The satellite-based telecommunications market made headlines again last week as Globalstar Telecommunications Ltd. released disappointing financial results and bankrupt provider Iridium L.L.C. endorsed a $25 million buyout bid from former airline executive Dan Colussy.
Globalstar’s results were based on what it called “unacceptably slow” subscriber growth and usage. 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 Ltd., which holds a 40-percent stake in the company, reported it would no longer provide much-needed financial support to the beleaguered telecom provider.
Globalstar’s stock lost more than 60 percent of its value on Monday after the company reported third-quarter net losses of $97.5 million, or $1 per share, short of analysts’ predictions of a loss of 90 cents per share and significantly higher than the 20 cents per share the company lost for the third quarter of 1999.
After trading as high as $53.75 at the beginning of the year, Globalstar’s stock has lost more than 95 percent of its value throughout the year, settling at $2.38 per share on Monday. The stock made a small recovery during the week, almost hitting $4 per share, before retreating back to the $2 per-share range on Friday.
“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 now, 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. Both Merrill Lynch & Co. and Credit Suisse First Boston cut 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 hard, with Qualcomm Inc. shares losing 9 percent on Monday due to concerns of the company’s exposure to Globalstar. 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 last week, Iridium L.L.C., owner of the defunct $5 billion Motorola Inc.-backed satellite company, endorsed a $25 million bid for its properties, from a group headed by Colussy. If the deal is approved by the U.S. Bankruptcy Court in Manhattan, on Nov. 8, control of the system would be turned over to Boeing Co.
Motorola, which is looking to wash its hands of more than $3.5 billion in losses, said it “would have no further obligations to operate, maintain or decommission the constellation of satellites” if the deal is approved.
