Comtech Eyes Ku-band Hardware as Growth Avenue

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PARIS — Satellite communications ground equipment provider Comtech Telecommunications on March 11 said it hopes to leverage its contract with mobile satellite services provider Thuraya for L-band maritime satellite communications gear to enter the market for higher-speed Ku-band maritime equipment.

Comtech Chief Executive Fred Kornberg said the company already has in-house the components of a product line to provide VSAT, or very small aperture terminal, hardware for maritime satellite links, but has hesitated to enter the market in the past because it is highly competitive.

Numerous hardware and services providers are now circling the maritime market, which is viewed as having substantial growth potential as commercial shipping-fleet operators seek higher-speed data transmissions.

Thuraya Telecommunications Co. of Abu Dhabi, United Arab Emirates, and Comtech in March 2010 agreed to jointly develop a broadband transceiver for maritime applications. Thuraya operates L-band spacecraft in geostationary orbit for mobile communications. “We’ll get our feet wet with Thuraya” before going full force into the maritime market for Ku-band terminals, Kornberg said.

The competitive market for maritime satellite gear and services may not be getting easier, but Comtech is facing a wind-down in two big contracts with the U.S. Army and is looking for new markets to partially replace the declining defense work.

In a March 11 conference call with investors, Kornberg said Melville, N.Y.-based Comtech as of Jan. 31 had $593.3 million in cash that it plans to use to acquire one or more companies to facilitate its expansion into new markets.

Comtech’s biggest near-term challenge will be finding revenue streams to replace the Army Movement Tracking System (MTS) and the Blue Force Tracking-1 (BFT-1) contracts. Comtech lost the competition to provide a BFT-2 network to ViaSat Inc. of Carlsbad, Calif., although it still has a couple of years of deliveries left on its BFT-1 contract.

What is more, U.S. defense officials have indicated they will merge MTS into BFT-2 and will not conduct a fresh competition for MTS work. Kornberg said that decision means Comtech’s MTS contract likely will expire next July.

For the six months ending Jan. 31, MTS accounted for 36 percent of Comtech’s total revenue. BFT-1 accounted for 11.7 percent.

For that six-month period, Comtech reported total revenue of $341 million, up 11.8 percent over the same period a year earlier, with the increase due in part to deliveries under the MTS contract. Backlog at Jan. 31 stood at $199.6 million.

Kornberg said the first six months of Comtech’s fiscal year have shown good performance, but that the MTS and BFT trends, coupled with a broader cutback in spending at the U.S. Defense Department and a temporary slowdown in business in the Middle East, make for “challenging business conditions.”

Comtech AeroAstro, the company’s microsatellite manufacturing division, is building the platform for the U.S. Naval Research Laboratory’s JMAPS, or Joint Milli-Arcsecond Pathfinder Survey, satellite.

In October, Comtech AeroAstro received a $1.2 million order from the U.S. Air Force Research Laboratory for a so-called plug-and-play microsatellite. The company’s total work is now valued at $1.9 million under this indefinite-delivery, indefinite-quantity contract, which has a potential total value of $200 million. It remains unclear whether and when a full contract will be awarded.

That leaves organic growth from Comtech’s existing businesses, and an acquisition, as the two likeliest paths for growth as MTS and BFT-1 are completed.

“We’ll start looking at the periphery of our current markets,” Kornberg said of potential acquisitions. “At this time we are looking at a number of targets. [But] pricing is high out there.”

In a March 11 filing with the U.S. Securities and Exchange Commission, Comtech said an outside consultant has completed a U.S. government-ordered audit into the company’s export practices following suspected violations of the U.S. International Traffic in Arms Regulations.

Comtech said the audit found no violations, and concluded that Comtech has tightened its export compliance procedures. Comtech has forwarded the auditor’s report to the U.S. State Department, whose Enforcement Division of the Office of Defense Trade Controls Compliance had originally asked for the audit.