Sirius Suppliers: 'Biz As Usual'; Analysts Voice Concern

NEW YORK— Despite the controversy last month surrounding a 10Q filing with the Security Exchange Commission (SEC) by Sirius Satellite Radio, here, hardware suppliers say they are proceeding with "business as usual." However, some analysts are concerned with Sirius' sales performance.

A Reuters report last month stated that Sirius filed a 10Q statement noting that if it did not secure an additional $300 million in financing by the second quarter of next year, it could be forced to seek bankruptcy protection. Sirius said it has consistently required additional financing and has consistently used the word "bankruptcy" in past filings, so the filing did not constitute 'news.' Even XM said it has filed statements using similarly worded disclaimers 23 different times going back to 1997.

Sirius suppliers Kenwood and Jensen took a business-as-usual approach.

"I think their announcement was based on accounting requirements. Everyone knows it's a risky business and we have to produce sales results over the next few months. But there was nothing that surprised us or upset us or that's impacted our daily plans for the fall," said Kenwood sales and marketing VP Bob Law.

Recoton marketing VP Meril Weinstein, speaking on behalf of Jensen, stated, "We're proceeding as normal." She and others added that, even if Sirius were forced into bankruptcy in the future, the service would likely continue.

While agreeing, analysts said they were disappointed in Sirius' subscription acquisition rate.

Ryan Jones, senior analyst at the Boston-based Yankee Group called Sirius' subscription rate, "shockingly low. If you look at where XM was a full quarter into their nationwide launch, its about three or five times as much, so that is a reason for concern," he said. Sirius reported it acquired close to 7,000 subscribers while XM acquired about 30,000 in the six-week Christmas season when it launched nationally last November.

"If their business is threatened and they can't raise additional funds, so much has been invested in the audio industry in this technology, it will need to continue," Jones noted. "My bet is we would see a merger between XM and Sirius." He added however, "that Sirius' investors would likely help prop up the company before letting that happen. "

William Kidd, senior satellite analyst for Lehman Brothers, New York, said, "I think we've definitely been disappointed with Sirius' rollout. Not only does Sirius have the legacy of a number of delays, but what really seems to be the company's problem now is lack of consumer equipment breadth to really make the sales happen. When someone goes in to buy satellite radio they are often not making a choice between XM and Sirius, but the brand, and Sirius has only had Kenwood as the star brand, although the company is taking some steps by pushing Panasonic."

Both XM and Sirius face the challenge of raising cash in today's tight financial markets, he added.

In its last conference call with analysts, Sirius lowered its projections for subscription acquisitions to approximately 75,000, down from 100,000 to 150,000 earlier this year.

Sirius said it currently has $295 million in cash that will last until the second quarter of 2003, and noted that it has stated from the outset it must continue to raise capital. Joe Clayton, president and CEO of Sirius, said he "remains extremely confident that we will secure additional financing shortly."

In other announcements, BMW said it will offer Sirius service in its new Mini Series, in addition to the BMW 3, 5 and X5 series previously announced. Sirius also said that a new chipset will be available that will be smaller and will increase operating power by 50 percent. The chipset will allow Sirius equipment providers to lower hardware costs, the company said.

Sirius is also offering a $75 rebate on hardware from mid-August through Nov. 17 on top of the promotional programs run by individual suppliers that include a $30 rebate on an antenna.