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Company Perspectives:
Comtech designs, develops, produces and markets innovative products a nd services for advanced telecommunications solutions.
Based on Long Island, New York, Comtech Telecommunications Corp. deve lops communications equipment in three business segments through a nu mber of subsidiaries, serving customers such as defense contractors, satellite systems integrators, communications service providers, and oil companies. In the Telecommunications Transmission area, Comtech o wns five subsidiaries (Comtech EF Data Corp.; Comtech Systems, Inc.; Comtech AHA Corp.; Comtech Antenna Systems, Inc.; and Comtech Vipersa t Networks Inc.) providing products and services for voice, video, an d data transmission in satellite, wireless line-of-sight, and over-th e-horizon microwave telecommunication systems. Products include modem s, amplifiers, satellite transceivers, fiberglass and aluminum antenn as, software to optimize satellite bandwidth usage, and forward error correction technology. Comtech's RF Microwave Amplifiers business is conducted through a single subsidiary, Comtech PST Corp., which in t urn operates Hill Engineering. Comtech PST supplies broadband high-po wer, high-performance RF microwave amplifiers used in a variety of mi litary applications as well as medical oncology systems. Hill designs and produces high-power switches, limiters, and duplexers. Comtech's third business segment is Mobile Data Communications Services, condu cted through a pair of subsidiaries: Comtech Mobile Datacom Corp. and Comtech Tolt Technologies, Inc. Comtech Mobile develops mobile data communications systems for the U.S. military, with its primary focus on the Movement Tracking System (MTS). MTS uses satellite, terrestria l, and Internet-based communications to create a way to keep track of military vehicles, ships, and aircraft while also providing two-way, real-time communications between command bases and the field. Comtec h Tolt provides this technology to the civilian market, such as truck ing fleets that want to track the precise location of their vehicles. Although it has been in operation for decades, the company did not b egin to enjoy exceptional growth until the late 1990s. Revenues have increased from $30.1 million in 1998 to more than $300 millio n in 2005. Comtech is a public company listed on the NASDAQ.
Company's Founding in the 1960s
Comtech was founded in Smithtown, New York, in 1967 as Comtech Labora tories, Inc. by Jack C. Greene, who also served as the company's chie f executive. The company started out by designing and manufacturing s atellite communications receiving equipment and related subsystems fo r commercial purposes. In March 1972 Comtech was taken public at $ ;5 a share. Sales topped $10 million in 1974 and reached $16. 5 million in 1975.
Greene stepped down as CEO in 1976, replaced by Comtech's current cha irman, president, and CEO, Fred V. Kornberg. Born in Poland, Kornberg earned a bachelor's degree in electrical engineering at New York Uni versity in 1958 and a year later received a master's degree from the same school. He worked as a staff engineer at Radio Engineering Labor atories until 1962, and then became director of research, a position he held until 1969, when he became general manager at Nardcom Group. Kornberg joined Comtech in 1971 as an executive vice-president and ge neral manager of the telecommunications transmission unit. Under Korn berg, Comtech expanded beyond satellite communications to become invo lved in the microwave transmission field through the 1977 acquisition of R.F. Systems, Inc.
Early 1980s: Verge of Disaster
Over the next several years Comtech prospered as a manufacturer of te lecommunications components and subsystems, but it suffered a signifi cant setback in the early 1980s serving the military market. It won a contract to install 21 satellite communication earth stations for th e U.S. Army's Signal Corps, but its $52 million bid proved to be a major miscalculation. On the verge of ruin, Comtech began in March 1981 to pursue a merger with Aeroflex Laboratories Inc. Talks continu ed for a full year before breaking off after the Army granted Comtech another $17.5 million to complete the contract. The price of Com tech's stock soared on the news, making it a much less attractive dea l to Aeroflex.
Comtech was fortunate to break even on the Signal Corps contract and now installed safeguards to make sure there was no repetition of such a blunder. Kornberg also began to tap the financial markets to fuel an expansion drive and to become involved in the end-user segment of the telecommunications market. In 1983 the New York Times repo rted that Comtech offered 750,000 shares at $8.50 each through Dr exel Burnham Lambert Inc. The money was used to acquire Premier Micro wave Corp. and Storage Technology Corp., a Colorado manufacturer of v oice communications products. Comtech raised another $12 million to pay down debt by selling off Comtech Data Corp., which made commun ications equipment for the satellite, microwave, broadband, and cable markets, to Fairchild Industries.
Despite efforts to diversify its product offering, Comtech became ove rly dependent on large military contracts, which through much of the 1980s accounted for more than 70 percent of revenues. With the demise of the Soviet Union, however, the United States began to cut back on defense spending, forcing Comtech to make some adjustments. Having a lready sold Comtech Communication Corp. for $4 million in 1985, C omtech now unloaded Premier Microwave in 1987, adding $7.5 millio n in cash and notes to the coffers. Also in 1987 Comtech decided that its future lay overseas. The company had been dividing its focus bet ween the United States and foreign markets, but now decided to concen trate on the international telecommunications sector, which was growi ng much faster than was that of the United States. The strategy worke d so well that by 1991, about two-thirds of the company's $13 mil lion in revenues were the result of export sales, primarily from sale s to South America and the Pacific Rim. Of that $10 million, some 95 percent was contributed by subsidiary Comtech Systems Inc., which sold tropospheric scatter communications systems, a less expensive a lternative to satellites. Tropo systems bounced radio waves off the u pper atmosphere rather than a satellite. Although sales to the U.S. m ilitary may have fallen off, the foreign military market heated up fo r Comtech, as some countries began to expand their military forces to compensate for a cutback in U.S. protection.
