Iridium L.L.C. said two more of its satellites failed last week, adding to a list of concerns that caused the company’s stock price to fall about $8 following the disclosure.
Of the 72 satellites placed in orbit to date, seven have failed. According to Michelle Lyle, senior manager of corporate communications at Iridium, the failures will not affect the company’s service launch, planned for Sept. 23. She said Iridium had planned for nine satellite failures in its initial business plan. “We are well within the failure rate we anticipated,” she said.
In preparation of such failures, Iridium had reserved launch dates in August and October to replace satellites if necessary. Lyle said Iridium will use its August reservations to launch two satellites from a Long March rocket in China and another five from a Delta II. The two satellites from the Long March rocket will replace the two satellites that recently failed. Of the five being launched from the Delta II, two will fill two holes in the constellation, two will serve as in-orbit spares and the fifth will replace a failed spare in another plane.
“It’s not affecting our launch date. It has no financial impact on Iridium,” she said of the failures. “All our activities are going well in every way and we are still very much on track.” But she consented “there is not much room for further slippage.”
Lyle said Motorola Inc. informed Iridium of the failed satellites last Wednesday, just before a scheduled conference call with financial analysts detailing its second-quarter earnings. During that call, analysts raised several concerns.
First, delays in system software development are causing the company to miss certain milestones. Second, the delay means a shorter timeframe for alpha and beta testing prior to commercial service, and is expected to hold up deliveries from handset supplier Kyocera Corp.
Finally, the seven satellite failures worry analysts, even though Iridium said it anticipated some. The core concern is that Iridium does not know what caused this most recent failure.
While Merrill Lynch lowered its near-term rating on the company, from “buy” to “hold,” other analysts are holding off on any judgment until more information is forthcoming.
Tim O’Neil, an analyst at SoundView Financial Group, said he is not concerned with the delays in software development or handset deliveries.
“This is a very sophisticated project with state-of-the art communications technology,” he explained. “The actual Alpha and Beta testing under the original plan was very, very aggressive. As you have slippages, this window shrinks. The (launch) date is critical to keep the internal focus, but it doesn’t always help in maintaining external expectations.”
In other words, setting the Sept. 23 deadline motivates Iridium employees, but gives outsiders a reason to speculate whether that deadline will be met each time there is a setback.
O’Neil said his main concern is the cause of the recent satellite failure, which Iridium hasn’t determined. He wants to know whether these failures stem from the same problem that caused other failures, or if each failure is caused by something different.
“We don’t know if it’s systemic or unique,” he said. “If the problem is unique to the two satellites, they’re covered. If the problem is systemic throughout the whole network, they’re not covered.”
O’Neil said the stock price is falling because of this uncertainty. “It’s hype that’s driving it down, not knowledge,” he said.
