Israel’s Gilat Posts Sharp Drop in Revenue and Earnings

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PARIS — Satellite ground equipment manufacturer Gilat Satellite Networks reported a sharp drop in revenue and profit for the three- and nine-month periods ending Sept. 30 but said it has reduced operating costs and recently booked contracts that suggest a turnaround is imminent.

As expected, the PetahTikva, Israel-based company announced the creation of a subsidiary at its Spacenet U.S. division that will be devoted to winning business from the U.S. government, particularly the Defense Department (DoD) — a market Gilat has largely ignored.

The subsidiary, Spacenet Integrated Government Solutions, will be headed by Susan Miller, a former president of Intelsat General, which is satellite fleet operator Intelsat’s government services division.

DoD is a very strong satcom market, which, unlike the competition, we were not playing in at all. We would like to enter this market,” Gilat Chief Executive AmiramLevinberg said during a Nov. 16 conference call with analysts. “We have a few very interesting types of communication and applications in satcom for DoD like communications on the pause and communications on the move.”

Levinberg said the U.S. defense market for satellite ground terminals is as big as the entire global commercial market for VSATs, or very small aperture terminals. He said Gilat, which as of Sept. 30 had about $147 million in cash and cash equivalents, was hunting for an acquisition in the United States to jump-start the business of the new Spacenet subsidiary.

Gilat needs no more than $20 million to $30 million a year to run the business, Levinberg said, leaving more than $100 million available for other purposes, including acquisitions. In addition, he said, the company could decide to sell its current property and then lease it back, a transaction that would yield around $50 million.

Gilat’s order backlog is expected to be around $160 million at the end of this year, he said.

Levinberg declined to forecast trends for 2010 but said the company has signed increasing numbers of new contracts for deployment of satellite Earth stations as the year has progressed, after hitting a low early this year.

In addition, the company has seen a more consistent revenue stream from the Colombian government under contracts to deploy Gilat satellite hardware to rural areas. Colombian authorities had stopped payment on the contract before renegotiating its terms. Gilat officials expect to book revenue of about $24 million this year for the Colombian work.

“I’d like to believe that as we improve on bookings we’ll start to see that on the top line growth,” Levinberg said. “This is my view at this point.”

He said new orders signed in the three months ending Sept. 30 exceeded those signed in the previous three-month period, and far exceeded bookings for the first three months of 2009.

For the nine months ending Sept. 30, Gilat reported an operating loss of $825,000 on revenue of $171.5 million. Revenue was down 15 percent compared with the same period last year, during which Gilat reported operating income of $5.2 million.

Gilat has been especially active in the market for government contracts that are issued as part of policies to extend broadband telecommunications access to remote communities. It has recently booked orders to install satellite networks for rural schools in Panama, Internet access to railroad passengers in Kazakhstan and to extend mobile-telephone service in China by providing cellular backhaul from telephone base stations to the fixed-line telecommunications network.

Levinberg said that in the international government and enterprise market to sell VSAT satellite networks, Gilat most often competes with VT iDirect of Herndon, Va., Hughes Network Systems of Germantown, Md., and ViaSat Inc. of Carlsbad, Calif., “in that order.”