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By DANIEL TAUB

Staff Reporter

By many measures, the last several months have not been kind to Hughes Electronics Corp.

The El Segundo-based company saw a satellite it had built, the Galaxy X, explode shortly after liftoff in August just three months after the Galaxy IV, another Hughes-built satellite, had spun out of control while in orbit, cutting off service to pagers nationwide.

That might not have been so bad, because both satellites would need to be replaced most likely by Hughes, the world’s largest builder of communications satellites. But both were owned by PanAmSat Corp., which is 81 percent owned by Hughes. Although the satellites were insured, the loss of Galaxy X resulted in delays in service to cable companies and other users that translated to $200 million in lost revenues for PanAmSat.

In addition, Hughes reported that earnings fell in the third quarter ended Sept. 30 to $42.9 million (11 cents per share), compared with $52.4 million (13 cents) for the like period a year ago.

Hughes officials were quick to note, however, that revenues in the quarter rose to more than $1.5 billion a 20.3 percent increase from less than $1.3 billion in the like year-earlier period.

Because of PanAmSat’s satellite problems as well as the disappointing third-quarter earnings Hughes has taken a beating on Wall Street. Last week, GM Class H shares were trading at just below $35 a share a drop from its May high of $57.88, and not much above its 52-week low of $30.38.

Most of the earnings loss was due to an increase in the cost of marketing Hughes’ DirecTV direct-to-home satellite television service, both in the United States and in Japan, where the service was recently launched. Those marketing efforts resulted in the addition of 303,000 new subscribers in the United States, bringing DirecTV’s total U.S. subscriber base to just over 4 million as of Sept. 30. That subscriber base is expected to generate considerable high-margin revenues in the years to come.

Jon Rubin, Hughes director of investor relations, said analysts are aware of the various expenses related to adding those subscribers about $425 per new subscriber and therefore the third-quarter earnings drop was not unexpected.

“The quarter was right in line with expectations and exceeded expectations in many regards,” Rubin said, noting that Hughes beat First Call Corp. analysts’ consensus by a penny a share. “We’re right on track according to their expectations.”

Indeed, many analysts remain bullish on Hughes, which is wholly owned by General Motors Corp., and whose shares are traded as GM Class H stock.

James Reynolds, an analyst with Wedbush Morgan Securities, which rates GM Class H shares a buy, said Hughes’ business “looks solid across the board,” noting that the company is the market leader in satellite services, direct-to-home satellite television and other areas in which it does business.

“In most businesses, Hughes is No. 1,” he said. “PanAmSat is the largest. DirecTV is the largest. They’re the largest manufacturer of communications satellites. And Hughes Network Systems is the largest manufacturer of VSATs very small aperture terminals,” which transmit data, such as credit card verifications, to and from department stores, gas stations and other businesses via satellite.

While DirectTV has been losing money since its inception, it is expected to break even in 1999. “There’s just a temporary offset or mismatch between what we actually have to book in costs, vs. the (anticipated) revenue,” Rubin said.

Also in the direct-to-home satellite TV market, Hughes has been rumored to be in talks to buy the assets and subscribers of PrimeStar Inc., a competitor whose planned merger with Rupert Murdoch’s News Corp. recently fell apart.

“We can’t comment on acquisitions,” Rubin said. But he did acknowledge that Hughes is interested in consolidating the direct-to-home TV industry and that it continues to explore options in that area.

As for Hughes as a whole, the company remains strong, Hughes officials and analysts say. In 1997, Hughes posted net income of $119 million ($1.18) up 164 percent from $45 million (46 cents a share) in 1996. Rubin said the company’s annual earnings per share are projected to hit $3 within five years.

Reynolds of Wedbush Morgan has a one-year target price of $60 for Hughes shares, and satellite analyst Tom Watts of Merrill Lynch & Co. in New York places the 12-month target at $50. However, Watts warns that there could be trouble on Wall Street if there is another satellite failure.

“If I look at three to six months out, I’m concerned there will be more negative events that could hurt the stock price,” he said.