After finishing ahead in the race to launch the first global satellite phone system, Iridium is stumbling in what should have been its victory lap.
By November, the Motorola-led consortium had rocketed 66 satellites into orbit, belting the globe from a height of 485 miles. The company had raised a record US$2 billion to build the first-of-its-kind network capable of routing calls anywhere on earth. And its representatives had negotiated agreements with 140 countries for its nifty satellite phone service.
Now, Iridium (IRID) faces what could be its toughest challenge: actually selling phones.
Iridium is nowhere near signing up the 27,000 subscribers it expected to have in the first quarter. At the beginning of the year, it counted only 3,000 customers.
On Monday, the Washington consortium said it's on a 60-day reprieve to pay lenders, since it couldn't come up with the cash. Iridium needs the time. A shortage of handsets has put the company way behind schedule.
Analysts wonder if, in its rush to get satellites in orbit, Iridium failed to flesh out its marketing strategy.
"Their mind was focused on putting the technology to work," said Timothy O'Neill, an analyst with SoundView Technology Group. "What they put off was sales and marketing. And that's coming back to haunt them."
According to Monday's announcement, Iridium has until the end of May to round up 52,000 customers for all of its services, including satellite phones, paging, and calling cards. By then, Iridium will also have to show at least $30 million in revenue.
Iridium has had to deal with the fallout from a key supplier's early failure to manufacture enough handsets. The manufacturing shortfall, by Japan's Kyocera, hurt Iridium's November commercial launch, and so did a shortage of salespeople and service providers.
As a result, it suffered huge losses. In the fourth quarter of 1998, Iridium suffered a jaw-dropping loss of $440 million on revenue of just $186,000.
To make matters worse, Iridium announced Monday that its chief financial officer, Roy Grant, is leaving the company in April. Grant, who led the company through its early rounds of fund-raising, said he was leaving for personal reasons.
