Hi Guys,
I had a chance to review Inmarsat’s transcript and financials. They are clearly feeling the heat from the KVH V7-HTS and CaaS model. At the same time, they have a little more history, in terms of HTS, considering FX has been out for close to 2 years. Much can be learned from the data. Impressively, they installed 604 Vsat units last quarter. I believe KVH installs were modestly above 300 and sales approximating 350. This implies a run rate of close to 1k vsat units a quarter between these 2 providers and they are the lions share of maritime vsat. Inmarsat has a larger installation and sales channel, 1-meter offerings and a year head start. It should not be surprising they currently sell at twice the rate of KVH. I also believe KVH pulled in V3 sales in anticipation of the new V3-HTS. FBB units sales are down 3,300 units, yoy. 1,400 of those losses were converted to FX. Inmarsat acknowledged the remaining 1,900 losses were primarily related to competition. In particular, they confirmed KVH was the primary source of these competitive losses. Vessels with existing FBB units is approximately 33,500. That’s down from a peak exceeding 40k, a few years ago. There is a clear pattern of migration from FBB to vsat and a surprisingly large number scrapping FBB entirely. I was expecting customer to keep FBB as a backup, migrate to lower ARPU plans and transfer the savings to Vsat. This is happening in some ways but the good news for KVH is a significantly larger share is just abandoning FBB. Splitting operating budgets between 2 plans(Vsat with an L-band backup) means less revenues for Vsat. Scrapping FBB means Vsat will get the lions share of the communications spend. Years back, Inmarsat responded to competitive threats from the likes of KVH by significantly lowering data costs at the high end and offering a new low end product to compete against the v3. This strategy worked because of the higher cost of Vsat hardware and modestly improved data rates were not enough to convince users to completely embrace Vsat. Speed differences between Vsat and FBB were clearly not the deciding factor, in terms of communications budgets. Existing FBB users had less reason to abandon their investment for significant up front Vsat hardware investment that was likely to be inferior to HTS in a couple years. Now that competitive HTS options are here, the delayed move to Vsat is now materializing into a sizable exodus from FBB. V3-HTS takes this a significant step further. Inmarsat is suggesting they are preparing a Vsat response but are pretty much conceding FBB migration to Vsat will continue. It’s worth noting that Inmarsat was consistently adding 2k+ units per quarter for several years. 500 units per quarter were of the larger FB250/500 variety. What share of the remaining 1500 FB150 units were based on size constraints or price constraints, is anyone’s guess. But it’s important to remember, at peak unit sales, FBB data rates were and are significantly higher than KVH HTS data rates. The return on investment for usage exceeding 1gb/month is about a year and V3-HTS now exceeds FB500 data speeds in a material way and in a size comparable to FB150. It’s clear from existing data that the impact of the larger HTS Vsats is significant and the economics are too good to pass up for users. Price cuts by Inmarsat are likely to have minimal impact on this shift to Vsat, now that the products are significantly different by most metrics. I would not be surprised to see Vsat hardware sales far exceed expectations for KVH in coming quarters. As I mentioned before, anything over 500 net adds will lead to minivsat revenue growth exceeding 30% at the end of 2019. Assuming the net effects of SatCom hardware and content are positive, overall SatCom growth is likely to exceed 20%. The 500 unit model is now likely to be conservative, given the news KVH is already taking a real bite out of FBB sales, ex the new V3-HTS. The overall VSAT market is also growing as smaller and cheaper Vsat hardware reaches more segments previously not available. This is not a zero sum game, for many years to come. The entire Vsat market should benefit. The Vsat maritime market is finally coming to fruition in real material ways and KVH is clearly a beneficiary considering its market share.
Aw |
