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Satellite Radio Still Short On Supply: Retailers

6/18/2004 12:21:00 PM Eastern

New York - Satellite Radio, one of the hottest selling new product categories, has also proven one of the most difficult to manage from an inventory standpoint, said retailers.

Shortages and product delays have marked the category since its inception. At present, the XM Commander distributed by Terk is on back-order by about 30 days, according to XM. The new XM Direct has been delayed by about six months, leaving retailers with short or no supply of Sony, Pioneer and Alpine XM tuners. Sirius tuners for Ken-

wood radios have also suffered from spot shortages, according to retailers.

Dealers did not mince words on the topic. Paul Gosswiller, purchasing manager for Audio Express, Phoenix, said the problem “is from the XM side, not the Sirius side. Sirius supplies seem better both with Audiovox and Kenwood. On the XM side, there’s no reasonable explanation for most of the Japanese companies exiting the field, other than strained relations with XM.”

Mike Cofield, president of Custom Sounds, Austin, Texas, said the problems extend to Sirius as well. “Based on the history we’ve had with the two satellite providers, their ability to manage their inventory in a consistent manner has been poor, if not unacceptable. We believe that they have a tremendous need to get the situation under control if they are to be successful. Our confidence in their ability is exceptionally low but we hope that they are able to improve their fill rate…”

XM said some suppliers stopped producing XM direct-connect tuners in anticipation of the inexpensive XM Direct tuner, which was announced in January but has been delayed because of supply problems on the “smart cables” it requires.

XM Direct is a tuner that can plug directly into almost any head unit without the need for an FM modulator; however, it requires a separate smart cable for each brand. Each cable is expected to sell for $49.99. The XM Direct tuner will sell for the same price, resulting in a low-cost $100 tuner solution, including antenna, XM said.

Sony and Pioneer smart cables are expected to be available in July, Kenwood and Alpine cables in August. The XM Direct tuner will also ship in July, said XM. The cables were developed by Terk and Blitzsafe and will be distributed by Terk.

Steve Roth, CEO of Terk, said the delays in smart cables are due to parts shortages. “There’s a chip problem in Asia and certain shipments were missed by our suppliers, but we’re in the process of catching up,” he said.

The result is that one of the only XM tuner products in consistent good supply has been the Delphi XM SkyFi.

Audio Express said it has handled poor supplies by focusing on Sirius sales. It now sells Sirius at a ratio of 3-to-1 over XM, “not because people don’t want XM, but because I don’t have enough of it, or consistently enough of it,” Gosswiller said.

Tweeter, Canton, Mass., says its sales ratio is 60/40 in favor of XM.

Other retailers say they successfully shifted their XM business to the Delphi SkyFi plug-and-play unit, and therefore have not lost sales. “The customer is being satisfied with the use of Delphi with an auxiliary input. He’s saying, ‘I still want it’. I don’t know if the new smart cables will increase demand, but I expect it to remain high,” said Harvey Wright, CEO Autosound of Lexington, Ky.

Traffic Jam, of Campbellsville, Ky., said 80 percent of customers who came in looking for a free tuner on a Sirius promotion “would walk,” rather than switch brands if the tuner was out of stock, according to president David Hall.

Part of the reason for the shortages is the great success of satellite radio, which has enjoyed the fastest growth of any CE product except DVD. XM just announced it hit the two million subscriber mark and Sirius reported 350,000 subscribers in the first quarter.

Many hope the release of XM Direct this summer will shift more business over to installed tuners vs. plug-and-play tuners like the Delphi SkyFi.

“It’ll definitely change the dynamic,” said Hall, adding, “We can get some revenue on installation, and it gives us more of a professional image.” o