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Sirius OEM Deal Talks Are Dragging On

NEW YORK — Sirius Satellite Radio is continuing to test its network before launching commercial service but the company said it is taking longer than expected to negotiate final terms with automakers to offer Sirius service in particular car models.

Production of aftermarket car tuners is also taking longer than expected. Before CES, Sirius projected late-second-quarter availability but “that has been pushed out a little,” a spokesman said. Nonetheless, the company is still targeting summertime shipments.

Meanwhile, the company continues to test prototype radios and its satellite network. Sirius also is obtaining feedback from consumers about its proposed programming, completing the terrestrial-repeater build-out and testing its subscriber-management systems to ensure “end-to-end quality assurance,” said chairman David Margolese. The commercial launch will depend on receiver availability and the completion of these tests but “we’re going through the list quickly,” he said.

“We have not put a hard month on the service launch but to come close to the Street’s consensus for our numbers, we have to launch by September [with aftermarket products],” he noted.

Margolese didn’t cite specific consensus figures but the Carmel Group, in Carmel-by-the-Sea, Calif., has forecast 500,000 subscribers to both Sirius and rival XM Satellite Radio Service in 2001.

The Street’s 2001 subscriber numbers, Margolese said, are based primarily on availability of aftermarket radios, most of them expected to incorporate discrete components rather than the eight Sirius chips being developed by Agere, formerly a part of Lucent.

“We’re not saying we’ll miss September, but it is possible,” Margolese said. In cautioning investors to be “conservative” in their ’01 forecasts, he also said the outlook is “still favorable over the next 12-24 months.”

For its part, Panasonic’s Rob Lopez, car audio national marketing manager, said his company “tentatively hopes” to begin tuner production in a Peachtree City, Ga., factory in August, either with the delayed integrated Agere chipset or less integrated solution involving more chips. In mid-2000, the company had targeted a Feb. 1, 2001, production start but once Panasonic got indications that the Agere chipset might be delayed, “we partnered as a fallback with a third party for a less integrated chipset,” Lopez said.

Sirius said it believes other manufacturers besides Panasonic will be able to manufacture tuners in time to support the network’s launch.

As for OEM agreements, Margolese told analysts that Sirius and the automakers “are not hung up on points of negotiation” but that negotiations are taking longer than expected because automakers are like supertankers that “take seven miles to turn.”

Before CES in January, a Sirius spokesman said select car models would offer Sirius radios in the first half.

The bureaucratic challenge has been compounded by other issues, Margolese said, including Ford’s Firestone-tire recall, Chrysler’s financial problems and an auto industry slump that began six months ago.

“Nothing fundamental” separates Sirius and the automakers, he said. Sirius wants to include the price of a receiver and a year’s service as standard equipment. Although the automakers “have not signed off on that,” he said, “conceptually, our interests are aligned.” Sirius “has not received pushback in this area in the year and a half that we have been talking about this.”

In other comments, Margolese said:

  • The company’s terrestrial repeater network will be finished in the second-quarter. Seventy-one are up with 23 to go.
  • Matsushita will initially make 12,500 tuners per month but can ramp up to produce 100,000 per month.
  • Agere has already shipped sample chips to radio manufacturers for evaluation and comment and Margolese expects finalized chips to be available to radio makers in August, with commercial radios incorporating the chips available “shortly thereafter.”
  • And that Sirius has enough cash on hand to continue operations through mid-2002, assuming an “aggressive service ramp-up,” or through mid-2003, assuming the expected ramp-up pace.

In another development, Panasonic revealed plans this year to market two Sirius-ready CD-receivers, perhaps as soon as the summer, to complement a system that can be added to any existing sound system.

Before CES, the company mentioned one such CD-receiver and wasn’t sure whether it would be available in 2001.