OPIM 5894 ADVANCED PROJECT MANAGEMENT
IRIDIUM LLC CASE
Team 1
http://users.business.uconn.edu/snair/opim5894.html
What caused Iridium to fail?
2
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Over Estimating Demand and Difficulty
Attracting Subscribers
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Expected Demand did not materialize (2.25M subscribers
were expected by 1998 - $2.3B Revenue)
The correct target market was not identified
Competition from traditional cell phones much higher than
anticipated
Cellular Providers expanded roaming agreements
High Handset Cost
Prof. Suresh Nair, University of Connecticut
What caused Iridium to fail?
3
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Unable to fulfill orders
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Manufacturer issues slowed production
Distribution problems prevented early orders to
be unfulfilled
Prospective customers were confused about
ordering process and did not know who to buy
from
Early ordering process disorganized
Prof. Suresh Nair, University of Connecticut
What caused Iridium to fail?
4
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Financing Structure
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83% Debt to Equity Ratio
Much of the debt was short term financing
Fulfilling debt obligations hinged on Iridium’s ability to sign
up subscribers very quickly
High initial number of subscribers needed to break even
(approximately 1,000,000 needed)
Iridium was essentially operating on temporary debt
extensions, which eventually caught up to them
Prof. Suresh Nair, University of Connecticut
Why did Motorola finance Iridium with project
debt rather than corporate debt?
5
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Using project debt allowed Motorola to protect itself
from the high risks related to the project
Motorola would have been able to enjoy the rewards,
but were protected from failure
Putting the project on its own balance sheet could
potentially adversely affect stock price
In 2008, “A judge has finally ruled that Motorola has
nothing to pay over the bankruptcy of its Iridium
satellite venture in 1999”
http://www.zdnet.co.uk/news/networking/2008/05/23/nine-year-iridium-bankruptcy-saga-over-for-motorola-39422962/
Prof. Suresh Nair, University of Connecticut
Lessons Learned?
6
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Spend more effort identifying target market
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Currently, government, military, “machine to machine” and marine customers
make up the bulk of customers (475,000 commercial, 48,000 government)
Assume a longer adoption rate, especially for such an
unproven market
Maturity dates on loans were very aggressive, and thus did not
allow Iridium to gain necessary subscribers to pay debt service
In high risk projects such as this, project financing can protect
the project sponsors from failure due to “non-recourse”
Prof. Suresh Nair, University of Connecticut