture rich and sound rich as quality TV, the demand for broadband is not going to let up till that day arrives. Satellites are a good source as capacity conduits for broadband in a lot of areas now underserved, and I think they will have a good fill rate for the foreseeable future.
Loral has three more GEOsats to launch this year. They have two Alcatel satellites next year on Europe*Star, and Tesltar 8 is supposed to be launching sometime next year. Getting a good launch rate, Loral should have a good growth next year over this. I don't know how to view the Skybridge matter. I know what is being written about it, but 80 LEOs is a big undertaking.
Globalstar is the big hypothetical. I think Loral's non Globalstar business looks pretty healthy for next year. SSL next year will probably have a slight decline in GEOsat manufacturing revenues, if reports are accurate, offset by beginning to build the Skybridge buses. Hughes has a better manufacturing margin (11%)than SSL, and I think SSL is moving to become competitive with that manufacturing margin.
I look at Globalstar as a product I will want to use, if it can substantially limit the fade on the AirTouch system. Supposedly, from what I hear with Qualcom (we own that stock, as matter of disclosure), their "path diversity testing" of the LEOs now in orbit is bearing out
what Maurice Winn has explained. AirTouch is supposedly working on the Globalstar car phone handset sales (I hear that secondhand), and that is a good indication. The executive for Globalstar Air Touch was a marketing chief at the old PacTel. He is not from the satellite industry, from what I have learned, so that is a good indication too. A few more like him in the other AirTouch countries could get Globalstar sales going.
Globalstar needs 200,000 users at 110 minutes a month to break even. I cannot imagine they won't get that number. Air Touch (which we also own) and the others ponied up their investment in Globalstar just four years ago. I don't think AirTouch executives were pushed into it with some saw that they were missing a once in a lifetime technology opportunity they could not afford to miss. I think (just a guess) that they looked at their list of users, saw a good number of user roaming patterns that a Globalstar phone could meet, and decided to add global connectivity to the mix of AirTouch products. This is only an opinion I have, but I have not seen Air Touch make too many mistakes over the past few years. So I have a good confidence level.
I have never believed Globalstar was going to get 3 million users in three years after initiating service. But I can see some half a million full time subscribers over a four year period. That makes it a good investment. China Telecom, from what I have heard, is the key to a really good growth in China. They own 1.9% of Globalstar, and anecdotally I am told that their marketing people are incredible.
So, we have an Orion launch in a few days, and a Globalstar one shortly thereafter. I'll personally be glad when September is here, and Telstar 7 is in orbit with Globalstar getting ready for operation. For what it's worth, I am not looking for Globalstar to be up and really running till the end of the year. The good point is that the Telcos handling Globalstar will be giving Globalstar about $45 million once the 32 LEOs are validated as engineering perfect. So, they'll have that income for operations, and then the subscriber growth issue hits the bottomline.
So, I think the businessplan is coming together. I was in New York at a brokerage sponsored satellite conference in early February. Bernard Schwartz talked about having 24 GEOsats by 2002. If that ever happened, my statement "I think the business plan is coming together" will have been one "hekuva" understatement.
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