We are all well aware that the OEM channel is a major driver to the addition of subscribers for satellite radio. We are also all well aware that car sales have not been stellar in nearly two years. Though there has been some recovery, car sales are being driven by very consumer friendly incentives.
When following satellite radio, it is sometime best to gauge things through the companies that are suppliers of satellite radio components. Essentially, if you see improvement from a supplier because of satellite radio, then that could translate to improvement for satellite radio down the road.
Late last month RF Monolithics (RFMI) announced their Q2 of fiscal 2010 results. The company announced a healthy 20% increase in sales over the same quarter in 2009. Investors should bear in mind that RFMI runs on a fiscal year and their Q2 represents December, January and February. RFMI makes filters for satellite radio components that are utilized by auto manufacturers.
In their report RFMI noted, "The major portion of our sales increase from the prior year was a 77% increase in our Wireless Components business. This segment showed significant recovery from economically depressed levels of a year ago, particularly for filters for satellite radio and other products sold to automotive markets, which increased from 18% to 34% of our total sales. The shift in market demand to domestic auto brands helped RFM as satellite radio penetration is much higher than for foreign auto makers."
During this period, Toyota had a sales halt due to congressional hearings, and a huge recall over safety issues. March 2010 (Not in RFMI's Q2) saw a resurgence of the Toyota brand as they introduced very consumer friendly incentives and launched a massive ad campaign to improve their corporate image. Those incentives launched a series of moves by other manufacturers that followed suit. After seeing the recovery, Toyota has already announced that these incentives will continue through April. This applies still more pressure to other OEM's.
As RFMI noted, the penetration rate in domestic auto manufacturers is higher. Ford has been a big benefactor in car sales, and GM has been very aggressive as well. The mix of sales from March would seem to indicate that the filters RFMI sells will carry a higher demand over the next couple of months. This will pay 'dividends in the subscriber numbers (both self pay and promotional) for Sirius XM Radio.
The lesson here is that if you want to gauge the pulse of satellite radio, dig deeper into the performance of the companies that supply components to make the radios.
Position - Long Sirius XM Radio, No Position RFMI, Ford, GM