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XM Launches Direct Retail Plan

10/13/2003 02:00:00 AM Eastern

XM Satellite Radio is taking increasing steps to become a hardware supplier as well as a service provider of satellite radio.

The company is expected to announce today that it will begin selling XM tuners directly to retailers under a new XM Direct program. The tuners can plug into any aftermarket or OEM head unit without the need for an FM modulator, although they will require special adapters for each brand.

Alpine said it would stop selling XM tuners for its XM-ready head units as a result.

XM said it can achieve better economies of scale by offering a tuner for any brand of head unit and said its tuner will sell for a price significantly below Alpine's model, currently in the $200 range.

"Alpine and XM have agreed that it would be more advantageous for us to have XM introduce an XM-branded tuner box that can work with Alpine's head units, as well as other company's head units," said Dan Murphy, XM's senior VP, product marketing and distribution.

The new XM Direct will ship to dealers through a distributor, to be announced, during the first quarter of next year. The price will also be announced shortly.

"It's a significant change to how we usually do business," said Alpine marketing VP Stephen Witt. "Now you have the manufacturer not making money on the hardware, yet totally reliant on the piece of hardware to play in the category. And you have retailers dealing with multiple vendors."

The release of XM Direct follows XM's recent announcement that it will begin selling FM modulators this month, which will be distributed by Terk.

To further confuse the alliances between XM and Sirius and their hardware partners, suppliers can convert their equipment to either service through the use of third-party adapters. XM-ready head units could work with Sirius tuners to provide Sirius service. "We could offer Sirius tuners [for Alpine head units], although it's not our plan," said Witt. "However, it's probably a very real scenario over the next two years."

Suppliers noted that many radios will be "interoperable," offering both XM and Sirius capability, by the year 2006.

The current transition from Alpine to XM-branded tuners is just one of many supply problems heading into the critical holiday selling season. Sirius is also facing supply issues, and some dealers are reporting problems ordering Pioneer XM tuners.

"Other than the Delphi piece, it's pretty hard to get anything [in satellite radio] right now, " said J.R. Stocks, 12-volt sales manager for Myer-Emco, Gaithersburg, Md. "Customer demand is there but the product isn't available."

Pioneer said it had a shortage on its GEX-P910XM tuner, and that it is now caught up with demand. However, several dealers said they were still out of stock.

On the Sirius side, the shortages are even greater. Clarion has been allocating its Sirius tuner for the past two months and does not expect to offer a new model until later this year.

Panasonic said it nearly sold through its first-generation Sirius tuners and cannot yet state when it will offer a second-generation product. JVC said it may offer a Sirius plug-and-play product around CES, or later.

The bulk of Sirius hardware is available from Kenwood, which said it shipped well over 60,000 Sirius tuners in the last few months. Audiovox says it recently shipped 19,500 units.

"If someone is not a Kenwood [dealer], they may be experiencing shortages," said Stan Koslowsky, Sirius senior VP, retailer operations. But Audiovox is expected to fill the pipeline by the fourth quarter. Larry Pesce, Sirius senior VP, product development, noted that Audiovox "is maxing out capacity. We expect it will be distributed very widely by the fourth quarter."

Retailers said the shortages are occurring at the worst possible time, not only because of the holiday selling season, but because sales in traditional car audio are down by double digits. "In a challenging market we want the people who come into the store to be absolutely thrilled with the experience. Basically, now we're either walking the customers or selling them down," said Joe Cavanaugh, owner of Stereo West, Omaha, Neb. He reported a 30-day back order on some XM products and two months on Sirius.

Bill McDowell, owner of Wild Bill's Electronics, Boaz, Ala., concurred. "It's very hard to get the equipment for Sirius." Certain suppliers either are not shipping on time or redesigning their products. However, he added, "XM is selling quite well. We sell at least a dozen or more a month on average."

Best Buy said its stock levels are fine and it doesn't expect any shortages.

Audio Express, Phoenix, reported strong sales in both XM and Sirius product. Merchandise manager Paul Gosswiller said it just began to sell Delphi's XM unit and is looking into Audiovox and Kenwood on the Sirius side. "Our numbers are great — about a half dozen a store for each service per month," he said.

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