Hughes Future



DANIEL TAUB Staff Reporter

With Hughes Electronics Corp. jettisoning its aerospace and defense divisions, analysts say the newly trimmed company is poised for growth in its remaining units.

Leading the way will be Hughes’ DirecTV direct-to-home television business, which is already experiencing skyrocketing growth. The company’s satellite and telecommunications businesses also are expected to perform well.

“The commercial satellite business is one of the true growth areas of the next decade,” said Jon Kutler, who has long ties to Hughes and is president of Quarterdeck Investment Partners Inc., an L.A.-based investment bank. “There will increasingly be competition in that area, but Hughes has a huge franchise.”

Following weeks of speculation, General Motors Corp., Hughes’ parent company, agreed this month to sell Hughes’ defense and aerospace units to Lexington, Mass.-based Raytheon Co. for $9.5 billion in common stock and debt.

The proposed sale is considered good news for the remaining Hughes, which has been experiencing far greater growth in its telecommunications and satellite businesses than in its aerospace and defense businesses.

Hughes’ telecommunications and satellite units posted revenues of $4.1 billion in 1996 an increase of more than 32 percent from 1995. The company’s defense and aerospace units posted revenues of $6.3 billion in 1996 an increase of only 6 percent from 1995.

In a simultaneous internal restructuring, Hughes will also be stripped of its Delco automotive electronics division, which will be returned to direct GM control under its Delphi Automotive Systems division. The Delco division had $5.4 billion in revenues in 1996.

After the sale to Raytheon and the reassignment of Delco work, the new Hughes which currently has 85,000 employees companywide will be left with about 15,000 employees. Hughes has about 24,000 employees in L.A. County, about 8,800 of whom will remain with Hughes after the sale.

The new Hughes pared of Delco and its aerospace and defense units will also get a cash infusion of somewhere between $3.7 billion and $4.7 billion following the sale.

DirecTV is one of Hughes’ fastest-growing divisions.

At the end of 1996, DirecTV had 2.3 million subscribers, nearly double the 1.2 million subscribers it had a year earlier. Once the number of subscribers passes the 3 million mark, which is expected to occur early this year, Hughes will have broken even on its investment in the service, said DirecTV spokesman Bob Marsocci.

DirecTV’s cadre of workers has also grown significantly, climbing from 480 employees at the beginning of last year to nearly 840 employees currently.

Although Hughes does not release growth projections, Carmel Group, which tracks the direct broadcast satellite market, said it expects 14.5 million homes to be using 18-inch satellite dishes such as those DirecTV produces by 2005, compared with only about 2.4 million today.

The market for those dishes is dominated by DirecTV, but Hughes could face significant competition from Rupert Murdoch’s News Corp., which is expected soon to break into the direct broadcast market in the United States.

“They will become a very viable competitor in the next five years,” said analyst Jimmy Schaeffler of the Carmel Group.

At Hughes Space and Communication, which has built more than 40 percent of the commercial communications satellites currently in orbit, growth is also steady.

The division launches about one satellite a month and has orders to build 42 more satellites by 2000. The division hired about 1,200 more employees in 1996 to bring its work force to 7,200 workers; it expects to hire 700 to 800 more workers by the end of this year.

The Hughes Communications Galaxy division is also looking forward to growth following its recent merger with PanAmSat Corp. Hughes owns a 71.5 percent equity stake in the newly formed merged public company, which retains the name PanAmSat Corp.

The new PanAmSat currently has 14 satellites in orbit, and expects to have seven more in orbit by the end of next year.

The Hughes Communications Inc. division of Hughes Electronics also has high hopes for its Spaceway project a program to deliver satellite telephone service to areas without land lines. The first Spaceway satellite is expected to be launched as soon as 1999, said Hughes Communications spokeswoman Wendy Greene.

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