PB-- Thanks. Here it is...The article shares my view of the LT potential of ORB,
By John Rubino
Special to TheStreet.com
7/23/99 11:21 AM ET
Last week's flame-out by satellite communications
network Iridium (IRID:Nasdaq) and this week's 30th
anniversary of Neil Armstrong's walk on the moon got me
wondering: Whatever happened to the gold rush into
space?
A decade ago, if 100 money managers had been asked
which would be the better play, space commercialization
or the Internet, 80 would probably have said space. (The
other 20 would have responded: "What's the Internet?")
Yet here we are in 1999, and the Web has made fortunes
for a lot of you, while -- based on a cursory reading of the
headlines -- commercial space stocks resemble the Mir
space station: springing leaks faster than they can be
patched.
Besides Iridium, which is down from 70 to 7 because
nobody wants to pay $3,000 for a glorified cell phone,
Lockheed Martin (LMT:NYSE) is off more than a third
from its recent high, in part because its launch vehicles
keep failing; Orbital Sciences (ORB:NYSE) has
round-tripped from 50 to 20 twice as one high-frontier
division after another misses its targets; and Loral
(LOR:NYSE), which may or may not have sold secrets to
the Chinese, is down a third from its high.
It seemed like a good time to check in with some of the
people whose complicated job it is to follow these stocks.
But when I did -- you know where this is going, don't you?
-- it took about five minutes to realize that the headlines
don't tell the real story. Notwithstanding the exploding
rockets and imploding stocks, this year the gold rush into
space finally took off. And from here on, it's going to be
absolutely huge.
The past year's mess, say the optimists, is just a case of
bad execution by a few managements who, in their
defense, are trying things that have never been done
before. Merging a bunch of geostationary satellites into a
functioning telecom network is virgin territory. Selling
satellite phone services ("global mobile telephony" in the
industry's poetic argot) with $3,000 handsets is a
marketer's nightmare. And launching heavy payloads with
today's rockets guarantees the occasional explosion.
But Moore's Law works up there just like it does down
here. As circuits get smaller, satellites get more powerful,
letting smaller dishes and/or handsets receive their
signals. Smaller is cheaper, which broadens the market,
which leads to longer production runs, lower prices and an
even broader market, ad infinitum.
The first space business to hit the steep part of this curve
is direct broadcast satellite TV, or DBS. Yesterday's
monstrous satellite dishes have shrunk to 18 inches, and
their price is down from thousands of dollars to a couple
hundred, sending demand through the roof. The big two of
DBS, Hughes Electronics' (GMH:NYSE) DirecTV and
Echostar (DISH:Nasdaq) are adding a combined 200,000
new subscribers each month with no letup in sight.
Soon, these guys and others will start offering broadband
Internet. Soon after that will come satellite telephony with
the kind of cheap, light handsets familiar to "X-Files" fans.
Even with several big new satellite networks on the
drawing board, at least one analyst thinks the resulting
demand for satellite services will swamp supply by 2002.
Then, a new generation of cheap, reusable launch vehicles
will come on line, lowering launch costs and shifting the
boom into high gear.
There are two main ways to play this. First is to stick with
the big guys who are buying pieces of everything in the
hope that whatever wins out in the end, they'll own it.
Satellite giant Hughes Electronics, for instance, owns
DirecTV and a large part of PanAmSat (SPOT:Nasdaq);
Loral is a leader in satellite services and has a big piece of
emerging satellite network Globalstar (GSTRF:Nasdaq);
Motorola (MOT:NYSE) is the driving force behind Iridium
(a debacle which is already priced into MOT's stock) and
is a major supplier of equipment to Teledesic, a Bill
Gates/Craig McCaw "Internet-in-the-sky" venture. Motorola
is also a leading maker of cell phones.
Lockheed Martin is a likely source of tomorrow's cheap
launch vehicles. It owns stakes in Pasifik Satelit
Nusantara (PSNRY:Nasdaq ADR), Comsat (CQ:NYSE)
and Loral, and has a substantial book of defense contracts
to fall back on. On a smaller scale, Orbital Sciences is
carving out niches in low-cost satellites, launchers and
satellite data and imaging networks. Of the five, only
Hughes is anywhere near its 12-month high.
Or you can take a flier on this market's Amazon.coms
(AMZN:Nasdaq). Echostar will, according to Street
estimates, approach break-even next year and use its
massive operating leverage to earn serious money
thereafter; Gilat (GILTF:Nasdaq) is a leader in very small
aperture terminal, or VSAT, a technology suited to things
like credit card authorization, inventory control and
corporate intranets; Globalstar's satellite telephony
system is due to go on line later this year, with the benefit
of Iridium's example; PanAmSat offers video and Internet
services worldwide and is the only profitable company on
this list.
And for a real lottery ticket, consider CD Radio
(CDRD:Nasdaq), which wants to do for car radio what DBS
did for television, Next year it plans to offer 50 channels of
commercial-free, CD-quality music, news and sports to
commuters nationwide.
Great stories, these. But remember: The past year proves,
once again, that you can be right about an industry and
still get creamed if you buy in too early or back the wrong
horse. Before biotech finally proved itself, dozens of little
start-ups raised hopes and money and then disappeared.
The early computer makers like Atari and Commodore
are long gone, and among the original online services, only
America Online (AOL:NYSE) made anyone rich. They
don't call it the bleeding edge for nothing.
But when a technology proves itself, the best business
models attract a lot of money. Biotech leader Amgen
(AMGN:Nasdaq) went nowhere between 1996 and 1998.
But since then it's tripled. Same thing with AOL. So that's
the question: If space is the next Internet, is this 1996 or
1998? Guess we'll find out in 2000.
John Rubino, a former equity and bond analyst, writes a
column on mutual funds for POV and is a frequent
contributor to Individual Investor, Your Money and
Consumers Digest. His first book, Main Street, Not Wall
Street, was published by William Morrow in 1998. At time
of publication, he had no position in any stocks
mentioned. While Rubino cannot provide investment
advice or recommendations, he invites your feedback at
rubinoja@yahoo.com.
fred |
