|TALES OF THE TAPE: KVH Industries To Beam TV Into Cars|
[ 12th December 2002 ]
By Michelle Rama
Of DOW JONES NEWSWIRES
(This story was originally published Wednesday.)
NEW YORK (Dow Jones)--Generations of parents who have dared to venture forth on the open road with kids and their ever-shortening attention spans may soon be greeted with a new complaint: "We're there already?"
Starting early next year, KVH Industries Inc. (KVHI) intends to bring a new entertainment medium to American highways - live, color television.
Although TV screens are popping up in vehicles everywhere already, they are only good for playing videotapes. KVH plans to connect their mobile TVs to 500 channels of live satellite television and 400 Kilobit-per-second data links for high-speed broadband Internet access, said Martin Kits van Heyningen, chief executive of KVH Industries Inc.
"There's no way to get a live picture into a car right now" he said. Companies have tackled the problem of pointing a moving antenna to a satellite that's 22, 000 miles above the earth within one degree - but those antennas are enormous and are found mostly on boats, recreational vehicles and planes.
KVH's gyrostabilized antennas enable moving vehicles to lock onto satellites, and the company is working hard to manufacture a small enough antenna to fit on cars or sport utility vehicles.
The 23-year-old Middletown, R.I., company has sacrificed about two years of profitability in order to develop its newer satellite antennas. The company also makes navigational devices and fiber optic gyros used by the U.S. military. Van Heyningen predicts KVH's satellite communications, which makes up 60% of KVH's business, will be the fastest-growing of its three business.
While the company has been selling antennas for boats for several years, its recreational vehicle antennas have been growing in popularity since their introduction about a year ago.
Demand Still Unknown
Although no one knows how much demand is out there for the antennas, some have compared it to the satellite radio industry, dominated by XM Satellite Radio Holdings Inc. (XMSR) and Sirius Satellite Radio (SIRI). XM Satellite Radio, the largest broadcaster, has more than 200,000 subscribers and Sirius has about 15, 000 subscribers who pay $12.95 a month for its car satellite-radio service, which launched nationwide in July.
"With 200 million cars on the road, and 40 million commuters that go at least 45 minutes each way on their commute, maybe they can complement the satellite radio - we're seeing strong demand for satellite radio," said Robert Peck, Bear Stearns Cos. analyst who covers the industry. Peck doesn't own stock in KVH Industries, nor does Bear Stearns have an investment banking relationship with the company.
Needham & Co.'s Pierre Maccagno, the sole analyst who covers the stock, said the newer low-profile antennas should "significantly expand" KVH's market.
Maccagno said he is concerned about the release date, set for early 2003, which the company has been pushing back for several months. The company originally planned to begin marketing the antennas in late 2002.
Still, Maccagno is fairly sure KVH will face a competition-free marketplace once the antennas are available for sale. The company's four competitors, including Audiovox Direct and MotoSat, are all privately held, but Maccagno said he's not aware that any of them are developing a similar product.
CEO van Heyningen said the antennas will be sold at first as an after-market product designed to mount "attractively" on any vehicle's roof rack. As they increase in popularity, the antenna can be built into the vehicle at the factory and made barely perceptible even without a roof-rack as camouflage, much like a sunroof, van Heyningen said.
"The issue isn't the antenna technology, it's building the business relationship" with the auto makers, van Heyningen said.
KVH's stock recently traded at about 34 times Maccagno's 2003 earnings estimate of 27 cents a share.
The company estimates a 20% to 30% revenue increase for 2003 - which also includes expected revenue from its next generation product - according to van Heyningen.
Engineer and former satellite industry analyst John Stone predicted that " Potentially, this market can be much larger than the niche market playtoys of the rich." The same customers who are buying rear-seat entertainment systems could become KVH customers, he said.
"This includes not just affluent enthusiasts, but families with SUVs and mini- vans who want video entertainment during family trips," said Stone, who owns no shares in the company.
So far, KVH's satellite antenna business in recreational vehicles has been growing. In recent months, the company has received orders from several recreational vehicle dealers who will offer TracVision as an option in 2003 motor homes, including orders from Fleetwood Enterprises Inc. (FLE). Featherlite Inc. (FTHR) in June said it would equip all its 2003 Vantare luxury coaches with KVH's satellite high-speed Internet and satellite telephone technology.
If demand for the R.V. antennas KVH currently has on the market is any indication, then the SUV antennas should be well-received, said Maccagno, who doesn't own shares of KVH Industries. Needham & Co. has had an investment banking relationship with the company.
KVH will likely face competition once its car-sized antenna arrives - if the product is successful.
"It wouldn't be that hard for other players to come in and follow them, but I don't think they'll encounter a lot competition unless it takes off," Stone said.
Once the satellite antenna is purchased, the buyer must still subscribe to satellite service, which both Stone and the company expect will cost about the same as service to the home - between $23-$100 - depending on the programming purchased.
If the satellite antennas are as popular as hoped, KVH is prepared to ramp up capacity quickly should it be flooded with orders once the antennas become available.
While KVH hasn't settled on the retail price of its new antennas, they may at first be similar in price to their R.V. counterparts, which run from $2,399 for TV to $5,995 for Internet connections.
"But eventually they will be much less expensive due to the higher volumes and the consumer-oriented nature of the automotive aftermarket," van Heyningen said.
-By Michelle Rama, Dow Jones Newswires; 201-938-4046; michelle.rama@ dowjones.com
Dow Jones Newswires