OPIM 5894 ADVANCED PROJECT MANAGEMENT

IRIDIUM LLC CASE

Team 1

http://users.business.uconn.edu/snair/opim5894.html
What caused Iridium to fail?







Prof. Suresh Nair, University of Connecticut
2
Over Estimating Demand and Difficulty
Attracting Subscribers
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







What caused Iridium to fail?







Prof. Suresh Nair, University of Connecticut
3
Unable to fulfill orders
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





What caused Iridium to fail?







Prof. Suresh Nair, University of Connecticut
4
Financing Structure
83% Debt to Equity Ratio
Much of the debt was short term financing
Fulfilling debt obligations hinged on Iridiums 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








Why did Motorola finance Iridium with
project debt rather than corporate debt?
5







Prof. Suresh Nair, University of Connecticut








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/








Lessons Learned?
6







Prof. Suresh Nair, University of Connecticut
Spend more effort identifying target market
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