The satellite radio industry in the United States could take a critical hit depending on how the bankruptcy of equipment supplier Delphi Corp. plays out.

Delphi, a key manufacturer of XM Satellite Radio equipment, as well as some equipment for Sirius Satellite Radio, filed for bankruptcy protection Oct. 8 under Chapter 11 of the U.S. Bankruptcy Code. The move was necessary “in order to preserve the value of the company and complete its transformation plan designed to resolve Delphi’s existing legacy issues and the resulting high cost of U.S. operations,” the company said.

Delphi Chairman and CEO Robert Miller said the company’s operations would not be affected by the filing.

Satellite Radio Not In Sites … Yet

The two satellite radio companies could, in theory, could suffer a blow to its business if Delphi’s satellite radio manufacturing operations are affected by the restructuring. But XM has the most to lose.

Delphi makes a variety of XM radio receivers and products, including the Myfi portable receiver and the Roady and Skyfi family of receivers. Delphi also provides a recently introduced repeater to allow for XM reception indoors where satellite reception would otherwise be limited or non-existent.

Delphi also manufacturers receivers for Sirius, which are factory-installed by automobile manufacturers. It does not supply any of Sirius’ retail satellite radio receivers and products.

For the moment, the satellite radio operations do not appear to be among the 11 manufacturing plants that Delphi is considering closing. Plants that could be cut focus on small automotive parts, such as oil filters, spark plugs, hoses, brakes, struts, shocks and other parts. In fact, Delphi said it is looking to focus less on the smaller parts as part of its U.S. operations and more on the higher end products such as satellite radios.

But with strikes by United Auto Worker members at plants being discussed in the media, there is always the possibility that the satellite radio side of Delphi’s operations could get caught up in a labor dispute as the reorganization process continues.

XM representatives did not return phone calls seeking comment on the Delphi bankruptcy.

Wait And See

Given that Delphi just entered into the bankruptcy process, it is too early to tell what the outcome of this will mean, Sean Butson, an analyst at Legg Mason told Satellite News.

“I don’t think there is going to be any disruption of the production of satellite radios at Delphi,” Butson said. “The reason for that is it is a profitable, fast-growing division within Delphi, so management, in my opinion, is going to do everything in its power to keep it going. When you are struggling, you focus even more effort on making sure the good businesses are still continuing to grow.”

Where the red flag comes up for Butson is the ripple effect this could have on General Motors (GM). Delphi was spun off by GM but continues to be a main supplier of parts to the automobile manufacturer.

“I think the real issue here is whether the Delphi bankruptcy could affect the GM auto assembly lines,” Butson said. There could “be an effect in terms of some sort of supply disruption of assembly components or other things that [Delphi] supplies to GM, and that could impact GM production of cars, which then impacts sale of cars with satellite radio in them.”

Butson also noted that the Delphi filing could cause GM to follow Delphi into bankruptcy court. According to a Form 8-K Delphi filed with the U.S. Securities and Exchange Commission, GM is responsible for some of the health and pension benefits of Delphi employees valued at up to $11 billion. “That is an additional potential issue,” Butson said.

But for the upcoming holiday season, it should be business as usual for XM.

“I don’t think in the near term there will be any shortages” of satellite radio receivers, Butson said. “Next year, could there be some sort of supply shortages? I don’t think [there will be shortages of] retail radios, but sure there could be some shortage of automobiles that have radios in them. That is where the issue would be. It is too early to tell.”

–Gregory Twachtman

(Sean Butson, 410/454-5917)