Norsat’s New CEO Plans Changes

Norsat International [Nasdaq: NSAT], a provider of satellite products for high-speed data transmission, faces the same financial challenges that many satellite companies confront. One difference, however, is that the company named a new leader last week to help it face those challenges.

Cameron Hunter, the new president and CEO of British Columbia, Canada-based Norsat, offers the struggling company international sales and marketing management experience that could help to tap the potential of its recently unveiled OmniLink product line. Hunter plans to drive revenue growth through the development and sale of products that address near-term marketplace needs, he told SATELLITE NEWS last week in an exclusive interview.

Indeed, Norsat is facing probably its most challenging time as Hunter takes the helm. Norsat is in danger of losing its Nasdaq listing and the company’s sagging financial performance needs to be reversed to forestall delisting.

The Nasdaq stock exchange notified Norsat on Aug. 15 that the company’s stock failed to comply with the US$1 minimum closing price needed to remain listed.

Norsat plans to request a hearing before Nasdaq’s Listing Qualifications Panel to review its decision. Under Nasdaq rules, Norsat’s common shares will continue to be traded on the Nasdaq SmallCap Market and remain on the exchange until the Nasdaq panel makes a final decision. Norsat is exploring “all possible avenues” to preserve the Nasdaq listing, company officials said.

In Hunter’s view, improved financial performance is the best way for the company to spur interest and support from investors. If Norsat executes on the sales-oriented strategy envisioned by Hunter and shows that marketplace demand exists for its new QuickLink products, investors will have more reason to buy the stock, he explained. If sales exhibit solid growth by fourth quarter 2003, investors could “start pouring” money into the stock. “Then, the Nasdaq issue will go away,” Hunter said.

Meanwhile, Norsat’s listing on the Toronto Stock Exchange is unaffected by the Nasdaq notice.

Hunter, who also was named to Norsat’s board of directors last week, had been a vice president in charge of its “mature” microwave product line since January 2003 when he joined the organization. Norsat’s previous CEO, Yutaka Ueda, announced he would return to Tokyo, Japan, after less than one year in the top job. Ueda will work for Norsat on a contract basis to aid the company in building its presence in the Japanese market. Ueda also recently resigned his positions as an officer and director of the company.

Hunter’s expertise in international sales and marketing management were needed to ramp up sales of its OmniLink product line and maximize the performance of its microwave products business, said Gaetano Manti, chairman of Norsat’s board. Hunter has 11 years of international marketing and sales experience in the wireless, telecommunications and satellite communications sectors and previously held positions with Sky Stream Networks in Hong Kong, including the post of senior director of international sales.

Hunter’s experience in leading a global sales force, using multiple sales channels, understanding the needs of large corporate customers, and managing all facets of bringing a new product to the marketplace will be put to the test in his new position.

Financial Fallout

A key challenge for Hunter will be to shore up Norsat’s financial problems that have caused investors to shy away from the stock. The company’s weakened bottom-line during the past year sent a warning sign that spurred Norsat’s board of directors to put Hunter at the helm.

Norsat incurred a loss of C$2.1 million (US$1.49 million) before amortization, restructuring and other expenses, during the second quarter of 2003, compared to a loss of C$491,836 (US$349,340) for the same period in 2002. On a year-to-date basis, the loss jumped to C$3.8 million (US$2.7 million), from a loss of roughly C$1.4 million (US$1 million) for the first six months of 2002.

Norsat’s revenues also fell in the second quarter to C$2.5 million (US$1.78 million), down 20 percent from C$3.1 million (US$2.2 million) during the same quarter in 2002. Year- to-date revenues through June 2003 dipped to C$5.9 million (US$4.19 million), down roughly 4 percent from C$6.1 million (US$4.33 million) for the first six months of 2002.

The revenue dip reflected the negative impact of increased competition in the commercial microwave market. In addition, the 2002 revenues included strong sales from the company’s Open Networks business, a performance that was not repeated this year.

Gross margins declined to 20 percent during the second quarter of 2003, compared to 42 percent during the same period of 2002.

Norsat’s selling, general, and administrative (SG&A) expenses during the second quarter rose to C$1.7 million (US$1.21 million), up 29 percent from C$1.3 million (US$920,000) for the same quarter a year ago. The expenses rose because of stepped up spending on marketing and sales for the company’s OmniLink and microwave products.

Hunter explained that “fine-tuning” would occur on the engineering side to drive down costs. Operational expenses also will be cut, he added. The staffing levels at the company will be determined by whatever is needed to meet company objectives, he explained.

“I am not going to come up with the answers,” Hunter said. “The market will do that.”

The microwave division that Hunter headed prior to his elevation to CEO was suffering from high prices and low profit margins when he arrived at Norsat in January this year. To address slowing sales growth of the unit’s products, Hunter reduced the division’s cost structure to improve margins.

“Overall, it is a fairly flat market,” Hunter said about the microwave products business. The two keys to improving the division’s performance are driving down costs and recapturing market share, he explained. “It has really been our bread and butter business over the years,” he said. “It has given us steady cash flow and has been funding our business.”

Hunter explained that a new video-based OmniLink product called NewsLink has been launched to allow broadcasters, such as CBS and Fox, to use portable and easily assembled equipment that can provide “live” coverage from war zones and remote regions of the world.

The equipment can be packed in suitcases, checked with an airline and assembled for use within 10 to 15 minutes, Hunter said.

“This equipment is an upgrade from the video phones that provide choppy images,” Hunter said.

The second OmniLink product that Norsat is introducing is called SecureLink. The IP-based product netted its first sale last month and offers good potential for use by the government agencies and emergency responders, Hunter said.

Military Might

In the military market, troops could use SecureLink for secure communications when they deploy on a mission. The communications link offers the encryption capability needed for security reasons.

“I see the military being a huge market,” Hunter said. Other applications include disaster recovery during forest fires, earthquakes and floods. “It offers a built-in power supply that would be ideal for blackouts, such as the one that just occurred in the Northeast,” he said.

The potential market demand for SecureLink is high, said Hunter. He cited the growing need for portable data terminals in the IP market. Mobile data will spur “tremendous demand. It is up to us to develop the right product package to meet the various demands of the market,” Hunter said.

“One of the best ways for Norsat to grow its market share is to make its current products more feature-rich — and to start going after the higher-end market with new products,” said Steve Symonds, a Wilton, Conn.-based satellite consultant. “OmniLink is a good step in that direction, and reflects a determined strategy to move away from manufacturing and selling at the component level to developing integrated solution-type products for sale to end-users. This will be essential for them to successfully penetrate the military market, as well as growing sales on the commercial side.”

However, competition is stiff and Norsat is entering new markets belatedly, so the company will need “high-powered marketing” to attract interest in its new products, Symonds said. The company also should pursue “smart acquisitions” to add key components to boost profit margins for their solution-oriented products, he added.

–Paul Dykewicz

(Cameron Hunter, Gaetano Manti, Norsat, 604/292-9000; Steve Symonds, 203-834-2766)