ViaSat Sales Decline Seen as Temporary Blip

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PARIS — Satellite ground equipment and services provider ViaSat Inc. on May 17 told investors that a dip in its defense and commercial equipment businesses for the year ending March 31 should turn around in the coming months as existing defense orders generate revenue and its ViaSat-1 broadband satellite lifts user-equipment sales.

ViaSat’s defense revenue during the year was hit by slower-than-expected sales of its tactical data links gear and defense-related information assurance products. Some of the delays may have been related to the slow passage of the U.S. government budget for 2011.

These programs include the Multifunction Information Distribution System Joint Tactical Radio System for defense aircraft and encryption gear for defense and intelligence agency use. How quickly their revenue will return to previous levels is unclear.

The company is also taking a charge to account for the fact that on certain cost-reimbursable programs for the U.S. Defense Department, the customer is no longer allowing certain expenses. It is an issue that many defense manufacturers are facing, ViaSat officials said.

Offsetting these slowdowns has continued the buildup of backlog for mobile broadband for intelligence, surveillance and reconnaissance missions, and ViaSat’s Blue Force Tracking-2 program to permit ground troops to distinguish friend from foe on the battlefield.

With its defense order backlog, at $284 million, up sharply from a year ago, ViaSat officials forecast that the company’s defense revenue will increase by 10 percent in the coming 12 months. “A 10 percent growth in defense in the current environment is pretty unique,” ViaSat Chief Executive Mark Dankberg said in a May 17 conference call.

ViaSat’s commercial business is expected to increase at a faster rate. The Carlsbad, Calif.-based company said its showcase program, the ViaSat-1 satellite, is on track for a July launch, with commercial service in North America to begin in October. Once in service, the satellite will provide ViaSat’s WildBlue consumer broadband service with badly needed bandwidth. That will allow WildBlue, whose growth has been stunted by the lack of satellite capacity, to add customers and order more ViaSat-built customer equipment.

“We had our share of challenges” in ViaSat’s fiscal-year 2011, which ended March 31, Dankberg said. He cited a one-time charge ViaSat incurred early in the year for performance issues related to an unidentified Defense Department contract, delays in the passage of the U.S. government budget and the five-month delay in the launch of ViaSat-1 as examples of revenue-sapping events during the year.

ViaSat-1’s launch was delayed by several months when a small amount of oil used in a satellite-integration instrument positioned above ViaSat-1 leaked onto the satellite. The delay not only cost ViaSat several million dollars in expenses related to its ViaSat-1 program deployment, it also reduced the lead time ViaSat had on competitor Hughes Network Systems of Germantown, Md. 

Hughes’ Jupiter satellite, which is nearly identical to ViaSat-1, is scheduled for launch in early 2012.

Having Jupiter follow so closely on the heels of ViaSat-1 “is essentially going to modify the combination of ways we bring WildBlue services to market,” Dankberg said. ViaSat is forecasting that ViaSat-1, once operational, will permit WildBlue to sign up 30,000 to 40,000 new customers a month. WildBlue’s subscriber-acquisition rates were similar to this before the company ran short of satellite bandwidth in the high-demand areas of the Unites States. It is these areas that ViaSat-1 is targeting.

Hughes is being purchased by EchoStar of Littleton, Colo., sister company to satellite-television provider Dish Network, which is a distributor of ViaSat’s WildBlue consumer broadband service. Dankberg said despite what are almost certain to be closer ties between Dish and Hughes, Dish and WildBlue are likely to continue their WildBlue distribution agreement, even if the volume of business decreases.

Dankberg has been among the most enthusiastic promoters of the move to Ka-band satellite systems for commercial consumer broadband and certain military applications. In addition to ViaSat-1, the company is providing user equipment for Paris-based Eutelsat’s Ka-Sat satellite, which is in orbit and expected to begin commercial service in the coming weeks.

Still farther eastward, ViaSat has leased the 600 megahertz of Ka-band capacity available on the ABS-7 satellite owned by Asia Broadcast Satellite of Hong Kong. The satellite, formerly known as Koreasat-3, is at 116 degrees east. ViaSat has exclusive rights to use the Ka-band capacity and expects to sell it for military use in Afghanistan, Iraq and the surrounding region, Dankberg said.

The use of Ka-band satellite bandwidth to provide broadband links to commercial airline passengers is another growth area that ViaSat has been talking about for several years and that may be about to arrive. JetBlue Airways has contracted for $30 million in equipment and services.

 

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