KVH banking on capacity glut to halve its bandwidth costs
WASHINGTON — Maritime satellite communications hardware and services provider KVH is seeking to reduce the amount it pays for future satellite capacity by 50 percent, banking on a market oversupply to work to its advantage.
The downturn in the oil and gas sector, among other factors, has put pressure on the maritime market KVH serves, but the Middletown, Rhode Island-based company still saw a modest increase in its satellite products and services revenues during the three months ending Sept. 30.
During the company’s third-quarter earnings call Tuesday, KVH Chief Executive Martin Kits van Heyningen described the maritime sector as being “in tough shape.” But despite macroeconomic headwinds, maritime service providers who buy capacity stand to benefit from the influx of new supply, particularly of the high-throughput variety.
“We are talking about our cost going to half what they are,” he said. “That’s our internal goal in terms of new capacity.”
Kits van Heyningen said KVH wants to add new capacity in order to offer higher speeds as the company prepares a next-generation network for its maritime customers. Along with providing global satellite services, KVH also supplies non-satellite products such as fiber optic gyroscopes for drones and self-driving cars, but maritime comprises the largest fraction of the company’s customer base. In discussing new capacity tailored for maritime and aeronautical connectivity, Kits van Heyningen said KVH has more to gain than to lose from current bandwidth pricing conditions.
“There have been discussions of excess capacity causing a bandwidth glut that will lead to commoditization of service and falling prices in maritime markets,” he said. “That’s hurt the share price of most of the satellite companies. But as one of the world’s largest customers for maritime bandwidth, we see this as great news for KVH. Imagine how Starbucks would feel about falling coffee bean prices, and you’ll understand how we feel about falling airtime costs.”
Kits van Heyningen said KVH’s VSAT sales are averaging 200 to 250 units a quarter, and that the company is now up to 9,000 subscribers in the shipping industry. KVH’s unit sales of VSAT system grew 10 percent year over year, and Kits van Heyningen said the company has visibility on about half a dozen more promising fleet prospects in its sales pipeline.
KVH revenues increased 3 percent year over year in the latest full quarter, rising from $44.5 million to $45.8 million. Kits van Heyningen said unfavorable exchange rates trimmed $1.2 million in would-be revenues since KVH bills several of its services in the British pound, the value of which has declined since the U.K. voted to leave the European Union.
KVH reported a modest increase in mini-VSAT Broadband airtime revenue, offset by a 28 percent decrease in Inmarsat airtime revenue.
Kits van Heyningen said the maritime market continues to be a challenge, but that conditions are getting better. Many commercial shipping companies reduced investments in new services and technology due to global economic issues, he said, but some are also beginning to reinvest in satellite broadband.
“We are not saying that things are getting better yet, we are saying that it looks like things have stabilized,” he said. “For us, that’s good news.”
KVH has also recently received sizeable orders from fleets of offshore vessels and workboats, which Kits van Heyningen said hasn’t happened for a while.