Directed Electronics Will Leave Satellite Radio Niche

Cites the 'large working capital commitment' required
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Directed Electronics and Sirius XM are parting ways.

DE said it plans to leave the satellite radio business in early 2009 to focus on its core products for security and entertainment.

An operating unit of DEI Holdings, the company designs and markets home theater loudspeakers sold under the Polk Audio and Definitive Technology brand names, and consumer-branded vehicle security and remote start systems sold under Viper, Clifford, Python, Autostart and other brands. Directed Electronics is also a mobile audio supplier with products sold under the Polk Audio and Orion brands.

DEI Holdings President and CEO Jim Minarik said that Directed became the primary retail distribution partner for what was then Sirius Satellite Radio in 2004, and is proud of growing Sirius' satellite radio retail share from approximately 20% to over 60% during the past four years.

"However, based on the large working capital commitment required for this business, as well as a strategic decision on our part to focus on our core security and entertainment businesses, we will not be extending our current agreement with Sirius XM when it expires on Jan. 31, 2009," he stated.

The agreement to wind down the partnership specifies that Sirius or its new distribution partner will purchase substantially all remaining satellite radio receiver inventory from Directed in the first quarter of 2009 and assume responsibility for product returns and warranty costs after Jan. 31, 2009, regardless of when the product was sold.

DEI Holdings CFO Kevin Duffy said leaving the satellite radio business will allow Directed to pay down debt by recovering $20 million to $25 million of working capital.

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Satellite Radio Falling to Earth?

OK, so XM has maybe 350,000 subscribers now, and Sirius is trying to break out above 10,000 (a bit like the Dow in that respect). With about 100 channels apiece, that works out to 3,500 and 100 subscribers per program offering, respectively.