The early 1990s was a period of transition for Comtech. Reductions in military spending continued to cut into sales, making the decision t o focus on foreign markets a wise one. Domestically, Comtech saw oppo rtunities in the expanding wireless and satellite telecommunications as well as microwave transmissions industries. Revenues crested at &# 36;22.3 million in 1993, then plunged in 1994 to $14.9 million. C omtech began to rebound due in large part to the creation of subsidia ry Comtech Communications Corp., a satellite communications equipment manufacturer formed in February 1994. Products included frequency co nverters, solid-state power amplifiers, low noise amplifiers, and sat ellite subsystems. By the latter part of 1995 the unit was making a m ajor contribution to the company's domestic commercial sales. In fisc al 1995 revenues increased to $16.5 million.
The upward arc continued in 1996, when sales improved to $20.9 mi llion, due mostly to robust international sales, which for the year a ccounted for 56 percent of all revenues. This was a significant impro vement over the 37 percent in 1995. International sales remained stro ng in 1997, when revenues climbed to $24.7 million, due to a cont inuing global demand for wireless and satellite telecommunications. I t was a fortunate trend for Comtech, because sales to the U.S. govern ment continued to slip, representing 20 percent of all sales in 1996 but only 17 percent in 1997. Increased international sales of over-th e-horizon microwave equipment fueled business in 1998, with revenues topping $30 million. It was at this point that Comtech was poised to enjoy exponential growth as it began to transform itself into a p roduct-driven company.
Forming Key Subsidiaries in the Late 1990s
In the autumn of 1998 (fiscal 1999) Comtech formed a pair of subsidia ries. Comtech Wireless, Inc. was established to design and manufactur e Wireless Local Loop systems for the rural and remote telephony mark et. Comtech Mobile Datacom Corp. grew out of the acquisition of Germa ntown, Maryland-based Mobile Datacom Corp. to provide packet data com munication services between remote mobile and fixed assets and home-b ase using high-tech tracking technology. Applications included remote meter reading, inventory/asset in-route management, messaging, and p osition reporting. Although the focus of the unit was intended to be the energy and transportation markets, its Movement Tracking System ( MTS) product would find a ready customer in the U.S. military. As a r esult, the amount of government sales, which decreased to just 9 perc ent of Comtech's total revenues in 2000, now began to surge. In June 1999 the U.S. Army signed an eight-year, $418 million contract wi th Comtech to install MTS in its vehicles. The system would permit ve hicles in the field to communicate with one another and to a command center. As a result, commanders would be able to know where everyone was located at any moment and maintain a constant line of communicati on. Aside from the income the Army contract brought in, it allowed Co mtech a chance to work out any bugs in the technology, which could th en be sold to trucking companies without any major changes. The first order of the contract, representing $3.1 million, was received i n August 2000 to deploy MTS to 460 U.S. Army logistic vehicles and mo bile control stations. By the end of 2000 Comtech announced that it w as now ready to offer MTS to commercial truck fleets as well.
The pace of the Army's rollout of MTS would increase sharply with the start of the Iraq War in 2003. In the meantime, Comtech made strides on other fronts. In May 2000 Comtech acquired EF Data, the satellite communications division of Adaptive Broadband, at a cost of $54. 2 million. With annual revenues in the $100 million range, EF Dat a was larger than Comtech, which posted $37.9 million in 1999. Th e EF Data business was merged with Comtech Communications to become C omtech EF Data Corp. The capabilities of the two units complemented o ne another, resulting in the creation of a powerhouse player in the t elecommunications transmission field. Also of note in 2000, Comtech a cquired Hill Engineering for stock. Furthermore, the company gained s ome recognition in 2000, named by Forbes magazine as one of th e top 200 best small companies in the United States, ranked 131st bas ed on five-year and 12-month return on equity, and five-year sales an d earnings per share.
Sales increased to $66.4 million in 2000, then soared to $135 .9 million in 2001. Net income of $6.7 million in 2001 also set a record for Comtech. Much of these increases were due to the EF Data acquisition, but the company's two other businesses also achieved rec ord revenues, this despite the difficulties experienced by many of it s telecommunications' customers. The Mobile Data unit continued to de ploy MTS to the Army and also received its first foreign sale, a cont ract with a value-added reseller in Venezuela to provide MTS technolo gy to commercial truck fleets.
The telecommunications slump finally caught up to Comtech in 2002, wh en revenues fell to $199.4 million and net income dipped below th e $2 million mark. Compared with other telecommunications compani es, however, it still turned in a solid year, with all segments of it s business turning a profit. Moreover, Comtech bounced back quickly i n 2003, achieving a record year with sales increases across the board as the efforts of previous years came to fruition. For the year, the company posted sales of $174 million and net income of more than $9.7 million. Comtech enjoyed another record year in 2004, as sa les increased to $223.4 million and net income more than doubled to $21.8 million. The trend continued in 2005 when Comtech's reve nues topped the $300 million mark, totaling $307.9 million, a nd net income soared to $37.8 million. To many Comtech was an ove rnight success, but in truth the hard work of several decades was fin ally paying off and the Long Island-based company appeared well posit ioned to enjoy strong growth for some time to come.
Principal Subsidiaries: Comtech EF Data Corp.; Comtech Systems , Inc.; Comtech AHA Corp.; Comtech Antenna Systems, Inc.; Comtech Vip ersat Networks Inc.; Comtech PST Corp.; Comtech Mobile Datacom Corp.; Comtech Tolt Technologies, Inc.
Principal Competitors: EMS Technologies, Inc.; Gilat Satellite Networks Ltd.; ViaSat, Inc.
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