Setbacks Leave XM With 'Explaining to Do'

Trouble at two key business partners, product delays, and the impending arrival of Howard Stern on the airwaves of a competitor have combined to drive the stock of District-based XM Satellite Radio Holdings Inc. down more than 20 percent over the past four weeks.

Stern's January start at Sirius Satellite Radio is expected to drive more than a million subscribers to the New York-based service, potentially cutting into XM's lead in customers, analysts said.

Though XM has 5 million subscribers, more than twice the 2.2 million of its competitor, Sirius reported faster subscription growth over the past three months and predicted a strong period ahead as Stern fans sign up.

Although XM had positive news last week when it released its most recent earnings report -- a 48 percent increase in new subscribers and a more than doubling of revenue from the year before -- the stock price still dropped 10 percent that day alone. XM closed yesterday at $27.85.

The issues run beyond the impact of Stern. The bankruptcy filing of Delphi Corp., one of XM's chief hardware makers, has raised concerns about the possibility of supply disruptions stemming from a labor dispute. The number of cars in which General Motors Corp. said it plans to install XM in next year fell below some investors' expectations during a downturn in the auto market. A highly anticipated device from Samsung that combines satellite radio with an MP3 player, meanwhile, has been delayed until after Christmas.

"Management's still got explaining to do," read the title of an Oct. 28 research note by CIBC World Markets Inc. analyst Jason Helfstein.

Helfstein and other analysts noted, however, that none of these issues is a long-term problem. "We believe all these issues can be resolved in XM's favor," Helfstein said in his note.

Hoefer & Arnett Inc. analyst April Horace wrote in a recent note that the market's reaction to such concerns was "overdone."

"The fundamental business model is intact," Horace said in an interview. "The path for growth continues to be strong."

XM charges $12.95 a month for 150 channels of music, news, talk, entertainment and sports on special XM satellite radio receivers. Sirius charges the same for about 120 channels.

Neither company has made a profit so far. Sirius yesterday reported that its net loss widened to $180.5 million, or 14 cents per share, from $169.4 million, also 14 cents per share, the year before. Revenue more than tripled, to $66.8 million from $19.1 million.

XM officials said they don't anticipate any fallout from Delphi's troubles, which involve unionized workers in the United States. Delphi makes XM hardware overseas with nonunion labor.