Pentagon Is Com Dev of Canada’s One Weak Market

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PARIS — Satellite electronics manufacturer Com Dev of Canada on March 11 said the global commercial and civil-government satellite telecommunications markets — meaning just about everything except the U.S. Defense Department — are running at full throttle with no signs of a downturn.

The U.S. military satellite communications sector, however, appears on hold as the U.S. government sorts out its near-term budget issues. These issues, most recently the sequester that imposed mandatory cuts in U.S. government spending, especially at the U.S. Defense Department, have hobbled Com Dev’s El Segundo, Calif., subsidiary, Com Dev officials said in a conference call with investors.

The slowdown at Com Dev USA, which Com Dev officials believe will be temporary, has caused the company to send civil and commercial satellite telecommunications work from Canada to the U.S. operation to keep the plant running at maximum efficiency.

Com Dev USA provides many of the same microwave components as the parent company, but the U.S. operation focuses on business with large U.S. prime contractors doing work for the U.S. military.

“That’s the one cloud” on the horizon in satellite telecommunications, Com Dev Chief Executive Michael Pley said during the conference call. “We’ve seen an enormous amount of uncertainty among U.S. government customers.”

On the eve of the Satellite 2013 conference in Washington, which is the world’s biggest annual showcase for satellite telecommunications, Com Dev officials said the combination of national governments that are entering the satellite telecommunications business and commercial fleet operators that are maintaining or expanding their fleets has kept orders at high levels.

Cambridge, Ontario-based Com Dev also said its exactEarth affiliate, which provides a satellite-enabled Automatic Information Service (AIS) to global coastal authorities and corporations to track maritime traffic, has increased its market share to about 80 percent from 70 percent in mid-2012.

The exactEarth business is still in ramp-up mode. It has four more satellites on order to complete its orbital infrastructure, and nonpaying trial customers still outnumber paying customers.

But both numbers are growing. Com Dev said that as of Jan. 31, when it closed the books on its first-quarter 2013 financial results, exactEarth counted 64 trials, up from 60 as of November. Paying customers numbered 62, up from 57 in November and just 16 a year ago.

Com Dev estimates that the total market for satellite-delivered AIS, which was about $15 million in 2012, will grow at an average rate of 37 percent per year through 2017. While several governments continue to weigh their own systems, only two companies have made a concerted effort to address the market: Com Dev’s 73 percent-owned exactEarth and Orbcomm of Fort Lee, N.J.

Orbcomm, whose main business is providing machine-to-machine communications, has suffered satellite and launcher mishaps that have delayed the deployment of its second-generation constellation of satellites, which all will have AIS receivers. Orbcomm’s satellites are scheduled to launch this year.

The final four exactEarth satellites are scheduled for launch this year and in 2014.

Peter Mabson, exactEarth’s chief executive, said the company, which is minority-owned by Hisdesat of Spain, reported revenue of 2.6 million Canadian dollars ($2.6 million) for the three months ending Jan. 31. Com Dev Chief Financial Officer Gary Calhoun said exactEarth is on track to report positive earnings before interest, taxes, depreciation and amortization (EBITDA) this year, following an EBITDA loss of 3.9 million Canadian dollars on revenue of 9.6 million Canadian dollars in the 12 months ending Oct. 31.

Mabson said exactEarth, like Com Dev USA, has faced lower revenue because of the U.S. government budget paralysis as U.S. agencies withheld spending on satellite AIS services pending a clearer budget outlook.

Mabson said exactEarth sees no sign that its global market is waiting for Orbcomm to deploy its AIS-equipped satellites this year before engaging with exactEarth.

Com Dev estimates that its components are in 80 percent of all commercial communications satellites in orbit. In recent months, the company has won four-fifths of the competitions it has entered. Com Dev also has offices in Britain, whose government has announced a large increase in satellite telecommunications investment; China; and India.

As of Jan. 31, Com Dev had a backlog of 148 million Canadian dollars, up 6.5 percent from where it stood on Oct. 31 and its highest level in two years. During the three months ending Jan. 31, the company booked 61.8 million Canadian dollars in new orders.