Profile: Reversal of Fortune for Norsat

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  Space News Business

Profile: Reversal of Fortune for Norsat

By PETER B. de SELDING
Space News Staff Writer
posted: 14 April 2008
01:33 pm ET





Profile:
Amiee Chan

Chief Executive Officer, Norsat International Inc.

 

M
obile satellite communications terminal manufacturer Norsat International Inc. of Vancouver, British Columbia, is one of the more striking corporate-recovery stories in the satellite industry in recent months.

After two years of losses and questions about its future, the company returned to profitability in 2007, boosted revenue
�and put itself in a position from which it can reasonably talk about new growth opportunities and even an acquisition strategy.

 

Amiee Chan is one of the principal architects of the company’s return
to
health
. Norsat’s
spiffy but expensive corporate headquarters was replaced by a less-showy, but much less expensive, facility near the Vancouver airport. Middle-management ranks were trimmed. Operating expenses, which were 69 percent of revenue in 2006, were cut to 39 percent in 2007.

And in
a move you don’t often see among chief executives who don’t own their companies, Chan reached into her own pockets to give Norsat a couple of short-term loans to help speed the recovery. In stock-market parlance, that’s called aligning management’s interests with those of the shareholders. Norsat is traded on the U.S. Over-the-Counter market and on the Toronto Stock Exchange. Its shareholders have been taken on a roller-coaster ride over the last five years – most of it down until recent months as the recovery was digested by the market.

 

Norsat remains a relatively small company – 2007 revenue
�was
�17.5 million Canadian dollars ($17.8 million at Dec. 31 exchange rates)
�- in an industry that is evolving quickly. Very small aperture terminal, or VSAT, hardware companies are producing new gear that will give users more mobility, while traditional mobile satellite services operators are adding higher-bandwidth capacity to their products.

Chan told Space News staff writer Peter B. de Selding that Norsat is not standing still, and will use its current customer base as a springboard for new business.

You have described 2007 as your turnaround year. Is the turnaround now complete?

 

It’s a work in progress. We have a little more inventory than we would like, so we need to work that down.

Will this
be in the form of write-offs?

 

We expect to sell the product. It will just take some time to work through.

Your stock-market filings reference a couple of loans made by senior management to the company to get it through the rough spots. Was that you making the loans?

Yes, these were relatively short-term loans to the company. I started with Norsat in 1996 as a junior engineer and moved up. I believe in the company. The shares I own in Norsat were purchased with my own cash; they are not options.

You have been able to cut administrative costs substantially. Is research and development (R&D) also being cut?

No, we will continue to spend a lot on R&D. But in the future, we hope to participate in various government programs where they provide contributions to encourage research and development in certain industries.

Is the Canadian government a principal customer?

 

It is not one of our biggest customers, although we do have some work with them and we hope to do more with Canadian government agencies.

The U.S. Department of Defense is one of your major customers. Is it tough for a small company such as yours to meet the red-tape requirements of doing business in that arena
?

 

It’s true, there is typically a lot more paperwork working with the [Defense Department]
than with commercial customers. But we have been working with U.S. defense agencies for a long time now. They know us, and we have received work through contract vehicles – the IDIQ [indefinite-delivery
, indefinite-quantity] contracts that make it easier for government customers to deal with us.

You are targeting 15-25 percent annual revenue growth over the next several years. How do you get there?

 

When I use this figure I am speaking only of organic growth, not growth associated with acquisitions. The growth comes from being more active in certain vertical markets, and from deepening our reach within our current markets.

What kind of vertical markets?

 

For example, disaster recovery and business-continuity services are growing. We have a lot of experience with military customers and we hope to leverage what we have learned in this market to enter other markets. Another area is maritime: We do not have a maritime product today and this could be an opportunity for us.

What is the opportunity for business continuity?

 

More and more companies today understand that they cannot afford to be out of contact for any length of time, even following natural disasters. They need a backup in case the telecommunications grid is down for any reason. We can offer them that with high throughput speeds and small antennas. Again, our work with the U.S. military has taught us a lot about these markets through our portable terminal offering.

Now that you are profitable again, you have said you are looking at acquisitions. What would a target look like?

We want to make perhaps three to five
acquisitions over the next five years. We are looking for companies whose businesses would be accretive to us within one year. These would be companies whose products or services allow us to enter new markets with our existing products, or to develop new products in areas where we are strong.

 

That’s on the acquisition side. What about Norsat as a potential target?

 

We occupy a special niche in the satellite industry and I am sure we could be attractive to some potential buyers. Although we are not actively pursuing this path, we don’t rule anything out for our shareholders. About 35 percent of our equity is owned by European institutions that have been our shareholders for more than 20 years. They have seen the stock go way up and then down. The rest of our stock is publicly traded.

You offer mobile products, but are you active in the mobile satellite services sector, which has attracted a lot of investment recently?

We occupy a higher bandwidth and our customers are usually looking for 2 megabits per second, if not higher. The bandwidth is sometimes shared by more than one user at a remote site that requires the network to be continuously operational for an extended period of time, often from several weeks to several months. As a result, we do not compete directly with Inmarsat and Iridium, whose products are intended for occasional use.

You have offices in Brazil and South Korea. What is your ambition there?

Brazil is a growing telecom market and one from which we can reach the rest of South America. Our presence in South Korea is mainly for R&D. We want to be close to the facilities of our manufacturing partners to shorten the time to market with our new products.

Have you suffered from being a Canada-based company at a time of declining U.S. dollar values on international markets?

We have a natural hedge in that a lot of our marketing and sales are done in U.S. dollars, and most of our production is done in Asia, not in Canada. We do final integration in Canada. Our business is not that labor intensive, so the costs we have in Canadian dollars are not a large percentage of our total costs.