Sirius Radio Accelerates Nationwide Rollout

Sirius Satellite Radio, the U.S. satellite radio player, has announced some strong fourth quarter results, which has allowed it to sort out its financial future, as well as accelerate the national rollout of its commercial service.

New CEO Joseph Clayton, who has been in the job for only four months, is already making his presence felt. Bob Peck, a satellite equity analyst at Bear Stearns, told Interspace, “We like the new CEO a lot. We think he is taking the company in the right direction. He is cost-focused. He is initiative driven. We think he is a strong marketer and will take the company to the next stage from a conceptual company to an operating company.”

There were a number of positives in Sirius’ results. The national rollout of its service will now take place on July 1. It had originally been scheduled for Aug. 1. More importantly, the company has concluded renegotiation with Lehman Brothers the terms of its loans. Lehman Brothers has eliminated all of its subscriber and cash flow covenants for this year. New covenant requirements come into force in the first quarter of 2003. This marks a major success for the management team. James Marsh, a satellite equity analyst at Robertson Stephens, told Interspace, “There was an overhang issue. A lot of people were concerned that the whole story could unravel if they violated one of the debt covenants at year-end.”

These two announcements were seen as major positives in Sirius’ fourth quarter results. Marsh said: “Management is really beginning to regain credibility with investors. The previous management team had burned a lot of bridges with analysts and investors. Last year, the chipset delays bought their competitive advantages into question over [rival] XM. It bought the Lehman loan into question. They have ramped up the rollout and sorted out the Lehman loan. This is very important for a company at this stage in its lifecycle.”

The good news for Sirius does not stop there. Within the last two weeks it has announced OEM distribution deals with Volkswagen and Nissan to boost the sales of satellite radios to car drivers in the United States. Peck said: “I think the OEM players, particularly GM, have been willing to step up and start selling it pretty strongly in their vehicles. I think it is great that they are bringing in these OEMs. I think it puts more pressure on Toyota and Honda and the other remaining OEMs to jump aboard. I would look for a flurry of OEM announcements to come.”

Now the company faces the challenge of bringing the concept of satellite radio into the mainstream. At the moment, the company has a limited number of subscribers. This is partly due to the fact that Sirius has only a limited presence in only four markets, although this is rapidly going to change with the nation-wide launch date. Sirius believes it will add up to 200,000 new subscribers in 2002, although this might be a little ambitious. Peck cautioned: “We are more conservative in terms of our subscriber estimates. We are only estimating for 75,000 net adds this year. So, we are being conservative. It is a new product. They won’t be nationally launched until July.”

Sirius CEO Clayton told a conference call to expect subscribers numbers to significantly ramp up towards the back end of the year. He also said current numbers were in line with expectations, and that customer satisfaction with the service had been higher than originally anticipated. Sirius did not release exact subscriber figures. William Kidd, a satellite equity analyst at Lehman Brothers, said in a research note that the company’s early sales had been hampered by factors such as the lack of a nationwide footprint, minimal advertising and product shortages.

At this stage, Sirius is fighting to play catch-up with its main rival XM. “Everyone seems to be positive about XM and the industry. Clearly, they have lost the leadership position to XM Radio but it does not really concern me at this stage as it is a marathon. People have been taking the first 100 million and extrapolating it into 26. 2 miles,” Marsh said.

–Mark Holmes