Orbital Sciences Corporation (NYSE: ORB): manufactures small rockets and satellites for commercial and governmental use. 65% of the company's total revenue comes from US government contracts mostly with NASA and the Department of Defense. Orbital also puts satellites for direct television and cable into orbit and establishes networks necessary to operate satellites and space vehicles from earth. Orbital Sciences' revenue grew by 35% in 2007. This growth was primarily from the Advanced Space Programs, whose revenue increased by $124.1 million, 243% revenue, largely from winning a $57 million contract with NASA to build part of the Orion human spacecraft in 2007. However, NASA's funding has decreased since 2006, which will lead to less contracts to Orbital Sciences.
However, Orbital is involved with mostly long-term contracts which require the company's satellites to remain in working condition for up to 15 years. As of 2007, over $47 million of its revenue was contingent on the continuing success of these contracts. Orbital also faces inherent risk in space flight. 91.1% of all space launches are successful, and a rocket failure will bring bad press and less contracts to Orbital Sciences.
|(in thousands of dollars)||2005||2006||2007|
Orbital's total revenue increased by 35% from 2006 to 2007. This substantial rise is caused primarily from a 243% increase in revenue from the Advanced Space Programs segment which has increased activity mostly from the Orion spacecraft contract. The Orion spacecraft contract, awarded in 2007, is worth $57 million and puts the segment in charge of testing the abort system for the new craft.
In 2007, 65% of the of the company's total revenue was from US contracts.  These contracts are funded by yearly budgets voted by Congress. In 2009, the White House requested 6.4%, or $264.7 million, less than the previous year for NASA's budget. The US Defense Budget's spending on Advanced Spacecraft Technology also fell by 22.4% from 2007 to 2008. Nearly all of Orbital's contracts with the US government are through NASA or the US Department of Defense. If these budgets decline, Orbital's revenue will follow. These changes however, are on a year to year basis, and are heavily effected by Congress and the President.
According to many of the Orbital's satellite contracts, the company does not receive performance-based payments until the satellite has remained in orbit with minimal problems for long periods of time, sometimes up to 15 years. Approximately $43 million of the 2007 revenue are tied into these types of contracts. 12% of Orbital's revenue from US government contracts comes from fixed-price contracts. These contracts give the company a set amount of money for the completion of the project. The company's profit margins rise if costs are lower than expected or fall if costs are higher. Rising steel and energy costs put pressure on the company since it must maintain low costs over the term of the contract to maintain a profit margin.
The company is fined for malfunctions, failures, or delays and receives less contracts and bad press in the event of a problem. One of the largest risks to satellites in orbit or launch is orbiting debris. There are over 10,000 objects such as parts of spent rockets, hand tools, and other debris which orbit the earth. These objects, often less than 4 inches wide, can damage or destroy a satellite. Rocket launches also carry inherent risks, and the worldwide success rate for space launches is 91.1%. These failure are caused by many different problems such as equipment malfunctions, fuel leaks, or miscalculations.  In 1999, Lockheed Martin (LMT), a close competitor to Orbital Sciences, sent incorrect data to NASA and caused the destruction of a $125 million mission. Lockheed Martin lost future revenue from the continuing contract and lost favor for future contracts.
Because most of Orbital's revenue comes from government contracts, it has an interesting relationship with its competitors. It must compete with many of the companies for a given contract, but it also must work with or is asked to supply the same company. For example, Orbital supplies Boeing Company (BA) with interceptor boosters, which in turn adds a "kill vehicle" - a detonation device - and supplies it to the US Missile Defense Agency. On other projects, on contracts like for the Orion spacecraft issued in 2007, the two companies competed for a contract.
Unlike its competitors, Orbital Sciences produces only space related products. It has not branched off into other sectors like ammunitions, airplanes, or other military equipment. The companies that compete most closely with Orbital are:
Russia has also developed a more extensive rocket launch program in recent years, while NASA has prepared to retire the remaining 3 Space Shuttles. The growth of Russia, instead of the US, as the leading organization running space missions will put Russian launches in competition with Orbital.