Iridium shares have been on a bumpy ride this week, dropping 15% after management indicated the direct-to-device (D2D) opportunity will occur in 2024 rather than starting in late 2023. Today, shares were up more than 3%.
Iridium announced a deal in January where Qualcomm will support Iridium frequencies in chips for Android phones. Iridium CEO Matt Desch had said earlier this year that the timeline for that OEM support rests in Qualcomm’s hands.
In prepared remarks during Iridium’s Q2 earnings call on Tuesday, Desch reiterated his belief that it will probably take 10 to 15 years to achieve some of the big numbers some analysts are talking about for satellite connectivity in smartphones. Iridium's already has a full constellation of its own, but launching new satellites and getting global regulatory approvals are required to achieve the industry's full promise of D2D, he said.
“We've completed our qualification work with Qualcomm, but know there's development and integration work required for these smartphone OEMs that adopt this new satellite technology. We don't have very good visibility in the timing or volume of specific smartphones, but from what we do know, we now expect the first activations will move into 2024,” he said, according to a Seeking Alpha transcript. “Our full-year guidance continues to assume that direct-to-device will not be material to our service revenue in 2023.”
The sharp selloff in Iridium shares on Tuesday appeared to have been triggered by investors with high growth expectations, in particular “some misguided investor expectation” of seeing a revenue ramp from D2D activations in 2023, according to the analysts at LightShed Partners.
They said it’s actually a good time to buy Iridium shares, pointing to several catalysts in the coming months, including continued news on industry milestones to expand the market for satellite connectivity to cell phones.
Reaching too high?
Tim Farrar, founder of TMF Associates, said it takes a complicated series of steps to bring D2D to market and a lot of analysts got carried away in their expectations about how much revenue D2D would generate. Some, for example, called it one of the largest opportunities in the history of satellite communications.
“It just shows the level of hype around this whole picture. Expectations are going to have to be scaled back a little bit across the board,” he said, including when it comes to newer entrants like Lynk Global's and AST SpaceMobile’s ability to build constellations and strike deals with mobile operators.
Luke Pearce, senior analyst at CCS Insight, told Fierce earlier this month that while there are a lot of encouraging signs for the D2D space, it also requires a lot of financing and comes with a high level of risk.
“There are a lot of questions, I think, around monetization. It costs a lot to get these satellites up there and even when you do, can you actually make enough to justify it in the first place?” In addition, while the satellites promise great coverage, customers have come to expect 5G speeds when in reality, “it’s going to be pretty basic,” and at least initially, more akin to a 2G experience, he said.
“There are some good signs, but there still are quite a lot of risks,” he said.
A recent Securities and Exchange Commission (SEC) filing on the part of AST SpaceMobile is a reminder of the toughness of the sector.
On June 27, AST Space Mobile filed an 8-K to clarify statements an AST SpaceMobile officer made to MergerMarket, including about the funding for future launches. AST SpaceMobile is currently spending about $40 million per quarter for adjusted operating expenses and continues to have discussions with various financing sources to enhance liquidity, the company said.
“We may raise additional funds through the issuance of equity, equity-linked or debt securities (secured or unsecured) and/or incurrence of secured or unsecured loans or other debt facilities. However, we have not obtained any commitments or entered into any agreement with respect to financing from strategic partners and no such transaction with a strategic partner is imminent,” AST SpaceMobile CFO Sean Wallace in the filing.