Sales Drop but Gilat Earns Small 2009 Profit

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PARIS — Satellite ground terminal manufacturer Gilat Satellite Networks, ending a year it would rather forget, on Feb. 16 reported lower revenue and gross income for 2009 but said a broad cost-cutting effort permitted the company to report a small net profit compared with a loss in 2008.

PetahTikva, Israel-based Gilat said it saw signs of a pickup in business for its very small aperture terminal (VSAT) networks at the end of the year, suggesting that 2010 would see better market conditions.

In a Feb. 16 conference call with investors, Gilat Chief Executive AmiramLevinberg nonetheless remained cautious about 2010 and did not provide specific revenue or profit targets. He said 2009 was “a challenging year in general” for the VSAT hardware industry. “Revenue declined because of the financial crisis and because of satellite shortages in some parts of the world.”

VSAT market analysts have said C- and Ku-band satellite links have been difficult to find in some parts of the world, particularly in Africa and Latin America, leading to very high prices. Levinberg said new spacecraft planned to cover these regions should release pent-up demand for VSAT networks starting in 2010.

Gilat also will be investing in its new Spacenet Integrated Government Solutions division, which is part of its Spacenet subsidiary in the United States and is designed to raise Gilat’s profile with the U.S. Department of Defense. Levinberg said the company is counting on this division to add materially to the company’s revenue base in the near term.

Gilat has focused on corporate networks and government-sponsored projects financed as part of policies to provide broadband communications to regions beyond the terrestrial telecommunications grid.

Led by a Colombian government contract that has given Gilat trouble for several years but now appears to have returned to stable revenue-producing status, Latin America in 2009 was Gilat’s biggest market, accounting for 39 percent of the company’s revenue. The biggest piece of new business in that region came from Brazil, where Embratel ordered 11,000 GilatSkyEdge 2 terminals to provide broadband access to schools. Gilat also won contracts for rural broadband networks in Peru, whose government ordered 3,500 terminals, and in Costa Rica, which contracted for a 500-site deployment.

The United States was the second-largest market, with a 37 percent share. Gilat’sSpacenet Inc. subsidiary is under contract to provide a managed network services solution to more than 7,000 Regis Corp. beauty salons in North America. Asia accounted for 16 percent of Gilat’s business, with Africa at 5 percent and Europe at 3 percent.

Gilat reported 2009 revenue of $228.1 million, down 14.7 percent from 2008. Gross profit margins were also down slightly, to 30.9 percent from 32 percent a year earlier. But a 14 percent decrease in operating expenses and sales and marketing costs allowed the company to eke out a net profit of $1.9 million, compared with a loss of $1.1 million a year earlier.

Gilat said that as of Dec. 31, it had increased its cash on hand to $154 million, with debt at $30 million.