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  1. TSavery is offline
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    Joined: Jun 2007 Posts: 524
    08-13-2007, 03:18 PM #1

    Is Directed Electronics A Buy?

    An interesting play in the satellite radio sector may be developing, and in full disclosure, I saw an opportunity to get into Directed Electronics, and did so. Directed Electronics is an electronics distributor of several components, including Clifford Alarms, Polk Audio, and Sirius Satellite Radio.

    In July of this year Directed issued new revenue guidance for the company outlook, and in particular mentioned satellite radio sales as a contributing factor. As many have already noted, retail sales of satellite radio are down year over year. At that time Directed warned that they anticipated satellite radio sales revenue to be down by 35% to 40%, but in their quarterly report on Friday the figure came in better than anticipated at 31% down. The issue is partially tied to sales volume, and partially tied to the blend of receivers being bought by consumers. Some receivers generate better revenue than others.

    So, what we have here is a company that has their hands in the satellite radio sector, and to a certain extent, their bottom line is being impacted. But, the impact was not as bad as the company had originally anticipated only 1 month ago. Sirius is anticipating the launch of some new products in the fall, and fresh products may help spur retail sales going into the retail heavy Q4.

    Sirius makes up roughly 25% of Directed business, so is a 30% haircut in the equity justified? The activity on the stock seems to think that there is no satellite radio component for Directed, yet they had $28,000,000 in revenue from satellite in Q2.

    IMO the haircut directed has taken is overdone, and therein was the opportunity to buy in. Any opinions?
    Tyler Savery
    Satellite Standard Founder

  2. s50-rocks is offline
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    Joined: May 2007 Posts: 30
    08-16-2007, 12:13 AM #2
    I don't know if DEI is a buy or not, however, I did watch this company grow up and swallow it's competition. I see that the delivery channel for their products are the most dominant and command the higest prices with the best dealer support on the back side of any of its competitors. I don't know how the sales, service, and product support gets better than what they have already achieved, but then again I felt the same way when they were a much smaller company and didn't carry the product line that they carry now.

    Now, on the flip side, the alarm business,that put DEI on the map, is likely to see a decline due to OEM manufacturers making alarms factory issue standard. Although the aftermarket alarms outpreform the OEM, OEM has made the installation of the aftermarket alarms highly technical and complicated to install. That makes the wiring so complex that the OEM dealers won't warranty or work on the cars without removing the aftermarket equipment and, or the Aftermarket alarm shops charge too much to justify the added expense to install an alarm on a car that may already have an factory alarm to begin with.

    The diversity here is with the R&D and support teams which have allowed this company to adapt, thrive ,and change to meet the needs of it's clients.

  3. MUSCLE13 is offline
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    Joined: Jun 2007 Posts: 973
    08-16-2007, 02:09 AM #3
    I guess the big question is post Sirius XM merger who makes the radios? Does Directed stay in the sat radio game with the merged company? I guess thats all up in the air. With the Stiletto and Sportster they seem to make good product. They are not just the distributor right?

  4. TSavery is offline
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    Joined: Jun 2007 Posts: 524
    08-16-2007, 10:00 AM #4

    Post Merger

    Who gets the core business post merger is interesting. It could be anyone, but here are some things to consider:

    1. Delphi's retail presence has been limited as of late. They do have a lot of OEM contracts that make a deal with them attractive. In fact, Delphi does work for BOTH siriuys and XM in the OEM channel.

    2. Directed has now maintained a higher retail presence for 20 months, and has established relationships with many retailers for products other than satellite radio.

    3. This decision is still a ways off. IMO many factors will be considered. If margins in the channel have not been what these distributers felt they should be, it is a situation that will muddy the waters.

    4. Existing deals and deal structures will carry an impact.
    Tyler Savery
    Satellite Standard Founder