MSS Giants Inmarsat and Iridium have announced their latest set of results, which give intriguing insights into how the MSS business is shaping up this year. Both operators saw revenue falls in the first quarter compared to the same stage last year, and business, particularly in terms of government, continued to struggle. While there were bright points for both of the operators, it is shaping up to be a tough year.

 

Inmarsatsaw a drop in overall revenues of close to 12 percent in the first quarter this year. This was one of the highlights of its results, reported on May 2. The operator generated revenues of $313.7 million in this period, a fall of more than $40 million compared to the same stage last year. It remains a challenging environment for Inmarsat. Rupert Pearce, the company’s CEO admitted that its U.S. government business had seen a “sudden and pronounced deterioration in both demand and profitability” putting this down to budget cuts. He also said Inmarsat does not see any change in the market environment “for the time being.”

 

However, there were also some encouraging signs. Maritime data revenues reached $85.3 million in the quarter, up 15 percent compared to the same stage last year. In the first three months this year, the company added close to 2,000 new FleetBroadband subscribers.

 

“First quarter revenues came out at $313 million, slightly below the $318 million expected by consensus. We would underline, on the other hand, the good product mix. Indeed, on its core MSS segment, results are above expectations ($185 million vs $184 million), as growth continues to be solid (+3.7 percent). This could even accelerate going forward as the migration to FleetBroadband from older services (at higher price points) progresses,” Eric Beaudet, a satellite equity analyst at Natixis Securities said in a research note.

 

Thus at the moment, Beaudet admits it is tough to analyze how the Inmarsat story may play out over the next two years. “Although there are some positives (good MSS performance) the negatives (sudden deterioration of U.S. government spending), could slightly weigh on the stock today especially after the good year-to-date performance (+25 percent). In the end, we keep our Neutral stance on the stock as their real catalyst (i.e. the success of their Global Xpress program) will not be known before end-2014 at the earliest,” he added.

 

Iridium also had a tough quarter. The company, which also announced its results May 2, had revenues for the first three months of $89.2 million, a decline of 5 percent compared to the same stage last year. The company ended the quarter with 621,000 billable subscribers. Government service revenue reached $15.1 million, a 4 percent decrease compared to the same stage last year. Chris Quilty, senior vice president, Raymond James & Associates, said in a research note that the company had “weak subscriber growth.”

 

“Iridium added 10,000 subscribers sequentially vs. our forecast of approximately 24,000 and year-ago net adds of 21,000. Commercial voice subs (including OpenPort) were flat sequentially vs. our forecast of a 4,000 unit pickup, and M2M subs grew by 10,000 vs. our forecast 19,000. As expected, Government voice subs declined (down 2,000), but Iridium added 2,000 government M2M users,” he said.

 

Iridium’s performance in the government arena is a particular concern. “Government service revenues declined for the fifth consecutive quarter (to an 11-quarter low), due to deactivations associated with troop withdrawals. Government net additions were roughly in line with our projection, however the mix was surprisingly skewed towards M2M (added 17,000 and was 6 percent ahead of our estimate) and away from voice (5 percent below our estimate).” Quilty said.