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ViaSat bets on internet services as "fiscal cliff" looms

By Garima Goel and Sagarika Jaisinghani

(Reuters) - Wireless communications provider ViaSat Inc says its new satellite-based internet services are starting to drive growth as it takes its focus off defense contracts ahead of the "fiscal cliff" threatening U.S. government spending.

ViaSat is trying to break its reliance on U.S. government sales -- currently almost half of its revenue -- but its shares have slid since it launched Exede, a high-speed internet service based on its satellite system, in January.

The stock currently trades around $35, down a third from almost $50 eight months ago, with investors unimpressed with the company's progress since moving into the new field.

But ViaSat, which completed the rollout of Exede in the fourth quarter of fiscal 2012, said 40 percent of the 20,000 subscribers added in the first quarter switched to its high-speed internet service.

Orders at the satellite services segment grew 31 percent during the quarter.

"We have got one contract (in the just-completed quarter) that's almost equal to ... our normal order flow," Chief Executive Mark Dankberg said. "So in orders we are going to do really, really well."

The home internet service, a high margin business, is expected to contribute significantly to earnings over the next two-to-four years, said Dankberg, who co-founded ViaSat in 1986.

The Carlsbad, California-based company expects to trim government sales to 35 percent of revenue within five years from 45 percent currently, Dankberg said.

"It won't be that (the government segment) shrinks, it will be that it doesn't grow as fast as other parts of our business grow," he said.

The question has been whether the company is moving fast enough into non-government sales of satellite equipment and services to escape the effect of government cuts. Including Exede, this sector now makes up about a quarter of ViaSat sales.

The so-called "fiscal cliff" -- automatic tax hikes and government spending cuts that will suck about $600 billion out of the economy next year if lawmakers fail to agree how to slash the budget deficit -- is the most immediate threat.

"There's been some investor disappointment in the pace of subscriber growth in the satellite services segment," said Stephens Inc analyst Timothy Quillin.

(Reporting by Sagarika Jaisinghani and Garima Goel in Bangalore; Editing by Sriraj Kalluvila)

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