ViaSat’s Military Work Holds Steady While Commercial Sales Decline

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PARIS — Satellite ground hardware supplier ViaSat Inc. gave a bullish assessment of near-term demand for ground gear for military satellite communications programs but said its commercial division’s sales are suffering from slower orders from the WildBlue consumer satellite broadband project.

In a Feb. 10 conference call with investors and a filing with the U.S. Securities and Exchange Commission (SEC) the next day, ViaSat also reiterated that it will be able to finance its large ViaSat-1 Ka-band broadband satellite on its own if necessary, even in today’s tighter credit markets.

Mark Dankberg, chief executive of Carlsbad, Calif.-based ViaSat, said the company’s ability and willingness to proceed with ViaSat-1 without strategic partners “is an important component of ultimately reaching any potential partnership.”

ViaSat provides ground communications gear for use in numerous military satellite systems. Government work of this type accounted for 60 percent of the company’s revenue in the nine months ending Jan. 2, ViaSat reported.

Despite the unknowns surrounding the defense spending priorities of U.S. President Barack Obama, Dankberg said the satellite systems already under construction will assure ViaSat a full pipeline of contract work.

“Government satellite communications systems awards have been particularly strong this year and we anticipate that continuing for the foreseeable future as the government takes advantage of existing transponders, the new capacity on the Wideband Global [Satcom] system, and the upcoming launch of the next generation of UHF-frequency satellites, the Mobile User Objective System (MUOS),” Dankberg said.

The commercial broadband side of the business is less easy to predict. ViaSat said its commercial networks division, which includes the consumer satellite broadband products, reported a 5.5 percent decline in sales in the nine months ending Jan. 2 compared to the same period a year earlier, with the decline especially sharp in the last three months in the period.

WildBlue Inc. of uses ViaSat terminals for WildBlue’s consumer and small-business service. Dankberg said WildBlue has slowed its orders for ViaSat hardware to work off existing inventory, and not because of any sharp decline in WildBlue’s business.

He said WildBlue in recent weeks has continued to add new customers, and at rates that exceed the orders WildBlue has given to ViaSat, suggesting that inventory is being reduced and that a fresh order for WildBlue terminals is to be expected.

But Dankberg also said that despite the efforts of WildBlue and its suppliers, including ViaSat, to squeeze additional capacity out of beams now fully booked with subscribers, WildBlue’s growth is hampered by its satellites’ capacity limits.

WildBlue has acknowledged that its satellite beams covering some regions have been loaded to maximum capacity.

These regions are the ones that ViaSat hopes to target on its own starting in 2011, when its large ViaSat-1 Ka-band satellite is scheduled for launch. ViaSat Chief Financial Officer Ronald G. Wangerin said during the conference call that ViaSat-1, under construction at Space Systems/Loral in Palo Alto, , has completed a major design review and is on schedule and within budget.

ViaSat-1 is expected to cost $400 million including the satellite’s launch and insurance and the construction of several ground gateway facilities. Loral has agreed to pay 15 percent of the cost in return for an equivalent amount of ViaSat- 1 capacity, which Loral is expected to resell to satellite operator Telesat . Loral is one of the two major Telesat shareholders.

ViaSat has spent some $85 million on ViaSat- the nine months ending Jan. 2, and expects to spend another $30 million between now and the end of ViaSat’s fiscal year, March 31, Wangerin said. The company will spend another $100 million on the project in the following 12 months.

Wangerin said ViaSat’s manufacturing contract with Loral, and a launch contract with Arianespace of Evry, France, provide flexibility as to the payment profile in the event ViaSat wants to slow spending.

Dankberg said the company’s expected operating cash flow and its existing $79 million line of bank credit are enough to pay for ViaSat-1. He said that in addition to consumer broadband, the satellite is likely to find a market with the government for military training and homeland security because of its high throughput capacity.

ViaSat is also counting on a rebound in its VSAT, or very small aperture terminal, business, which builds two-way Ku- band satellite terminals for business networks, and for government-sponsored rural-connectivity programs. He said ViaSat recently signed a contract for a large VSAT network outside the United States, but he declined to identify the customer or the geographic region until the financial commitment from the customer had been secured.