The standard view of the space hardware industry shows small companies pioneering new products before being merged into larger corporations as a way to better handle the ups and downs of the cyclical marketplace.

Horten, Norway-based Norspace is a counter example. Once part of Alcatel, whose space business was sold to what is now Thales Alenia Space, Norspace was created in 2003 following Alcatel’s decision to close the operation. Local managers saw long-term potential and took over from Alcatel.

Selling satellite on-board processors has turned out to be a profitable business, and Norspace is expanding into telemetry, tracking and control products — a business line purchased from Thales Alenia Space.

Norspace’s breakout contract may have arrived last December when it landed the business of providing search-and-rescue payloads, and frequency generators and up-converters, for Europe’s first 14 operational Galileo navigation satellites. The contracts’ combined value of more than 20 million euros ($26 million) is equivalent to nearly two full years of Norspace revenue.

Norspace Chief Executive SverreBisgaard said the company is banking on other near-term growth opportunities to assure that the Galileo work is not followed by a drop in revenue. Meanwhile, he said, Norspace is comfortable with its outlook as a small hardware builder but is willing to look at strategic alliances as well.

Bisgaard spoke with Space News staff writer Peter B. de Selding.

Who owns Norspace?

The main shareholders are six people who are on the company’s management team. We took over the company’s assets in 2003 when Alcatel, now Thales Alenia Space, decided to close the operation. They left the assets here, and the new management team picked up obligations like the lease on the property. We also agreed to take over certain contracts and other obligations, such as warranties.

What led to Alcatel’s decision to close down operations?

There was a serious crisis in the industry. It was a very bad time, and their decision was part of a larger strategic disengagement from several countries. We believed that the Norwegian operation had a solid basis to continue, and we were able to secure some government loans and some private capital.

We were around 50 people in June 2004, and our revenue that year was around 8 million euros. We were given ownership of some of the intellectual property rights involved in the work and so we could continue almost all of the contracts already begun.

What is your revenue picture today?

In 2009 we reported 11 million euros in revenue, and in 2010 we expect to report 13 million euros. We have some 94 full-time employees. Given our backlog of about 30 million euros, we will see a significant increase in revenue in 2011 and 2012. In 2011, for example, we expect revenue to reach around 17 million euros.

Is the increase mainly because of the Galileo work?

Yes, and beyond that contract we see some interesting opportunities in new areas including telemetry, tracking and control, a product line that we began in 2006. Our first order came in 2008. This division should grow to become around one-third of our total revenue in the next few years.

Are you profitable?

We have been profitable for seven straight years, over which time we have accumulated a profit totaling 80 million euros. Net after-tax profit over the period is more than 10 million euros. We pay a tax rate of about 28 percent.

Will profitability growth accompany your expected revenue growth?

We think it probably will. We can still take on additional business without investing in new infrastructure, and there are some interesting bid requests expected in the coming months, such as work on the next-generation Meteosat meteorological satellite program, called Meteosat Third Generation. Norway’s ESA (European Space Agency) membership should ensure us a good return on that program, especially since Norway has an under-return at ESA that will have to be made up one way or another. To keep up with the new business we have hired 15 people. We expect our head count in the next couple of years will stabilize at about 100 |employees.

Is your principal source of revenue today signal processors?

Yes, analog signal processors, especially for mobile applications such as for Inmarsat and Globalstar. Surface acoustic wave products have been our core business, and we believe we are a global leader in this product line. But the market is subject to big fluctuations from year to year, even if for the last three years or so it has been a good business.

Which prime contractors do you work with most?

We work with MDA in Canada, with Space Systems/Loral, with Astrium and with OHB for that company’s new Small-Geo product line now in development. In the past couple of years Loral has been an especially good customer for us for the mobile applications such as TerreStar 1 and 2. We have also worked with Boeing and Lockheed Martin and have sold surface acoustic wave filters to them. We haven’t done anything yet with Orbital Sciences but we’re working on it.

Is your Galileo contract win an example of how government investment in a program leads to contracts for that government’s industry?

No, if you look at that procurement, it was not dependent on Norwegian government investment. Some five years ago the Norwegian government began looking at what it should do to prepare for the day when the European Union took over some of the space development role of the European Space Agency. The idea was to protect Norway’s interests given that we are not a member of the EU.

Norway has a security agreement with the EU and this was instrumental in your winning the Galileo contract against potential Canadian and Chinese competitors. Was this agreement in place before the Galileo competition?

The Galileo contract and the security agreement really followed two separate paths. You might say we were lucky here in that Norway, sharing a border with the EU, has long wanted such a security agreement to cover such areas as cooperation in policing and border control. So the country’s interest in concluding a security agreement was independent of Galileo.

At one point, the Canadian bid from Com Dev was considered a shoo-in for the Galileo search-and-rescue payload, wasn’t it?

We thought so, too. We went after this contract for the first four Galileo satellites, and the contract was given to the Chinese. Then the Chinese agreement came apart, and the contract for the full constellation was going to go to Canada. We were more or less asked to lay off at this point.

Then there was an open competition; we put in a good bid, but we were concerned about the politics of the contract award. We were surprised and of course pleased to win it.

Is being a relatively small company in a low-volume industry like space components a handicap, and are you looking to be purchased or otherwise get larger?

If you look at our history over seven years — a time that included a sharp downturn in the industry — I think we have shown we can do fine on our own and run the business profitably. Even when we were part of Alcatel, we were more or less left alone to run the business, so taking ownership was not such a new situation for us. At this point we think our future is bright. But if we see some real advantage to a strategic partnership we would not say no to it.

Peter B. de Selding was the Paris bureau chief for SpaceNews.