ViaSat Inc. expects that its increased penetration of the market for large-volume business satellite networks and its growing consumer-broadband satellite terminal business soon will put the company in second place among satellite-terminal manufacturers worldwide.
Comparisons are difficult because the builders of VSAT, or Very Small Aperture Terminal, satellite communication systems do not always report orders, sales and deliveries the same way. But ViaSat Chairman Mark Dankberg said the Carlsbad, Calif., company expects to overtake Gilat Satellite Networks of Petah Tikva, Israel, to claim second place behind Hughes Network Systems (HNS) of Germantown, Md.
“Given the shipment rates that we’re achieving, [the figures] will show that we will shortly be No. 2 in the market, if we’re not already,” Dankberg said May 12 during a conference call reporting ViaSat’s financial results.
VSATs are private, one-way or interactive satellite communication networks used by many retailers and other companies with far-flung operations.
ViaSat reported a net profit of $19.3 million on sales of $345.9 million for the fiscal year that ended April 1. Half the company’s sales are for civil/commercial satellite hub and terminal gear, and half are for software and other products for the U.S. Department of Defense.
The company already has sold more than 100,000 Surfbeam consumer-broadband satellite terminals for three customers — a Ku-band service in the Middle East negotiated byLtd. of Washington; Telesat Canada’s Ka-band consumer service in Canada and Denver-based WildBlue Communications’ Ka-band consumer service, which is expected to enter commercial service this summer.
Dankberg’s remarks came three weeks after HNS owner DirecTV Group of Los Angeles sold half its HNS stake to SkyTerra Communications of New York. SkyTerra has taken over management of HNS.
To finance the transaction, HNS took on a debt load of $325 million. The company also is under pressure from the U.S. State Department following a January finding that HNS violated U.S. export rules — the International Traffic in Arms Regulations, or ITAR — in certain of its VSAT transactions in China and elsewhere.
DirecTV paid a $4 million fine and an HNS Asian subsidiary was barred from conducting certain business. SkyTerra, in a financial statement submitted to the U.S. Securities and Exchange Commission (SEC), said HNS may apply to have the bar lifted starting in May.
HNS agreed to spend $1 million to enhance its ITAR-compliance measures over three years. How costly the ban on business will be is unclear.
“HNS is currently unable to perform its obligations under certain contracts in China and Korea addressed by the … consent agreement and may be liable for certain damages as a result of its nonperformance,” SkyTerra said in its SEC filing.
It was DirecTV’s second ITAR-related consent agreement, with the first occurring in March 2003, when the company was named Hughes Electronics. Because of its status as a two-time offender — and despite the fact that the 2003 consent related to satellite manufacturing and not to HNS — HNS is walking on eggshells with respect to ITAR, SkyTerra said.
“Because we are manager of HNS, the State Department has required us to register under ITAR,” according to the Sky Terra SEC filing. “Accordingly, a future violation of ITAR by HNS could expose us to liability and could subject us to significant financial and other penalties … [and could] impact our ability to operate internationally.”
Dankberg said HNS, which has long been the global leader in satellite-terminal manufacturing, “remains a formidable competitor,” and that it is too soon to determine how the new SkyTerra owners will handle the business.
ViaSat said in its May 12 earnings statement that it is winning more large-volume orders for its VSAT systems, a market area that used to belong almost exclusively to HNS and Gilat.
But ViaSat’s biggest near-term potential in the commercial sector is the expected roll-out this year of consumer broadband service in North America. Dankberg said the company’s Surfbeam terminal, which has experienced cost overruns and technical glitches that have delayed deliveries, is on track and ready for volume orders. The most recent Telesat Canada order was for 40,000 Ka-band satellite terminals to be used with Telesat’s Anik F2 satellite.
Assuming the start-up bugs are removed from the Surfbeam product, a remaining issue will be its cost. Dankberg said that for consumer satellite broadband to find a wide market, terminal retail costs will need to be no more than $200 or $300 — substantially less than today’s costs.
“We could get there with a lot less than 1 million units” ordered, Dankberg said of the targeted consumer terminal price range. “We are at a couple of hundred thousand units now. We could get there in the not-too-distant future.”