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Friday, September 08, 2006

Positive Cash Flow For Sirius, Or Not (SIRI)


An article at today made the point that most of the spending is behind both XM and Sirius. Free cash flow is on the way.

Well, maybe. If Sirius makes its number and hits 6.3 million by the end of 2006, and XM hits the high end of its range at 8.2 million, Sirius still has a lot of spending to do to add that next two million. And, no one is forecasting that XM will be throwing off buckets of cash at year-end. Sirius lost $250 million in the last quarter. If they have to have that kind of deficit until they get over eight million subscribers, they could easily go through another $1.5 billion over the next six quarters. XM lost over $100 million last quarter, so even at a higher subscriber base the still bleed money. Giving Sirius the benefit of the doubt, the may only have to lose $1 billion to get to where XM will be at year-end.

Sirius has $682 million in current liabilities, according to its 10-Q. Long term debt is $1.084 billion. There is about $575 million in cash and marketable securities. That leaves the company with a $1.1 billion hole. And, if Sirius loses total another $1 billion before breakeven, the hold almost doubles.

Even if the company has positive cash flow in 18 months, there is the devil to pay for the debt.

When satellite radio began, devices like the iPod were a twinkle in someone's eye (maybe Steve Jobs). That has changed. A lot. The devices that Apple is introducing and the Microsoft Zune are more than slaves to the PC. They are quickly becoming wireless devices that can move to the car. The same is true with the next generation of cell phones. If the Sprint WiMax infrasturcture works as well as Intel and Motorola say it will, it could power a new generation of portable audio and video players.

Sirius shares trade below $4 for a reason (they changed hands at $3.91 today). The future may not be kind to satellite radio. The competition is getting tougher. And, then, there is the debt.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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