Red Ink, Executives’ Departures Jolt Iridium
Iridium, whose launch last year of the first global satellite telephone network made its distinctive phones the latest high-tech status symbol, is reeling in the wake of wider-than-expected first-quarter losses and the departure of several key executives.
The financially struggling company, backed by Motorola Inc. and Japanese electronics equipment maker Kyocera, said Monday that its loss for the quarter would be $505 million, or $3.45 a share, compared with a loss of $205 million, or $1.45, during the same period a year ago.
The ambitious bid by the Washington-based satellite consortium to launch a global wireless phone service was never expected to be an overnight success. But missteps by Iridium’s marketing team and its 16 overseas partners have compounded the woes for a company that has spent about $5 billion to launch 79 satellites that allow subscribers to make wireless phone calls from even the most remote outposts on the planet.
The company’s setback has cast a cloud over the emerging global satellite telecommunications industry, which is spending billions to make the planet one wireless global village. Several companies--from the Teledesic venture backed by Microsoft Corp. Chairman Bill Gates to Globalstar Inc. to ICO Global Communications--have announced plans to launch more than 500 satellites in the next five years.
“This is not a very good business to begin with,” said Bruce Kasrel, a senior analyst with Forrester Research Inc. in Cambridge, Mass. “It’s capital-intensive, and there are very few people who really need global service that stretches into the Gobi Desert. The majority of wireless phone service takes place in metropolitan areas and you don’t need satellite service for that. It’s a tough sell.”
Iridium’s chief executive, Edward Staino, was the first to succeed in offering global wireless service. But he left abruptly last week after he was unable to get Iridium’s sales and marketing under control.
During a conference call Monday, a spokeswoman attributed Staino’s resignation to “differences of opinion” with Iridium’s board of directors. His departure follows that of Chief Financial Officer Roy Grant, who resigned April 16. In addition, Iridium announced Monday that its top marketing executive, Mauro Sentinelli, will leave the company in May.
Before Iridium began offering global wireless phone service last November, the company predicted it would need about 500,000 customers to break even. Iridium has attracted only 10,294 customers, according to Leo Mondele, senior vice president of business development.
Company executives and outside experts cited a number of reasons for Iridium’s slow growth. They range from slow production and distribution of the telephones to poor coordination of marketing with regional partners and the high cost and user-unfriendliness of the bulky Iridium handset itself.
Unlike the sleek, pocket-size devices offered by traditional wireless carriers, Iridium’s $3,000 handsets weigh nearly a pound and resemble Vietnam War-era walkie-talkies. Many customers have complained about their size, the complexity of hooking them up to a companion satellite antenna and the $3-a-minute fee Iridium charges for each call.
Iridium’s Mondele acknowledged Monday that his firm’s telephone has some “usability issues.” He said Iridium is considering lowering prices for its equipment and wireless phone service and is working with suppliers to do more education and training to help customers adjust to the technology.
Analysts are divided over whether the contemplated changes can rescue the company before a wave of newcomers enters the business.
The stock, up 38 cents to $16.38 on Nasdaq on Monday, has crashed from $72.19 last year.
