With a record number of gross OEM subscribers in the books for Q2, investors might well be looking forward to Q3, but what should really be expected? There are several considerations when looking at Q3 and beyond that investors need to make themselves aware of:
1. Sirius largest OEM contributors are tied to vehicle production and not vehicle sales. This is an important factor in Q3 because this is the time of year when manufacturers shut down plants and re-tool for the new model year. A plant not producing will impact Sirius' subscriber number in Q3.
2. Sirius' OEM partners such as Volkswagen, Audi, Subaru, Kia, Toyota, and Nissan all tie to vehicle sales, and not production. Some of these partners have begun ramping up with more installations, and thus, there will be a catch-up effect that will begin to take shape over the next few quarters. Cars that sold in Q2 will come up for subscription in Q3 as the three month trial end. Partners such as Kia are not heavily involved as yet, so the impact will begin slowly. This effect may be also get offset as Nissan moves deeper into XM factory installations. As yet, the dealer and port installation program with Sirius is ongoing, but it will be a factor to watch as 2008 model year Nissan's arrive at dealers.
3. Chrysler stepping up installations to 70%. This will become more of a factor in Q4 as there will be a full quarter of production happening. Bearing that in mind, what should investors expect from Chrysler as compared to Q2? We performed a window sticker survey covering several dealerships to get a pulse on where penetration currently sits. Most analysts were surprised by the OEM number posted by Sirius in Q2, and the bulk of that surprise likely came from deeper DCX installation rates than anticipated. In our survey, we found that 49% of Chrysler's and 51% of Dodges currently at dealerships have Sirius. Thus, in the second half of the year, investors can expect to see a 20 point improvement for DCX over that which we saw in Q2.
While it is still early in the quarter, I would fully expect the OEM channel to be slightly down to steady in Q3, and the next acceleration in the OEM channel to happen in Q4. The wild card is exactly how fast Ford ramps up installations.
Position - Long Sirius, Long XM