Only a few years ago, Iridium Satellite LLC, like others in the Mobile Satellite Services (MSS) sector was teetering on the edge of extinction. But Iridium Satellite LLC is showing positive trends in key financial indicators and is confident about its business prospects for the future.

To help turn around the company, Iridium in early 2004 refocused its business to target key vertical markets: maritime, aviation and the government. “We saw those [markets] to be the ones that have the greatest opportunity for growth for us, ones that are very unique,” Iridium Chairman and CEO Carmen Lloyd told Satellite News. “We fit into those markets very well because of our global coverage. [Focusing on those markets] has paid off dividends for us significantly with the kind of subscriber growth that we have seen.”

Iridium reported via a press release Feb. 23 that as of the end of 2004, it had more than 114,000 subscribers, representing a 22.5 percent increase versus its year-end 2003 subscriber totals. The boost in subscribers was also accompanied with an increase in revenues for the year, 23.2 percent over total revenues from the prior year.

In addition to the revenue growth, the company also said in its press release that it ended 2004 with positive EBITDA (Earnings Before Income Taxes Depreciation and Amortization) versus a negative EBITDA in 2003. The company said it was a positive change of more than $20 million.

But in conversation, Lloyd declined to offer any more specific details about the company’s year-end financial figures.

“We reached an inflection point on cash flow,” Lloyd said. “We are positive cash flow month after month. We reached that point in the Fall of 2003.” And with regard to net income, he said the company reached net income positive on a month-to-month basis, but Lloyd declined to say what month specifically the company began recording a positive net income or whether the company reported a positive net income for the full year. He did say, however, the he expects the company to continue to record positive EBITDA and cash flow, as well as a net income into 2005. And early indications on hardware sales and activations back up Lloyd’s prediction that 2005 will be another strong year for the company.

“We had a very strong January, probably a record month in the sense of actual hardware sales and activations,” Lloyd said. “We have not received the final numbers yet but certainly the sales side of it continues on the ’04 growth curve. Traditionally, we had seen some seasonality because we were so narrowly focused on things like fishing fleets. Now, we didn’t see that seasonality at all. January has not been a strong month historically, but it was a very strong month for us revenue-wise and activation-wise, and February looks to be more of the same.”

Data Usage On The Rise

In addition to the focus on the previously mentioned vertical markets, Lloyd pointed to the company’s growing usage within, and hinted at some future plans it has to take advantage of, the growing data market.

“Iridium has added some unique services in the data sector that provide very economical, cost-effective short burst data as well as messaging services,” Lloyd said. “That piece of the business alone grew by 49 percent in 2004 compared to 2003. Clearly adding services like data and not being a voice handheld product only and then going after markets where those products are most in use has been the big change in both the strategy and focus.”

Lloyd mentioned that data usage is growing at a faster rate than its voice usage, but he declined to offer more specific details on what percentage of the overall traffic on the Iridium system is data and what is voice.

But Lloyd did note that the company will be looking to further its data revenues from a new data-only product.

“We started development on a new lower cost data device that is data only but provides all the same features that our current data products do but at a much lower cost for hardware acquisition,” Lloyd said. “This new low cost device opens up new opportunities in markets that maybe the retail price and the embedded price for the current L-band transceiver (which has voice capability as well) was a little too high for some of those markets.”

Lloyd suggested that Iridium may move into the asset tracking market with its data-only product. “Low cost data device will fit nicely into an asset tracking type market,” he said, adding quickly that Iridium would not be looking to compete head-to-head with other terrestrial-based asset tracking services. “I am not suggesting that it will be at the price of asset tracking that you will have in a terrestrial system. That is not our niche. If you want low-cost asset tracking worldwide, then this product is ideally suited for that.”

Defense Market Remains Strong

Of the vertical markets that Iridium targets, the defense industry remains a strong one for the mobile satellite operator.

“We continue to provide critical communications to the department of defense,” Lloyd said. “We are continuing to look for new products and new opportunities to serve that community as I think we are all aware the war on terrorism will continue for quite a long time to come. They in fact have started to pick up their demand on data products as well. So it is not merely a handheld phone for the war fighter.”

Lloyd continued, “A lot of our new activations with them have been for using the L-band transceiver, which is built into some other vehicles. We are looking in 2005 at some RFID applications, Bluetooh applications and sort of building that on to Iridium and have some of our partners do that to provide those kinds of service not only for DoD, but for commercial as well.”

One product under development right now that is getting a lot of attention is Iridium’s netted radio product, which Lloyd said is expected to roll out in the latter part of this year. The product will offer “a push-to-talk feature and provide a netted capability where hundreds of users will be able to communicate at the same time using an Iridium product.” Lloyd said the product will work on existing equipment because the service that is being developed is a software load and not a new hardware offering. It is not a question of having to buy new equipment because the service will be available following a software upgrade in Iridium’s network. “That project is coming along nicely in its early stages. We anticipate that we will have that available for Defense Dept. and commercial customers as well,” he said.

A Sustainable Niche

Brownlee Thomas, principal analyst of global telecommunications services for independent technology research company Forrester Research, shared Lloyd’s optimism for the future of Iridium. However, Thomas qualified her optimism by noting that the government must continue to play a role in Iridium going forward.

“I think Iridium has a sustainable niche,” Thomas told Satellite News. Iridium has been able to rescue a resource and make it a viable and profitable business.”

But that profitable business hinges on the government, Thomas said. “The key to [Iridium’s] success will be its ability to hold onto those government contracts,” Thomas said. “If Iridium loses the government contracts, it will disappear.”

–Gregory Twachtman

(Brownlee Thomas, Forrester, 514/487-2292; Liz DeCastro, Iridium, 301/571-6257)