Sirius Subs Double, But Trouble Looms

Digital satellite radio is one of the most promising entertainment developments since the invention of the DVD. It's also a high-risk venture for investors.

In mid-August, Sirius Satellite Radio reported that it had almost doubled its number of subscribers, which increased from 3347 at the end of June to 6510 by August 11. With a massive advertising blitz planned for fall, and with the increasing availability of satellite radio receivers, company president Joe Clayton estimated that Sirius could have as many as 75,000 subscribers by year's end.

That rate of growth may not be sufficient to keep the startup out of bankruptcy, however. Sirius reported $70,000 in revenue for the second quarter ended June 30, but had a $67.3 million loss in Earnings Before Interest, Taxes, Depreciation, Amortization and Non-Cash Compensation (EBITDA). The loss was twice the level reported for the same period last year, $32.8 million. Net loss for the quarter also almost doubled, $113.3 million for Q2 2002 compared to $62.1 million in 2001. As of June 30, Sirius reported cash assets of $326.9 million, enough to sustain its operations into the second quarter of 2003.

In a filing with the Securities and Exchange Commission, Sirius stated that, without further funding, the company could seek bankruptcy protection. Other options include the sale of the company or a cash-for-equity trade with creditors.

On August 8, Sirius announced a $75 consumer rebate offer that will reduce the effective purchase price for a Sirius-compatible radio system to as low as $175. The rebate program will run from August 15 through November 17, according to Sirius marketing vice president Mary Pat Ryan, who made the announcement at the Satellite Broadcasting and Communications Association's (SBCA) 2002 Annual Satellite Conference and Expo in Las Vegas. "Store shelves are now filled with fabulous product from Kenwood, Clarion, Jensen, Audiovox, and, soon, Panasonic, and we are thrilled to offer this rebate to consumers who have waited for our entry into the market," said Ms. Ryan.

In addition to its marketing efforts, Sirius is making technological improvements. The previous day, Sirius announced that it would introduce a new, second-generation chipset for its satellite radios during the fourth quarter of this year. The new chipset utilizes Agere Systems' 0.13 micron, 6-Layer Metal technology to integrate all digital portions of the receiver circuitry, excluding memory, into a single chip, with analog and mixed-signal integrated circuits completing the required circuitry. The chipset advancement will shrink a satellite radio receiver to about the size of a credit card. Current receivers are about the size of a large paperback book. The size reduction will also improve the receiver's efficiency, cutting its power requirements by 50%. Production costs will be reduced by approximately the same percentage, Sirius spokesmen stated.

"This new chipset will accelerate our plans to introduce second-generation Sirius radios into the marketplace," said Joseph P. Clayton, president and CEO of Sirius Satellite Radio. "We are excited to be moving forward in a dynamic way with our technology partner Agere, and are eager to reap the benefits of this technology in terms of cost, performance, and efficiency." The improvements will allow "car radio manufacturers to offer a fully integrated receiver in the dashboard," said Edwin Muth, managing director of Agere Systems' satellite radio component business.