Intelsat took a hit in revenues for the first quarter of 2003, compared to the same stage last year. It had revenues of $238.9 million in the first quarter, compared to $258.5 million for the first quarter of 2002. Intelsat saw two of its key customers seek bankruptcy protection in 2002, which was one of the main reasons behind the decline in revenues from last year. Its backlog has also stayed at the same level of $4.0 billion. It also made significant reductions in capital expenditure.

Yet, the financial results offer a number of bright spots on the horizon. Numbers are showing slow but steady signs of improvements. New strategic initiatives, such as GlobalConnex (a portfolio of hybrid services for voice, data, video and IP traffic), are showing growth. With reduced capital expenditure as well as a strong balance sheet, Intelsat’s story has a number of positive aspects.

The brightest spot was that revenues stayed at roughly the same level between the fourth quarter of 2002 and the first quarter of 2003, indicating the worst could be over. Intelsat CEO Conny Kullman believes this could be an indication “that market conditions are beginning to stabilize.” Patrick Fuhrmann, a satellite equity analyst at ABN Amro, said he viewed this as a positive development. “[Intelsat’s] results showed a less than one per cent decline quarter over quarter, so I thought that was very encouraging and when you take into consideration that they are still working through some contract cancellations from bankruptcies and things like that, it was encouraging. So, I think the outlook for the rest of the year is pretty good.”

Joseph Corbett, Intelsat’s CFO, told a recent conference call that the “the company was still committed to the strategic goal of conducting an [initial public offering] as soon as practicable.” At the same time, the company does not need additional money to fund its operations in the near term.

Intelsat’s utilization rate is around 63 per cent, lower than its traditional range of 70 per cent. But, the operator looks to be in a good position to ride out the storm. Dianne VanBeber, vice president of investor relations, at Intelsat said: “The story is all about cash flow and the fact that it is going to improve so dramatically now this year and next year and potentially into 2005, until we start the next rebuild. From an investment standpoint, that is one of the reasons why investors come to the FSS [fixed satellite service] sector, because you can get really good cashflows going through the business.”

Intelsat, like a number of other FSS operators, is looking to new business opportunities to give it a boost once the markets pick up. It has made a number of bets that, if they come off, should leave it well-positioned for the future. It has established new units in the video and government services markets. Its $58 million investment for a 30 per cent stake in WildBlue Communications is an aggressive broadband play and its pay-TV joint venture with Television Broadcasts Ltd (TVB) – Galaxy Satellite Broadcasting – in Hong Kong could be a sign of things to come. ABN Amro’s Fuhrmann said he believes these are sounds investments for the future. “I think the Galaxy project is the one they are going to see results from sooner rather than later. That service is supposed to start-up by around year-end. From what I am hearing, the cable headend market is ready to do well. I think the multichannel universe in Asia is something that is going to do very well over the next couple of years.”

He added: “In terms of WildBlue, eventually we are going to have broadband via satellite. I think it is more of a long-term outlook, but it could deliver some very good results.”

VanBeber is confident these two investments will payoff handsomely. “The bondholders I talk to view [WildBlue] as an investment for the future and a small bet on something that could be a big win. Everyone views Galaxy as a natural extension of our desire to get into more video. At this point, there are not many franchises that are open for the taking. That was an interesting one we were able to get into at a good price.”

–Mark Holmes

Contact: Dianne VanBeber, Intelsat, e-mail: [email protected]