XM sees radio sales defying auto slump
NEW YORK (Reuters) - XM Satellite Radio Holdings Inc XMSR.O expects car radio sales to remain solid even if the most dire projections of slowing U.S. auto sales come true, Chairman Gary Parsons said on Monday.
The largest U.S. satellite radio service provider, which is waiting for regulators to approve its proposed merger with rival Sirius Satellite Radio Inc (SIRI.O), relies almost entirely on car buyers for customer growth. XM lost a net 17,000 retail customers, who buy radios from Best Buy Co Inc (BBY.N) and other outlets, in the third quarter.
Parsons expects retail subscriber growth to resume in the fourth quarter due to the typically busy holiday shopping season, but he said retail sales may decline in the first or second quarter of 2008.
"From our standpoint, we see a pretty solid, projectable growth trajectory coming from the new car marketplace," Parsons told the Reuters Media Summit in New York.
He said 70 percent of XM's new subscribers are people who buy its satellite radio service for their cars. But after taking into account customer cancellations, the company is reliant on autos for virtually all its net subscriber growth.
That might seem like a tough market to place bets on. At the Reuters Autos Summit in Detroit last week, three top investors painted a grim picture for the auto sector in 2008, with one executive predicting a possible slump in U.S. sales to levels not seen in 15 years.
Those gray clouds do not directly affect XM, Parsons said, noting that by next year, 40 percent of new vehicles will carry satellite radios, up from 20 percent last year. He expects that portion to rise to 50 percent in 2009, offsetting any drop in overall sales of new cars.
Automakers like satellite radio because it makes their vehicles more appealing to consumers. XM has previously said it expects about 3 million cars would be installed with its radios in 2007, including 1 million in the fourth quarter alone.
"Those quantum penetration leaps that are occurring within the auto industry overwhelm a 7 percent or 10 percent reduction in total volume base for each year," said Parsons, who founded XM and is a 40-year telecoms industry veteran.
He said XM was also positioning itself for the auto industry in the long term by building in various navigation and other "telematic" functions like door-locking switches.
"That product is not as easy to replicate in an iPod," he said, in terms of its device interfacing with the growing auto sophistication.
MERGER STILL ON TRACK
XM is the largest U.S. satellite radio service provider with 8.5 million subscribers. Its merger with Sirius is being reviewed by the U.S. Federal Communications Commission and the Department of Justice, and their findings may be made public as soon as this week.
"We continue to feel we have a strong case," said Parsons. Asked if the chances of approval were better than 50 percent, he replied, "Obviously, we would feel that it would be greater than 50-50 or we never would have announced the deal."
Under the deal, unveiled in February, XM shareholders would receive 4.6 Sirius shares for every XM share. At Friday's closing prices, the deal would be valued at about $4.9 billion. Parsons will be chairman of the combined company. Continued...
