Despite Legal Issues, KVH Pushing Ahead With New Business Plans

KVH Industries Inc., which manufactures satellite antennas for boats, cars, and recreational vehicles (RV), continues to expand its efforts in the mobile market, and executives feel confident about the future despite a patent lawsuit filed against the company.

During February, KVH surpassed the 100,000 mark for shipments of its mobile antennas, which allows moving vehicles to receive satellite signals, and the company also reported record annual mobile satellite revenue of $49 million in its 2005 fiscal year and record total revenue of $71.3 million.

On the other side of the coin, KVH’s sales of antennas for RVs took a sharp hit in 2005; despite the company slashing the price of its flagship Tracvision A5 antenna by 34 percent in mid 2004. "Sales to the RV market were down more than 25 percent for the year, affected by an 18 percent decline in the sales of Class A motor coaches as well as higher gas prices," Martin Kits van Heyningen, the company’s president and CEO, said during KVH’s earnings conference call. "However, we also recognize that a factor in this decline was our aging product line. While we’ve continually improved the performance of our Tracvision systems for RVs we hadn’t introduced a truly new product to this market since 2001. So during 2005 we prepared to implement a complete overhaul of our RV systems."

Unfortunately for KVH, slashing the A5’s price from $3,495 to $2,295 was enough to rile an investor into filing a suit against the company alleging that KVH and two top officers misled the public by overstating the A5’s purported success and market demand. KVH spokesman Chris Watson rejected the complain. "Our margins on the Tracvision A5 did not decline and in fact remained stable following the price cut, a point we made to investors and analysts," he said. "This was thanks to aggressive cost reduction efforts by our engineering and production teams that allowed us to reduce the [price] without a margin decline."

In December, the lead plaintiff filed a motion to have the suit granted class action status, and KVH has until March 13 to respond.

KVH also faces a pair of patent infringement lawsuits from King Controls covering the automatic locating and tracking of direct broadcast satellites for mobile reception, as used in the design of KVH’s Tracvision R4 and R5 products. In the lawsuit, filed in Minnesota Federal District Court, King Controls, is seeking damages and will ask the court at a March 21 hearing to issue an injunction to prevent KVH from selling the systems throughout the course of the litigation, the company said.

King Controls, which manufactures mobile satellite antenna systems for the land and marine markets, also filed a previous suit alleging similar patent infringement by other KVH satellite systems. The suit, initiated by King Controls in May 2005, is in the discovery phase and is scheduled to be ready for trial in February 2007.

KVH is not interested in settling the suits, van Heyningen said. "We will continue to defend ourselves vigorously and fully expect to prevail in this matter," he said. KVH has filed countersuits to invalidate the King Controls’ patents as well as seek damages for false advertising, Watson said.

Clearly, KVH has more than its share of legal headaches to cope with. However, buoyed by its financial performance to date, the company is determined to push ahead in the mobile communications space. So far, it’s seeing progress, said spokesman Chris Watson. "Participating Cadillac dealers are now offering the Tracvision A5 as a dealer-installed option," he said. "GM has also said that it is considering pre-wiring its SUVs for satellite antennas. If they do this, this would cut installation time from three hours to 30 minutes."

Pre-wiring would also give KVH’s mobile products the chance to go mainstream, as has become the case for Sirius Satellite Radio and XM Satellite Radio factory- installed equipment. "This is where we really want to go," Watson said. "Once we become mainstream, the opportunities for growth are tremendous."

KVH is aggressively pushing ahead both in the mobile satellite TV space, and the mobile Internet-by-cellular sector. "Our goal at KVH is to provide mobile access to video and data on moving platforms," Watson said. "To do this, we use the most appropriate transmission medium in terms of availability and cost. This is why we are using satellite for television, and cellular for Internet in North America; because it’s less expensive for mobile users to tap into high-speed wireless coverage than it is for them to use satellite broadband."

KVH unveiled a deal Feb. 20 to work with Microsoft Corp. to market KVH’s Mobile Internet Receiver, which connects to the Web via high-speed cellular service, with MSN TV service; giving boat owners the ability to surf the Web, send e-mail, and access Microsoft’s multimedia content at speeds ranging from 400 kilobits per second to 2.4 megabits per second.

"There is clearly a demand for mobile access to live media ranging from satellite TV to broadband Internet," said van Heyningen. "With more than 20 million automobiles expected to be equipped with video screens by 2011 and color TVs as standard equipment aboard boats and RVs for many years, these screens provide an excellent platform not only for live satellite TV and gaming, but also for an integrated Internet solution."

All told, KVH is a company that is aggressively pushing ahead in the mobile satellite TV space and the mobile Internet-by-cellular sector. "Our goal at KVH is to provide mobile access to live media and Internet on moving platforms," said Watson. "To do this, we use the most appropriate transmission medium in terms of availability and cost. This is why we are using satellite for television, and cellular for Internet in North America; because it’s less expensive for mobile users to tap into high-speed wireless coverage than it is for them to use satellite broadband, which typically carries with it high hardware and service costs."