Com Dev Foresees ‘Surge’ in Telecom Satellite Orders

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PARIS — Satellite component manufacturer Com Dev International of Canada reported April 12 lower revenue and orders, but higher profit, for the three months ending on Jan. 31 compared with last year and said there are signs the commercial satellite telecommunications market is regaining momentum.

The Cambridge, Ontario-based company said that while a decrease in the Canadian Space Agency’s budget will not be good news, Com Dev does relatively little business with the Canadian government and will not suffer much.

In a conference call with investors , Com Dev said civil government work represents just 33 percent of its total backlog, with a relatively small amount of that being with the Canadian government.

Com Dev Chief Executive Mike Pley said less than 12 million Canadian dollars ($11.8 million) of Com Dev’s backlog of 125 million Canadian dollars is with the Canadian government.

“Com Dev is somewhat unique among the world’s space companies in that our success is, and has been, largely independent of our domestic government,” Pley said. Com Dev nonetheless reduced staff in 2011 in anticipation of a reduced Canadian space budget.

The company’s total employment, including its offices in the United States, Europe and China, stood at 1,224 people Jan. 31, down about 5 percent from a year earlier.

Pley said Com Dev’s health is based on its ability to win business from satellite prime contractors in competitive procurements. As some emerging-market nations opt to launch their own telecommunications satellites, Com Dev’s civil-government business is profiting.

But the biggest piece of Com Dev’s current and near-term revenue is in the commercial market. The company prides itself on winning at least a small piece of the vast majority of commercial telecommunications satellites built in any given year.

The three months ending Jan. 31 were not a time of high commercial satellite orders. By Com Dev’s count, eight telecommunications satellites were ordered worldwide during the period — four commercial, two civil government and two military. That compares with 10 satellites — seven commercial, one civil government and two military — ordered in the same period a year ago.

Com Dev already has won work on four of the eight satellites ordered in the three months ending Jan. 31 and is competing for contracts on the other four, the company said, adding that it ended up with business on eight of the 10 satellites ordered in the same period last year.

The reduced number of satellites helps explain why Com Dev booked just 45 million Canadian dollars in new orders in the three months ending Jan. 31, down 24 percent from last year’s period. Revenue for the three-month period was 47.2 million Canadian dollars, down 6 percent from last year. The drop in revenue was accompanied by a sharp increase in gross-profit margins, which were 28 percent compared with 17 percent a year ago. Pley and Com Dev Chief Financial Officer Gary Calhoun said the company should be able to sustain these higher margins now that it is about through with five programs, mainly for the Canadian government, for which Com Dev had signed fixed-price contracts only to see costs swell to a point where they were no longer profitable.

Four of the five programs have been completed, and the fifth should be finished by this summer. Pley said this last program’s costs appear to have stabilized, but that “until this puppy’s out the door, there’s always a chance of cost growth on it.”

Pley said the recent calm in the commercial telecommunications satellite business should not be confused with a lasting market downturn. Signs are that the coming months will see a “surge” in new telecommunications satellite orders, he said.

“I don’t think I’ve ever seen our engineering and sales staff quite as busy in terms of the pipeline of work” that is coming on the market, Pley said. “I’m expecting to see a surge in orders on the commercial and civil satcom side, if not this quarter then in the next quarter.”