Merrill Lynch On Sirius FCC Isuue
July 6, 2006
Satellite Standard Group keeps you informed. Merrill Lynch Analyst Laraine Mancini has issued a report.
Report Excerpt:
FCC FM-modulator letter is more of the same
Directed Electronics, Inc., a seller, marketer and distributor of SIRIUS-branded
satellite receivers with distribution rights to Best Buy and Circuit City, received a letter from the FCC indicating that the Sirius ST2 and Sirius S50-C radios do not comply with either operating frequency range or applicable emission limits. This letter is similar to ones sent to several SIRI radio manufacturers over a month ago,
which SIRI responded to by implementing a fix at the factory for all units being produced and we believe the FCC is already testing the new units for compliance. We do not anticipate any material impact and are maintaining our SIRI estimates.Do not anticipate inventory impact
Sirius received its first notification of this issue in May and immediately made changes in the radio software to eliminate the FM-modulator issue. While the FCC
has not approved the change yet, SIRI believes its updated radios are fully compliant and have manufactured adequate supply to avoid supply chain disruptions. Upon receiving FCC approval (units already available at testing facility), the new radios can be released to retailers. Management remains confident regarding full-year subscriber additions as evidenced by its reiterated guidance on May 24th, after it was already aware of the FM-modulator issue.
Maintaining FY06 subscriber estimatesWe are maintaining our FY06 estimates for ending subscribers of 6.3 million, revenue of $636mm, and an EBITDA deficit of $573mm.
Maintaining Buy
We are maintaining our Buy rating and $9 price objective on SIRI. In our view, investors must separate XM news flow from SIRI fundamentals, which should be easier to do as SIRI continues to meet its milestones while XM works to eliminate overhangs mentioned above.
Interested SSG readers can obtain more information, including disclosures from Merrill Lynch
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