Space Imaging will be pursuing future opportunities with 65 fewer employees after layoffs there last Thursday.

The company’s board of directors approved the cuts and also backed plans to secure investors to finance the construction and launch of a new high-resolution satellite by 2006, said Mark Brender, executive director for government affairs and corporate communications.

On one hand, increased demand for satellite imagery from the U.S. government since Sept. 11, 2001, is boosting the outlook for Space Imaging (Thornton, Colo.) and its rivals. On the other hand, financing to fund new satellites remains scarce during the current economic slowdown.

Unlike the robust government need for imagery, demand in the commercial marketplace is anemic. As a result, investor enthusiasm for the sector is muted.

Indeed, two of Space Imaging’s largest shareholders, Lockheed Martin Corp. [LMT] and Raytheon [RTN], decided last month not to finance its next-generation satellite. At the same time, officials from both companies occupy all the seats on the Space Imaging board that voted Feb. 6 to pursue development and deployment of the next-generation spacecraft, industry officials said.

“Space Imaging is cash flow positive and doesn’t appear to face any immediate funding pressure,” said Tom Watts, a satellite analyst at SG Cowen Securities.

The decision by Lockheed Martin and Raytheon not to fund the additional planned satellite does not reflect a retrenchment regarding Space Imaging, Watts explained. “While there have been some disappointing contract delays, I still hope to see some major contract awards that would position Space Imaging to raise its capital for the new bird from the financial markets,” he said.

Space Imaging’s reorientation toward the future also is including new leadership. The resignation last month of Space Imaging CEO John R. Copple, after eight years at the helm, led to the appointment of CFO Robert Z. Dalal as acting CEO. The departure of Copple, who Space Imaging retained as a consultant, occurred less than six months after Kass Green stepped down as president of the company’s Solutions unit to make room for former SPOT Image Corp. President Gene Colabatistto.

As with many fledging businesses, Space Imaging is looking at creative ways to grow.

Colabatistto, who streamlined operations at his former employer, has no shortage of ideas about ways to boost revenues while cutting costs at Solutions. His growth strategy is to deepen penetration in the company’s existing markets by delivering a “comprehensive” offering of satellite imagery products and services.

Space Imaging’s Solutions business provides value-added imagery services. Two other business units of Space Imaging are Satellite Access, which installs ground stations and trains people to operate them, and Regional Affiliates, a seller of the ground stations.

For the Solutions unit, Colabatistto plans to:

• Establish the company as the preeminent data provider of high-resolution satellite imagery;
• Develop and produce value-added products to meet customer interest in products that convey data and knowledge, not the raw products themselves;
• Offer customers a comprehensive approach to provide geospatial systems, not just data; and
• Provide decision-support systems for users from real estate brokers wanting a list of properties to municipal officials wanting to place fire hydrants strategically to enhance fire-fighting capability.

Key government niches that Colabatistto has identified for his business unit are national security, state and local agencies, federal civilian agencies, and homeland security.

“I probably see more opportunity in our defense services than I ever have before,” Colabatistto said.

Opportunities especially exist in weapons systems and Defense Department land management, he added.

On the commercial side, the Solutions business is targeting forestry, fire and ecosystems, and air and marine transportation. “We’re still in the early stages of bringing this business into the commercial world,” Colabatistto said.

Last week’s layoffs and restructuring were intended to improve efficiency and customer focus, Brender said. Twelve additional jobs will be cut when existing contracts that Space Imaging is serving expire in the next few months. “At this point and time, we are staffed to meet our business model and do not foresee any additional departures,” he said.

Part of that plan involves proceeding with the launch of the next-generation satellite to use a U.S. government license to operate a spacecraft capable of half-meter resolution. The Ikonos satellite used by Space Imaging offers resolution of .82 of a meter.

“With a half-meter satellite, four times the informational content and value would be available to our customers,” Brender said. “The more you can see, the more information available for customers. Information and content is king in an information society.”

The value of commercial imagery to the government unquestionably is rising.

When the Space Shuttle Columbia disintegrated upon reentry Feb. 1, Space Imaging collected 3,000 square kilometers of imagery over Texas because one of its satellites passed overhead between 12 p.m. and 12:10 p.m., Brender said.

The satellite captured the imagery when it traveled above the area before flying above the South Pole and then ultimately within sight of Kiruna, Sweden, where Space Imaging has a ground station. The imagery was downlinked to the ground-receiving antenna in Sweden, then transferred via high-speed data link to its headquarters in Colorado. The National Aeronautics and Space Administration (NASA) was able to download the images the same night.

“It shows that satellite technology is playing a masterful role with the use of GPS, remote sensing and accident reconstruction and visualization,” Brender said. The company’s satellite subsequently took pictures of eastern Texas to help NASA identify debris from the shuttle.

NASA marks the debris by using GPS to record latitude and longitude. That information can be overlaid onto a current satellite-image map. NASA is using satellite technologies to understand what may have happened, he added.

“This is the first time our imagery has been used for any kind of accident investigation or reconstruction,” Brender said.

An opportunity to serve the U.S. government with imagery was tapped last month when Space Imaging and rival Digital Globe were awarded multi-year contracts by the National Imagery and Mapping Agency (NIMA). The companies will supply high-resolution satellite imagery to NIMA under the “Clearview” program.

Clearview is a five-year contract with a base performance period of three years and two additional one-year options. Space Imaging’s share of the revenue should reach $120 million for the first three years.

Clearview replaces a “cumbersome” structure that uses licensing to authorize sharing imagery with potential mission partners, NIMA officials said. Commercial imagery affords greater access and priority to government customers, provides the industry with long-term commitments and offers increased ability for federal agencies to acquire imagery efficiently. –Paul Dykewicz

(Mark Brender, Space Imaging, 703/390-2988; Tom Watts, SG Cowen Securities, 212/278-4260; Dave Burpee, National Imagery and Mapping Agency)