Merrill Lynch maintains Buy on Sirius Satellite

August 10, 2006

Satellite Standard Group Keeps You Informed.

Analyst Laraine Mancini of Merrill Lynch today mantained a Buy on sirius with a price target of $7.00.

Report Excerpts:

First catalyst surfaces…FM-modulator hurdle cleared
The FCC permitted grants of authority for the Starmate Replay, Xact Visor, SIRIUS One, and Sportster Replay radios. Upon receiving the approvals, Kiryung Electronics resumed manufacturing radios, which should alleviate concerns about an inventory shortage in 2H06. These FM-modulated devices combined with installed retail radio products account for 90% of SIRI retail sales in 1H06.

Shift to bull case on resolution of FM-modulator issue
In our report last week titled “Bull/bear analysis – 2H06 key catalysts”, we highlighted several catalysts to drive stock performance, including the resolution of this issue. We are updating our Bull/bear analysis to reflect a shift to the bull case on this FM-modulator issue. In our view, near-term inventory risk is alleviated and SIRI could gain retail market share in 2H06 (another catalyst) if XM does not receive certifications from the FCC before the holiday retail season.

Transmission noise near-term risk to churn?
The FM-modulator fix could result in some transmission noise given diminished signal strength. Near-term, SIRI will likely encourage wired installs, but longer-term we expect SIRI engineers to focus on another plug and play resolution. While we view the resolution as a net positive catalyst, we realize the customer experience could be diminished in some cases, which could impact churn.

Maintaining forecasts, but could have upside
We are maintaining our subscriber estimates, which could have upside if we enter September and December with no XM resolution since SIRI would be poised to take greater than its YTD retail share of 58%. Our estimates include a slow 3Q to reflect inventory risk, which we now believe has been mitigated.

SSG notes that Mancini is among the early analysts to note that many new cars will come equipped with an "Auxillary-In" jack. It should be noted that this jack is also part of "phase one" of the I-pod integration program for some manufacturuers. An "Aux" jack can run an I-Pod, and MP3 player, or a satellite radio. SSG also expects that XM will soon have their FCC issues resolved.

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8/10/2006 11:17:00 PM

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