R.I. company to unveil equipment in August
Next month is show time for satellite-equipment maker KVH Industries Inc.
KVH plans to launch what many consider to be the most promising product in the Middletown company’s 21-year history: the TracVision A5, a small satellite antenna that can beam live TV into minivans and SUVs.
Wall Street will be tuning in.
The company’s share price has tripled to around $20 since rumors of the product began to stir last fall. The list of equity analysts covering KVH has grown from one to four since late last year.
“The potential is quite large, given that people do seem to prefer live entertainment in automobiles,” said J.P. Mark, an analyst at Farmhouse Equity Research in Portsmouth, who has a “buy” rating on the stock.
KVH will start shipping units to retailers in August, and the product is expected to hit as many as 800 consumer-electronics stores by year’s end. Tweeter Home Entertainment Group last month became the first national retail chain to agree to sell the A5.
The system’s suggested retail price is $3,500, which includes the antenna, receiver, remote control and mounting equipment. Customers also will need to sign up with a satellite provider such as DirecTV.
The A5 uses a combination of sensors, digital-compass gadgets and proprietary software to lock onto a satellite signal regardless of a vehicle’s speed or location.
KVH has used a similar technology platform in its mobile satellite antennas since the mid-1990s, first targeting the marine industry and expanding its product line to the recreational-vehicle market in recent years. It has become the industry leader in both sectors, with combined revenue of $25.9 million in 2002.
Extending the technology to automobiles, however, has presented logistical problems. The large, dome-shaped satellites for RVs and boats are too big and bulky to mount onto vehicles.
KVH, which has 250 employees, spent more than two years solving the size issue. The A5 unit is just 2 feet in diameter and 5 inches high, and attaches to a vehicle’s roof rack.
The A5 “is expected to quickly gain acceptance amongst the entertainment-hungry consumer market, and could quickly grow to become (KVH’s) leading product category,” reads a June research report by Chris Quilty, an analyst at Raymond James Associates.
In many ways the A5 launch is uncharted territory for KVH, and will introduce the company to the mass market for the first time.
The RV and marine markets are small and defined, easily targeted via niche magazine ads and trade shows. KVH’s core target market consists of the roughly 100,000 luxury RVs and boats that are built annually.
In contrast, the target market for the A5 is the 1.7 million SUVs and minivans sold with TV screens in them last year, according to the Raymond James report.
“This is really the first time we’ve had a national-type product that can be sold to anybody, and we don’t have the resources to sell to” millions of people, KVH President and Chief Executive Officer Martin Kits van Heyningen said during a recent conference call.
Instead, KVH will partner with retailers like Tweeter, which will promote the A5 in its own ads and sell the product at 147 stores.
Last month KVH signed a deal with Crutchfield Corp., which runs one of the country’s largest consumer-electronics catalogues.
“The Crutchfield deal is brilliant,” said Rich Valera, an analyst at Needham & Co. in New York. “The people who get that catalogue are high-fi and video enthusiasts who are willing to spend the money on a high-end product like the A5.”
Built-in customer base
While KVH doesn’t have mass-marketing experience, it does know where to find a cluster of prospective early adopters: its existing customer base of 40,000 boat and RV owners.
“These are people who already have experience with our satellite antennas, many of whom are also affluent and drive SUVs,” said KVH spokesman Chris Watson.
The company plans to sell the A5 as an after-market product for a few years, while hoping to garner the attention of auto manufacturers to eventually sell the system as a factory option – a model that has served KVH well in the past.
Since introducing the first mobile-satellite TV antenna for the RV market in 1999, KVH has inked deals with virtually all of North America’s luxury RV manufacturers to include the satellites as optional equipment on new models.
KVH has been manufacturing small batches of the A5 at its facility in Middletown and plans to ramp up production throughout the second half of the year.
“We don’t see anything in the design that would prevent us from getting to whatever production rate we’d like,” Kits van Heyningen said.
The company has not said publicly how many A5 units it expects to sell this year or in 2004.
The fact is, it’s anybody’s guess.
“Clearly the A5 seems to have a lot of potential, but nobody really knows how it will take off,” said Valera, the Needham analyst.
Mark of Farmhouse Equity Research says anything less than 10,000 units shipped next year would be a disappointment, but his forecast is for KVH to sell 20,000 in 2004. Quilty, the Raymond James analyst, expects KVH to sell around 11,000 units next year.
Even if the A5 disappoints, though, KVH has engineered a successful turnaround over the past year and boasts several profitable business lines, Mark said.
“The A5 is a great product, and if it flies then the company’s stock goes to God knows what,” Mark said. “If it doesn’t, then KVH still has the military, RV, marine and fiber-optic businesses, which all are doing well right now. So it’s not a bet-the-farm type of situation.”
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