Comtech’s Two Main Businesses Headed in Different Directions
PARIS — Satellite ground equipment maker Comtech Telecommunications Corp. on Dec. 10 reported a sharp drop in sales of its satellite Earth stations, especially outside the United States, which the company blamed on general market conditions.
For reasons the company did not entirely explain, Comtech’s other major satellite hardware business, which sells RF microwave gear including solid-state power amplifiers and traveling wave tube amplifiers, posted double-digit growth including non-U.S. business.
In a conference call with investors, Comtech Chief Executive Stanton Sloane said the company’s results should improve in the coming months, both in its existing businesses and as a result of its acquisition of wireless communications technology provider TeleCommunication Systems Inc. (TCS) of Annapolis, Maryland.
Comtech will become “a markedly different” company once the $430.8 million transaction, announced in November, closes by March, Sloane said. “We expect to more than double our annual revenue base and double our employee base” as well as increase profitability, Sloane said.
Melville, New York-based Comtech has been searching for a new direction since its 2010 loss of a contract to provide the U.S. Army the next-generation satellite-based Blue Force Tracking network.
The TCS purchase is Comtech’s chosen solution. In addition to product synergies, the Comtech that emerges from the transaction will be much less dependent on international markets than today’s company.
A year ago, 61 percent of Comtech’s revenue came from international customers. For the three months ending Oct. 31, it was 44 percent, with the drop due to lower international sales rather than a big increase in U.S. revenue.
The drop in crude oil prices that has slowed oil and gas exploration, the U.S. dollar’s strength against other currencies and a dip in Chinese economic growth were all cited as causes in a Dec. 10 filing with the U.S. Securities and Exchange Commission.
TCS’s product portfolio includes the management and resale of satellite bandwidth and a deployable-VSAT satellite terminal called the Secure Internet Protocol Router Network/Non-secure Internet Protocol Router Access Point for the U.S. Army.
TCS is one of the prime contractors for the U.S. Army’s GTACS, or Global Tactical Advanced Communication System and Support Services, contract, valued at up to $10 billion over five years starting in November 2012.
The company is also one of eight prime contractors for the U.S. Defense Information Systems Agency’s Custom Satcom Solutions (CS2) contract, valued at up to $2.6 billion over five years starting in 2012.
For the three months ending Oct. 31, Comtech reported a 16 percent decline in overall revenue, to $64.1 million, compared with the same period a year ago. The drop in its telecommunications transmission division, the company’s largest revenue generator, was even sharper — down 31.5 percent from a year ago.
“The decrease, although admittedly large, was expected,” Comtech Chief Financial Officer Michael D. Porcelain said during the conference call. “Our satellite Earth station product line’s international customers are facing significant economic challenges. We do not expect market conditions to meaningfully improve in the short term.”
Comtech is counting on its new Heights satellite Earth station platform to help turn things around so that the full-year results — Comtech’s fiscal year ends July 31 — show a substantial improvement over the three months ending Oct. 31. Heights is used at satellite gateway Earth stations and hubs and is capable of handling both conventional satellite transmissions and the higher speeds required for high-throughput satellite links.
Comtech said its microwave amplifier business has seen none of the downward pressure of the Earth station product, perhaps due in part to its new SuperPower traveling wave tube amplifier, introduced in mid-2015.
For the three months ending Oct. 31, the RF Microwave division reported revenue of $22.7 million, up 21 percent over a year ago.
Sloane said Comtech is targeting the aeronautical broadband connectivity market for its solid-state power amplifier, whose size, weight, power demand and ease of installation should position Comtech for this fast-growing market.