Bear Stearns on XM Q1

April 23, 2007

Peck notes on XM Satellite Radio:

Looking Forward to 2H

Investment Thesis. Both satellite radio stocks have declined significantly since they announced the agreement to merge as the merger outcome remains uncertain and visibility on the merger process (especially at the more important DOJ level) remains limited and the retail environment remains challenging even as the OEMs are likely to pick up speed only towards 2H07 and going into 2008. While OEM will determine LT valuations, NT retail outlook remains tepid. As such, we think investor interest remains limited until there is more visibility into either the merger outcome or the YoY unit sales comps improve.

1Q07 Preview. We are tweaking our 1Q estimates given that the retail environment continues to remain challenged and the OEM contribution would become more meaningful in 2H.

• Sub Adds. We are reducing gross sub adds from the retail channel to 387k, which implies a decline of 25% from the 516k levels in the year ago period, likely a reflection of the both the market environment that remains challenging as well as the fact that NASCAR transitioned to Sirius this year. From the OEM channels, we expect 569k gross adds, up about 15% YoY from the 491k level in 1Q06. In aggregate, we are projecting 957k gross adds during the quarter. We are reducing our estimate of net sub adds to 285k from 375k, which is in line with street consensus of 280-290k.

• Financials. We are projecting total revenues of $264 mn, which remains virtually unchanged, and is in line with consensus. For Adjusted EBITDA, our estimate of $(27) mn is in line with consensus. On the call, we expect the company to discuss the accounting impact of merger related costs, on which XM had limited visibility when it had reported year-end 2006 results.