Directed Electronics Signs Again with Sirius; Merger Approval Could Boost Retail Sales

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 |  Includes: DEIX, SIRI
by: Spencer Osborne

In a press release issued Tuesday, Directed Electronics, Inc. (Nasdaq: DEIX) announced that the company has amended certain terms and extended its manufacturing and distribution agreement with SIRIUS Satellite Radio, Inc. (NASDAQ:SIRI) through January 31, 2009.

James E. Minarik, President and Chief Executive Officer of Directed, said, “Together with SIRIUS, over the past three years, we have achieved the #1 position in aftermarket satellite radio sales, and are once again pleased to extend our relationship. By extending the contract from August 31, 2008 into 2009, we have the opportunity to generate significant sales of SIRIUS branded products this year, given that roughly 50% of our 2007 satellite radio sales occurred in the fourth quarter. We also look forward to what we hope will be the final approval of the SIRIUS/XM (XMSR) merger in the very near future, which we expect to improve retail consumer demand.”

The amendment also contains certain provisions that further reduce Directed’s exposure to satellite radio product warranty costs.

Mr. Minarik continued, “In the third quarter of 2007, our earnings were adversely impacted by a $4.3 million increase to our warranty expense principally related to our satellite radio business. With this new amendment, the risk of unexpected satellite radio warranty expense is expected to decrease significantly, while concurrently improving our ability to provide superior service to our satellite radio customers. Cumulatively, we believe these changes will lead to improved financial results for this business.”

The extension gives Directed some security through the 2008 holiday selling season. Should the merger pass, and Directed be tasked with developing an A-La-Carte radio, it could represent a boost in retail sales for Directed. Directed stock has traded in the $2 per share range in recent months.

Position - Long Sirius, Long XM