Comtech Coffers Buoyed by International Sales of Sat Parts and Ground Systems

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PARIS — Satellite communications hardware manufacturer Comtech Telecommunications on March 9 said international sales of satellite Earth stations and on-board components for satellite broadband systems appear to be strong enough to partly compensate for the continued uncertainty of many U.S. military spending programs.

The company also said its efforts to salvage at least some work from the Blue Force Tracking (BFT)-1 contract, whose successor, BFT-2, system is being built by a Comtech competitor, appear to be paying off.

In a March 9 conference call with investors, Comtech Chief Executive Fred Kornberg said that as a March 31 deadline approaches for the end of Comtech’s participation in the BFT-1 and Movement Tracking System (MTS) contract extensions, Comtech is holding firm on demanding compensation for its intellectual property even as the Army moves to other suppliers.

Kornberg said he could make no promises given how unsettled the Defense Department’s budget continues to be. But he invited investors to believe that by April 1 Comtech will have wrestled the Army into a likely one-year renewable contract to provide satellite bandwidth and other services.

Comtech has maintained that the Army will be using Comtech intellectual property even if future evolutions of BFT-2 and MTS are built by other contractors, and even if the Army decides to purchase its own satellite bandwidth.

The loss of the BFT-2 and MTS contracts was a body blow to Comtech. But the company gave a generally upbeat assessment of its future and raised its estimate of fiscal year 2012 revenue to between $420 million and $430 million.

That would still be a 31 percent drop from Comtech’s performance in fiscal year 2011, a reflection of how important BFT-1 and MTS were in the past three years.

Melville, N.Y.-based Comtech builds 500-watt traveling wave tube amplifiers and solid-state power amplifiers for telecommunications satellites and has developed a niche product to appeal especially to high-throughput broadband satellites.

The company also builds satellite Earth stations and antennas that provide terrestrial microwave links in areas where cable connections are absent.

The U.S. government accounts for nearly 50 percent of Comtech’s revenue, but the continued strength of Comtech’s international and commercial markets gives the company hope that these areas will carry Comtech through what Kornberg called “the general paralysis” of U.S. military spending.

That paralysis appears to have stalled work on a microsatellite platform to be built by Comtech’s AeroAstro division. The star-mapping satellite, called the Joint Milli-Arcsecond Pathfinder Survey, or JMAPS, had been the subject of two contracts with a combined value of $43.5 million. Comtech had hoped to use JMAPS as a springboard into the microsatellite market, a market Kornberg said should appeal to U.S. government agencies looking to save money.

The funding slowdown for JMAPS has been apparent for several months, but Comtech has always assumed it would resume in time for the scheduled launch in 2015. That now looks less likely.

In a March 8 submission to the U.S. Securities and Exchange Commission (SEC), Comtech said only that future revenue from the program has “become uncertain” despite the fact that the JMAPS platform has not been completed.

The backdrop for Comtech’s optimism lies in forecasts that even as overall military spending drops in the United States and Western Europe, it will not drop everywhere else. Further, the top-line reduction will hide growth in areas in which Comtech has made inroads, notably satellite communications electronics gear.

In its March 9 conference call, Comtech produced data forecasting that defense satellite electronics, which globally was an $800 million annual business in 2009, will grow by an average of 12 percent per year through 2020 to reach $2.6 billion a year.

But Kornberg returned repeatedly during the call to a much closer milestone: April 1, when the Army must determine how much BFT-1 and MTS “sustainment” work Comtech will receive, and for how long. The two contracts generated a combined $19.5 million in revenue for Comtech in the the months ending Jan. 31, down from nearly $67 million a year ago.

Kornberg said that as far as Comtech can tell, progress on the BFT-2 contract is not ahead of schedule, and that the rollout of BFT-2 gear is not imminent given that the BFT-2 transceiver has not yet passed all its acceptance tests. The unstated conclusion was that any BFT-2 delays could work to Comtech’s advantage.

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