All: light reading, more good Loral press it can't hurt.
SATELLITES: THE FINAL INVESTMENT FRONTIER
COMMERCIAL INDUSTRY COULD REWARD SHREWD BUYERS
Series: Money Monday
Florida Today
In the commercial satellite business, the revenue
forecasts - like the product - are out of this world.
A coming explosion of satellite-based systems is
set to revolutionize the way we communicate with
one another around the globe, as space continues
its rapid transformation from a government to a
commercial playing field.
"Satellites are going to be on the front end of the
wiring of the world," said Mel Brashears, president
and CEO of Lockheed Martin's Space & Strategic
Missiles Sector. "What we are seeing is a long- term, sustained expansion of
space-related markets that will remain with us well into the 21st century."
Shrewd investors have the chance to see their portfolios rocket upward.
[ Merrill Lynch ] forecasts satellite industry revenues to climb from an
estimated $38 billion in 1997 to $171 billion in 2007. The dramatic expansion of
satellite television, mobile satellite telephones and multimedia is expected to
drive this steady growth. That will make possible faster, more convenient
Internet service and give even the world's most remote villages access to a
telephone, among many other things.
"Over the last 12 months, the global satellite industry has shown strong growth
and produced outstanding returns," said Thomas Watts, a Merrill Lynch vice
president who projects industry revenues will grow in the next decade at a
rate of 17 percent. "The challenge for 1998 and 1999 will be to continue to
meet investors' expectations while fulfilling the industry's dreams of meeting
mass market demands."
While the potential for the commercial space industry is huge, the most
daunting task for investors is choosing from among hundreds or even
thousands of potential investments. One or two could well become the next
[ Microsoft ] , while many more will crash and burn - figuratively and perhaps
literally.
A recent Barron's article summarizes the downside: "What could go wrong?
You name it. Exploding rockets. Flawed satellites. Uncooperative regulators.
Political scandal. Even price competition . . . Other things can go wrong on the
ground, including launch timetables and budgets."
Though the technology might seem futuristic and intimidating, analysts say
where to invest comes down to a few common-sense factors.
Marco Caceres, senior space analyst with the Teal Group in Fairfax, Va., said
that like any new sector without an extended track record, the safest bet is to
look for ventures backed by established companies with strong technology
backgrounds and financial security.
"I see the growth being steady, but not exponential," Caceres said. "I think the
market is ripe for investing, but only a fraction of these systems we're hearing
about will ever be financed and built."
Mitch Varnes, a broker with A.G. Edwards & Sons in Melbourne and a
former NASA spokesman, also considers the big-name strategy the best bet.
He likes [ Loral Space & Communications ] and [ Hughes Electronics ] .
"I have a big position in Loral," Varnes said. "It's poised to be a leader in the
long-term."
Companies like Loral are well-positioned for the explosion of new wireless
services. No matter which of those services wins and loses, the one certainty
is they all will need satellites like the ones Loral builds.
So far, the satellite industry has not broken from the pack. SATIN, the
Barclays Satellite & Space Index of 29 satellite-related companies, has
performed behind the Standard and Poor's 500 and the Nasdaq composite
index since SATIN's inception Jan. 31, 1995.
In the first half of 1998, SATIN was up 13.5 percent compared to 16.8
percent for the S&P 500 and 20.7 percent for Nasdaq composite.
One company has been studying the space industry's potential for some time.
SpaceVest, based in Reston, Va., bills itself as the space industry's leading
venture capital firm.
Founded in 1991, SpaceVest has invested about $50 million in venture capital,
primarily in late-stage and established growth companies.
Stephen Rochereau, managing director of SpaceVest, says that potential
investors, in the course of their research, should focus on the same criteria his
company does in assessing entrepreneurial space ventures:
- Effective leadership.
- A seasoned management team.
- Ownership of operational results.
- Sharp definition of the business.
- A differentiated growth strategy.
- The ability to manage growth.
