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Sirius Drowns Out Deal Noise

Mel Karmazin focuses on big user gains, but another steep quarterly loss looms over a pricey stock.

Merger buzz and a strong subscriber-growth forecast helped keep investors from focusing too keenly on Sirius' (SIRI) widening losses.

But the big earnings miss did help knock the New York satellite radio shop's stock down 17 cents, or 3%, to $6.07 in midday trading Wednesday.


posted a disappointing net loss of $262 million, or 21 cents a share, compared with the year-ago loss of $148 million, or 14 cents a share. The fourth-quarter losses were far wider than the 16 cents a share analysts had expected.

Looking ahead, Sirius said losses would increase from 2004 levels and revenue for the year would fall below expectations. Sirius says its adjusted net loss will grow to $480 million at the end of 2005 from $456 million last year. And despite raising its 2005 subscriber target to 2.5 million from 2.3 million previously, Sirius cut revenue projections to $210 million, below the $213 million analysts expected.

Sirius has become one of the most actively traded stocks on the


as investors debate the merits of the company's potentially massive consumer appeal with the risks of steep losses and the constant need for more cash.

On the merger front, Sirius CEO Mel Karmazin was asked on a conference call about a report Wednesday in the

New York Post

of a possible tie-up between Sirius and rival



. Karmazin said it was the third such rumor he'd heard in his eight weeks on the job.

Though Karmazin didn't formally deny the report, he made it clear he wasn't personally involved in any high-level discussions. Never mentioning XM by name, Karmazin said: "I have not met with the chairman and I have not met with the CEO, so I have no idea where any of this came from."

Observers say a merger of the only two satellite radio players could help cut operating costs by eliminating competitive bidding on programming contracts. But from a technology, regulatory or even a valuation perspective, industry watchers say the pairing seems unlikely.

For example, while the two companies have agreed with the Federal Communications Commission to make their radios interoperable, the tech costs are unappealing. Additionally, the automakers, which have become critical partners with the two pay-radio outfits, seem to see advantages to maintaining the duopoly.

But Karmazin is known as a dealmaker, so even merger skeptics stop short of ruling out discussions on some level.

For now, Karmazin seems to be focused on areas he knows best, like advertising. On the earnings call, Karmazin said the company was expanding its sales staff in order to sell more ads on its talk and sports programs.

"Advertising will be a very important revenue contributor in the years ahead," Karmazin said on the call.

And as for shock jock Howard Stern's move to Sirius, the executives said they would love to get the ad-drawing personality on board before his January 2006 agreement, but held out little hope of such a deal. "Assume 2006," Karmazin said.