A Porsche 911 For $750
in USA Today there was an interesting piece by Kevin Maney on the rebirth of Iridium.
You may remember Iridium. Motorola poured $5 billion -- with a B -- into launching 66 satellites that would power a worldwide satellite phone network. Despite the $5 billion investment, the company went bankrupt and measured as one of the great business failures of our day.
Until today -- perhaps.
It turns out the Iridium assets were bought out of bankruptcy for $25 million by a random collection of investors (Maney analogizes the acquisition price to paying $750 for a Porsche 911 or $2 for a night at the Ritz). The new owners cut out all the bureaucracy, stabilized the system and are now operating the company in the black, in no small part thanks to the many reporters and military personnel in the Gulf using Iridium satellite phones to communicate.
Maney concludes "Once a joke, Iridium might turn out to be a leader."
I have no doubt that the excesses of the late 90's have led to a number of valuable assets being available for purchase for a song. That said, I find it a little hard to view the rebirth of Iridium as a business triumph. Iridium was a bad idea. There just wasn't sufficient business in the satellite phone market to justify $5 billion in capital costs to get it up and running. That the system is now making small amounts of money is a far cry from vindication for the initial supporters of the Iridium Project.
It's great news for the new investors and more power to them -- good entrepreneurs can always spot an undervalued asset -- but the $5 billion Iridium Project remains a business mistake of pretty colossal proportions.
David H.
Good idea... but how come no one supports???
But then... hope to see more SpIcE...
Rgds.
Posted by: Elfred | September 26, 2006 at 07:18 PM
I was involved in a due diligence for Iridum for a banker in 2002.
It was already pretty interesting back then. Iridium went backrupted in Aug 1999 and in Nov 2000 was bought out for 25M USD by a group of investor, including Khalid bin Abdula bin Abdulrahman.
In Dec 2000, DoD awarded a 2year 72M USD deal for 20,000 handsets with an option to extend it for 5 years. Supporting DoD alone covers 40% of the OPEX :-)
They only need 60,000 subscribers worldwide to breakeven.
The 66 "birds" (satellites) however have a lifespan designed for 7 years and would expire in 2005. However, the engineers is able to tune it and it is possible to last until 2008 to 2010 and minimual data service could still function until 2015.
The problem for the investors is that when the birds expire, it is going to be expensive excerise to replace them, probably to a tune of 3.5b, altho Boeing mentioned back then they are willing to share the cost.
Anyway, sadly the deal didnt go through. It would be interesting otherwise :-)
Posted by: James Seng | October 11, 2006 at 06:53 PM