Other questions to ask: Will it work? How complex is the mission? How
efficient and well tested is the product? Are customer preferences met? How
solid is the market research? Look for companies that address a large market,
global if possible, Rochereau said. Also identify which companies target the
highest growth segments in a large market, focusing on early market
dominance.
"Typically, we don't invest in technology that needs further development,"
Rochereau said.
One more piece of advice: Find out who's in it for keeps.
"I don't know that all of these companies are really serious about getting their
satellites built," said Caceres, the Teal Group analyst. "A lot of companies are
out there (doing little more than) filing claims for orbital slots."
Caceres said there are solid bets.
"You now have lots of good new companies, like [ Orbital Sciences Corp. ] ,
which are young but still growing," he said. Companies like Orbital Sciences,
Hughes Electronics, Lockheed Martin and Loral Space & Communications -
which focus on satellite hardware and services - are well-positioned, he said.
"You can count on these companies to be competitive for the forseeable
future," Caceres said. "They're steady and reliable and have a track record."
Some of the newer names out there also pass the key tests of adequate
financing and technical know-how.
Teledesic, for instance, has the backing of bilionaires Bill Gates of Microsoft
and cellular pioneer Craig McCaw. For good measure, a billionaire member of
the Saudi Arabian royal family has also signed on. So have [ Boeing ] and
[ Motorola ] .
A network of more than 800 satellites billed as "Internet in the Sky," the $9
billion Teledesic system promises high-speed Internet and multimedia services
accessible from anywhere on the planet. Planned start date: 2002.
Iridium, a $5 billion, satellite-based global mobile telephone service made up of
of 66 satellites (and six spares) in low-earth orbit, now has its satellites in
place and plans to begin operations soon.
"Teledesic, I don't know if they're going to be on time, but they have some
incredible financing," Caceres said. "On the technical side, there's no problem
for Iridium or Teledesic. Motorola is the prime contractor for both. They've
got the manufacturing technology down to an art form."
If the search for well-known, financially strong names is a key to successful
investing, it's equally important to be wary of companies you've never heard of
before, he said.
"Some of these European companies developing systems by themselves
without U.S. partners, or some of these Russian companies, I'd be very leery
of them," Caceres said.
QUOTELINE:
"Teledesic, I don't know if they're going to be on time, but they have some
incredible financing. On the technical side, there's no problem for Iridium or
Teledesic. Motorola is the prime contractor for both. They've got the
manufacturing technology down to an art form."
Marco Caceres,
senior space analyst,
The Teal Group
Aiming for the stars
The 29 companies in SATIN and their ticker symbols:
- American Mobile Satellite Corp. (SKYC)
- APT Satellite Holdings (ATS-)
- AsiaSat (SAT-)
- British Sky Broadcasting (BSY-)
- California Amplifier (CAMP)
- California Microwave (CMIC)
- CD Radio Inc. (CDRD)
- Comsat Corp. (CQ)
- Cordant Technologies Inc. (CDD)
- EchoStar Communications (DISH)
- General Instrument Corp. (GIC)
- Gilat Satellite Networks Ltd. (GILTF)
- Globalstar Telecommunications (GSTRF)
- Iridium World Comm. Ltd. (IRIDF)
- KVH Industries Inc. (KVHI)
- Loral Space & Communications (LOR)
- Orbital Sciences Corp. (ORBI)
- PanAmSat Corp. (SPOT)
- Pasifik Satelit Nusantara (PSNRY-)
- Qualcomm Inc. (QCOM)
- Spacehab Inc. (SPAB)
- SSE Telecom Inc. (SSET)
- STM Wireless Inc. (STMI)
- TCI Satellite Entertainment (TSATA)
- Trimble Navigation Ltd. (TRMB)
- United Video Satellite (UVSGA)
- US Satellite Broadcasting (USSB)
- Vertex Communications (VTEX)
- ViaSat Inc. (VSAT)
-Foreign companies traded through American Depository Reciepts.
(Copyright 1998)
_____via IntellX_____
Publication Date: August 26, 1998
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