The satellite-based telecommunications market made headlines again as Globalstar Telecommunications released disappointing financial results and bankrupt provider Iridium endorsed a US$25 million buyout bid from former airline executive Dan Colussy.
Globalstar’s results were based on what it called “unacceptably slow” subscriber growth and use. At the end of the third quarter, the MSS operator counted 21,300 subscribers, well short of analysts’ predictions of 1.6 million customers needed to break even and below the company’s own estimates of 500,000 customers to cover costs of operations.
Adding to Globalstar’s woes, its primary financial backer, Loral Space & Communications, which holds a 40-percent stake in the company, reported it would no longer provide much-needed financial support to the beleaguered telecom provider.
The company reported third-quarter net losses of US$97.5 million, or US$1 per share, short of analysts’ predictions of a loss of US$0.90 per share and significantly higher than the US$0.20 per share the company lost for the third quarter of 1999.
After trading as high as US$53.75 at the beginning of the year, Globalstar’s stock has lost more than 95 percent of its value throughout the year.
“Globalstar is not on life support,” Bernard Schwartz, chairman and chief executive officer of Globalstar, told analysts after the company released financial results. “We believe we have enough time, with the resources that are in-house new, to demonstrate the viability of this project. There is no crisis atmosphere here, there is no life support, we are not holding up bills or accounts payable.”
Analysts were not convinced, with Merrill Lynch & Co. and Credit Suisse First Boston cutting their ratings on Globalstar to “sell.” Marc Cabi, an analyst with Credit Suisse First Boston, went as far as to say that the value of Globalstar’s shares was “zero.”
Schwartz tried to downplay Globalstar’s troubles, noting that even with the lack of funding from Loral, the company still has enough cash on hand to run through May.
Globalstar’s troubles hit other telecom companies, including Qualcomm, which also saw its share price drop following the news. Qualcomm, one of the five founding companies of Globalstar, supplies it with satellite-capable handsets and holds a 6-percent stake in the company.
Adding to the satellite-based telecom market troubles, Iridium, owner of the defunct US$5 billion Motorola-backed satellite company, endorsed a US$25 million bid for its properties from a group headed by Colussy. If the deal is approved, control of the system would be turned over to Boeing.
Motorola is looking to wash its hands of more than US$3.5 billion in losses.
