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OPIM 5894 Advanced Project management Iridium LLC. Team 3 Richard Buskey Jonathan Weiss Daniel Mahzonni Prashant Mishra Vijay Gadigeppa Jonathan Koenig. Iridium LLC. What caused iridium to fail: was it a bad strategy, bad execution or bad luck? Bad Strategy Marketing and Sales mistakes

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opim 5894 advanced project management iridium llc
OPIM 5894 Advanced Project managementIridium LLC

Team 3

  • Richard Buskey
  • Jonathan Weiss
  • Daniel Mahzonni
  • Prashant Mishra
  • Vijay Gadigeppa
  • Jonathan Koenig
iridium llc
Iridium LLC
  • What caused iridium to fail: was it a bad strategy, bad execution or bad luck?
    • Bad Strategy
      • Marketing and Sales mistakes
      • Overpriced phones: $ 3,000
      • Prices: $3.00 - $7.50 per call
      • Mixed predictions regarding the mobile satellite market
        • Leslie Taylor Associates predicted a user base of 7 mill. subscribers and revenues of $8 – 20 bill. by 2003
        • Forrester Research predicted that the global satellite market would be as much as $36 bill. by 2005.
      • Very ambitious project
        • Iridium had signed 256 operating agreements with local providers in over 100 countries by July 1999. The company still had to negotiate agreements with another 140 countries and territories.
iridium llc1
Iridium LLC
  • What caused iridium to fail: was it a bad strategy, bad execution or bad luck?
    • Bad Strategy (Contd.)
      • Project Financing
        • Iridium LLC was a spin-off from Motorola
        • Assumption: Once project complete, would resemble a utility company with high margins and steady cash flows
        • Not planned adequately for the entire project; no contingency plan
        • Need based financing vs requirements based financing
iridium llc2
Iridium LLC
  • What caused iridium to fail: was it a bad strategy, bad execution or bad luck?
    • Bad Execution
      • It failed to answer over 1 mill. sales inquires due to internal confusion and experienced logistical problems trying to distribute phones
      • In March 1999, it was unable to fill 15,000 orders for satellite phones because the manufacturer could not ramp up production fast enough.
      • Iridium announced that it had only 7,188 satellite subscribers, 10,294 total service subscribers and cumulative cash revenues of $195,000 as of March 31 [Expected: 27,000 subscribers, 52,000 total service subscribers and $4 mill. of cash revenues]
      • Non-aesthetic hand-sets
      • Advertising: Spent $180 mill. campaign
iridium llc3
Iridium LLC
  • Why did Motorola finance Iridium with project debt rather than corporate debt?
    • Liability: Motorola not liable/responsible for project debt
    • Lenders only have access to Iridium’s cash flows; in turn safe-guarding Motorola’s books
    • To take advantage of government sponsorship
    • Risk concentration: Could not use corporate debt because of the narrow scope; single source of revenue
    • The company was looked at being a potential cash cow; retain the control and decision making within the company
iridium llc4
Iridium LLC
  • What lessons regarding large, greenfield projects do you draw from this case?
    • Test market; Limited roll-out; Focus group
    • Better understanding of the competition; over-estimation of the practicality of the device and usage;
    • Wrong target market (should have targeted Dept. of Defense)
    • Thorough Market Analysis: Optimistic vs Pessimistic predictions; contingency plans
    • Stakeholders and departments need to be in sync with the project objectives
iridium llc5
Iridium LLC
  • Recent Update
    • Iridium Satellite LLC merged with a special purpose acquisition company (GHQ) created by the investment bank GreenHill and Co(NYSE: GHL) in September, 2009 to create Iridium Communications, Inc
    • The public company trades on NASDAQ under the symbol "IRDM“
    • The company has approximately 447,000 subscribers as of the end of March, 2011 (compared to 320,000 in December, 2008)
    • Revenue for the full year 2010 was US $348.2 million with Operational EBITDA of US $158.9 million.
    • Extensively used by the US Dept of Defense through the DoD gateway in Hawaii..The DoD made up 23% of Iridium's revenues in 2010