Gilat Reports Strong Growth in Rural Africa, Latin America

PARIS —


Gilat Satellite Networks Ltd. reported increased sales and profit and said its growth is especially




strong in providing satellite communications networks – services and hardware – for corporate customers and government rural-education projects in Eastern Europe and Africa.

AmiramLevinberg, chief executive of PetahTikva, Israel-based Gilat, said the company expects revenue for the entire year to grow by at least 10 percent over 2006. Investing in hybrid networks that provide WiMax or other broadband wireless access technologies in tandem with satellite links, he said, is a promising new growth area for the company.

But in a May 14 conference call with investors, Levinberg declined to discuss an offer to purchase Gilat that was made by an Israeli investment group, MivtachShamir Holdings Ltd. and an unidentified partner. MivtachShamir informed the Tel Aviv Stock Exchange of the offer May 9, saying it is proposing to purchase 50 percent of Gilat for $180 million. The offer by MivtachShamir’s partner was not disclosed.

Gilat stock on the U.S. Nasdaq stock exchange has been trading at about $9.50 per share recently, giving the company a market capitalization of about $370 million.

Gilat
sells its own line of two-way satellite communications terminals for consumers and business and also provides turnkey satellite communications for corporate networks and for rural education.

The market for government-financed Internet networks to link rural communities has been particularly strong for Gilat in Latin America and Africa.

Latin America is now second only to the United States as a source of Gilat revenue, followed by Asia. Africa now equals Europe as a Gilat market, and




both of those markets are growing.

Levinberg said government and private-sector customers in Tanzania, Ethiopia and Nigeria are one reason why Gilat’s revenue




in the first three months of 2007 grew by 16 percent over a year earlier, to $68 million. Net profit quadrupled, to $4.9 million.

Gilat
estimates that, worldwide, 32 nations have initiated programs that mandate the spread of telecommunications access to remote communities not currently part of the telecommunications grid.

A U.S. General Services Administration report in 2006 said these governments have agreed to spend $6 billion in the aggregate on such programs. The programs in question are in nations in Africa, South Asia, Southeast Asia, and Central and South America.

In Europe, Gilat’s first-quarter results were buoyed by a contract with a large retail chain




to install VSAT




, or very small aperture terminal, satellite terminals at 3,000 sites for satellite-linked banking transactions and to provide video and audio streaming for in-store advertising.

Levinberg
cautioned that the company’s business is supported by sales of both hardware and services. Service revenue is steady, with contracts usually lasting several years. Equipment sales can provide a one-time jump in revenues, meaning Gilat’s financial figures can vary substantially from quarter to quarter.

In the United States, Gilat is principally a service provider. The company competes with equipment sold by Hughes Network Systems, ViaSat Corp. and iDirect Inc., all of the United States.

On May 17, iDirect announced that Gilat’s co-founder, Yoel Gat – who left the company in 2003 after 16 years – had been named an iDirect director. Gat’s appointment was announced the same day as the news that iDirect Chief Executive John Kealey would be leaving the Herndon, Va.-based company after six years, transforming it from a start-up operation to a regular competitor in the global market for satellite-broadband systems.

Gilat
announced in May that it had reached an agreement with Proxim Wireless Corp. of San Jose, Calif., to provide Proxim’sWiMax gear to its service offering. The resulting network design would feature a Gilat satellite link delivering the Internet backbone to a WiMax station, which then would be distributed to area customers using WiMax wireless technology.

Levinberg
said Gilat expects “a few million dollars” in revenues from the WiMax-satellite product and services offering this year, “and hopefully, quite significantly more next year.”

Gilat’s
first-quarter revenues were $68 million, compared to $58 million for the same period a year ago. Gross-profit margins were stable at around 36 percent, but its operating income margin grew to 6 percent from 4 percent a year ago. Net profit, at $4.9 million, was four times the level of a year ago.