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Globalstar Shares Fall 60% on Profit Report for Quarter

October 31, 2000|PETER PAE | TIMES STAFF WRITER

Shares of Globalstar Telecommunications Ltd., the last surviving satellite-based mobile telephone service, plunged by more than 60% Monday as investors questioned its viability amid disappointing third-quarter earnings and a report that a stakeholder would no longer invest in the company.

The latest decline put the San Jose-based company in jeopardy of joining Iridium and ICO Global Telecommunications Inc. The two satellite operators filed for bankruptcy last year after running out of money in their quest to offer global mobile telephone service.

There are currently 48 Globalstar satellites in orbit, beaming telephone calls from all over the world. The $4-billion system allows a tourist backpacking in the Australian outback to call a friend in New York.

But so far hardly anyone's been calling, turned off by the bulky phones and the high cost of the service, analysts said. The 21,300 users it has so far signed up, is far short of the 500,000 the company says it needs to break even and twice that to make a profit.

"The marketplace is very dubious about the prospects of Globalstar," said Debra A. Fiakas, an analyst with Great Neck, N.Y.-based HD Brous & Co.

Globalstar shares fell $3.63, or 60%, to close at $2.38 per share in heavy Nasdaq trading. More than 23 million shares traded hands, or about 10 times the average. Globalstar shares were trading as high as $53.75 in January.

The free fall is expected to continue today as two brokerage firms issued rare sell recommendations late Monday afternoon just before the close of trading. In addition to Credit Suisse First Boston, which lowered its "hold" rating to "sell," Merrill Lynch cut Globalstar to "sell" from "neutral" saying, "we feel that the equity value of Globalstar's shares is zero."

Globalstar's woes also dragged down San Diego-based Qualcomm Inc., co-founder and major equity holder, as its shares fell 9%, or $6.75, to close at $68.13 on Nasdaq.

Analysts said investors were particularly disappointed at the larger-than-expected loss in the third quarter as well as the company falling short of its target for attracting subscribers.

The company reported a third-quarter loss of $97.5 million, or $1 per share, on revenue of $1.4 million. Analysts polled by First Call/Thomson Financial had expected a loss of 90 cents a share.

In addition, Globalstar said it had so far signed up 21,300 subscribers for its system, far short of the 25,000 Wall Street was expecting.

But the biggest blow came in a report in the Wall Street Journal, which quoted Loral Space & Communications Ltd. Chairman Bernard L. Schwartz as saying Loral would no longer invest in Globalstar. Loral has a 40% stake in Globalstar.

In a conference call with analysts Monday, Schwartz, who is also chief executive of Globalstar, said that the article misconstrued his remarks, arguing that the prospects for the company were actually "promising."

"It is not an indication that we feel it is a failure," Schwartz said. "It's just the opposite. We believe we are close to success."

Schwartz further tried to assure Wall Street and said that the company has no plans to file for bankruptcy protection or restructure its $2.9-billion debt load.

"Globalstar is not on life support," he said, adding that Globalstar had enough cash to operate until May 2001. "We believe we have enough time, with the resources that we have in-house now, to demonstrate the viability of this project."

If Globalstar cannot significantly boost subscribers, it may end up like the other two satellite companies that when they were first announced in 1991 looked so promising.

A year-ago, Motorola-backed Iridium, with 55,000 customers, declared bankruptcy, a victim of weak sales, high operating costs and technical glitches. ICO also ran out of money last year, although efforts are underway by cellular telephone pioneer Craig McCaw to resuscitate the venture refocusing the system to carry more broadband and other high-traffic services.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Fallen Star

Shares of satellite-based mobile phone company Globalstar Telecom (ticker: GSTRF) crashed to new lows Monday amid concern about the company's future.

Globalstar shares, monthly closes and latest on Nasdaq

Monday: $2.38, down $3.63

Source: Bloomberg News

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