The development of high-definition television will be a primary driver of growth for Radyne Comstream (NASDAQ:RADN), an equipment supplier for the satellite communications and digital broadcast industry.

One of the sleepy small-cap selections of Tom Gardner's Motley Fool Hidden Gems newsletter service (it has returned just 28% since last January vs. the market's 5% growth over the same period), Radyne reported record bookings of $20.8 million for the fourth quarter of 2004 -- results that would indicate the recession in capital equipment spending is finally at an end. While it was the company's seventh consecutive quarter of profitability, revenues were still down 2% from the previous year -- which were essentially flat from the year before that -- because of a conscious decision to forgo low-margin business. That resulted in an estimated reduction of $4 million in sales.

With only 25% of its revenues derived from broadcasting, Radyne still generates the bulk of its sales from the satellite industry, and a good chunk of that is from the U.S. government. Yet the fastest growth is happening in HDTV.

HDTV delivers higher-quality picture and sound by transmitting up to six times the information as standard analog TV systems. HDTV pictures display up to 2 million pixels on the screen, whereas analog television displays only 300,000 pixels.

Current U.S. government guidelines call for broadcasters to go all-digital by the end of 2006, or whenever 85% of the country can access the content, whichever is later. In reality, though, the transition is still a few years away.

The point is that the transition is happening, and Radyne is benefiting from it. It sold twice as many of its new HDTV encoders in the last quarter than in any previous quarter. Sports broadcasters are apparently among the major users of encoders. Time Warner's (NYSE:TWX) TNT stations are transmitting everything from the NBA -- regular season and post-season -- in HDTV, while Fox Entertainment (NYSE:FOX) will be broadcasting NFL games in the digital format. Even the circus -- oops, I mean the Michael Jackson trial -- will be beamed at you in high definition. Scary stuff.

Nevertheless, it's a competitive industry, with the likes of Lucent Technology (NYSE:LU), Conextant (NASDAQ:CNXT), Broadcom (NASDAQ:BRCM), and ST Microelectronics (NYSE:STM) vying for a piece of the pie.

The satellite industry is also returning to a state of normalcy, with large orders appearing once again. Underscoring that development, Radyne last month announced a $2.3 million order for its premier DMD20 modem from privately held DataPath, a leading supplier to the U.S. Department of Defense. Government sales comprise some 30% of Radyne's satellite segment revenues.

Digital broadcasting and satellite communications are lumpy industries. They tend to be driven by large-scale events, such as the Olympics or the Super Bowl, and predicting sales at other times of the year is difficult. (Surely there's a limit to the number of O.J. Simpson- or Michael Jackson-type "trials of the century" on the horizon. Well, maybe not.)

Radyne believes it can grow organically 15% to 20% a year for the next few years, and it conservatively forecasts revenues for 2005 of as much as $66 million. That's still below its record year of 2000, when it took in over $70 million in sales, but it shows a company and an industry that is focused on a highly defined future.

For more Foolish coverage of developments on the consumer end of HDTV, read these articles:

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Fool contributor Rich Duprey finds Coors Light commercials to be high-brow (if not high-definition)television programming. He does not own any of the stocks mentioned in this article.