Gilat Satellite Networks Chairman and CEO Shlomo Rodav is confident the company can increase its overall revenues in 2005 and that the company can soon return to profitability. Gilat has had some difficult years, but Rodav believes the worst is now over.

In its most recent financial results announced in early February, there were some encouraging signs. Gilat announced that revenues for the year ended Dec. 31, 2004 were $241.5 million. Revenues up from $190.2 million recorded in the previous year, an increase of more than 20 percent.

Patrick French, regional director, Europe and senior analyst, at Northern Sky Research told Satellite News, “They have emerged from the worst of their difficulties. The satellite broadband market, which they have focused on is a good steady growing market. Of course, while you can say the market generally looks good, you can’t predict the future for one single company. In general for Gilat, it looks as though there is good potential for growth as long as they provide the key services demanded by enterprise network clients.”

Gilat aims to be one of the leaders in the VSAT market. One of the keys to the company’s success will be the performance of its SkyEdge family of products. SkyEdge is a comprehensive satellite communications platform, which aims to deliver superior voice, data and video services over a single, powerful system. SkyEdge is likely to become the major product for the company in 2005.

In an exclusive interview with Satellite News International Editor Mark Holmes, Rodav talks about the company’s plans as well as its plans to bring new technologies to the market.

Satellite News: What are the major challenges for Gilat Satellite Networks throughout the next 12 months? Where do you see the best opportunities for the company in terms of growing revenues? You have announced four quarters of successive growth. Do you expect that to continue?

Rodav: Gilat’s business is composed of two business units (BUs); Providing satellite network solutions to operators via Gilat Network Solutions (GNS) and providing satellite network operation as an operator to enterprise/private networks via Spacenet or rural communication public networks via Gilat Rural Operation (GRO).

I see the following growth opportunities: In the GNS market, addressing small vertical operators with very attractive small networks, based on a basic hub offering. In addition, I see them providing solutions for new markets with growth potential, such as, GSM backhauling for cellular network expansion and security and military markets applications. In the operation business, we are expanding the business from our existing local operation to a global offering basis, mainly for global enterprise or multinational organization networks. We also see opportunities in expanding our unique GRO business to support existing national carriers and regulators in their plans to expand their services to rural communities.

Satellite News: In terms of revenue projections for 2005, do you expect greater revenues compared to 2004? How many contracts do you expect to pick-up for SkyEdge products this year?

Rodav: We don’t publish our forecasts but generally speaking, our overall revenues are expected to increase. In addition, operating income and our bottom line numbers are expected to increase. In terms of SkyEdge, we have shipped more than a thousand units in 2004 and expect SkyEdge to become our major product in 2005. We believe that a large portion of our VSAT sales will be SkyEdge, more toward the end of the year, rather than the beginning. We believe throughout the course of this year, we will ship north of 10,000 SkyEdge units.

Satellite News: Do you expect to return to profit in 2005? You said the company is on a ‘growth path’, so has the company emerged from a tough few years?

Rodav: We believe that period is behind us. The main challenge is for the company to now grow and find new directions.

Satellite News: Could you tell us about the performance of the SkyEdge family of products? Are you planning any new product/service initiatives in 2005? What do you see as your competitive advantages over other VSAT players? How will you look to improve the SkyEdge portfolio of products still further?

Rodav: The SkyEdge product family, introduced to the market a year ago, has been widely accepted as a refreshing new concept among Gilat’s existing and new customers.

The One system–one hub concept that addresses all major VSAT market applications with dedicated VSATs–is a unique offering. We have performed successful installation and testing of the first two beta customers during the third quarter in 2004 and shipped eight hubs to customers by the end of 2004.

We recently have introduced secured private networks solutions based on standard VPN and proprietary MPN developments for the oil and gas industry supporting low number of VSATs in the network and capable of operating over multiple satellites as well as solutions for GSM operators. All of such are based on the SkyEdge platform.

Our main competitive advantage is that we are basically providing today a very wide market coverage product offering in one flexible, easily upgradeable, fully manageable, highly efficient, secured system. Comparatively, others are providing only partial capability within a few platforms, which at the end of the day, is at a higher cost of ownership for ongoing business operations.

Looking forward in 2005, we are expanding the SkyEdge system to fully support the DVB-RCS (Digital Video Broadcasting, Return Channel via Satellite) standard. This in turn, will allow the system to enjoy in addition to the standard platform, also all of the enhancement received from proprietary heritage–what we call an Enhanced DVB-RCS platform. The SkyEdge portfolio is supported by a large package of dedicated applications and solutions to vertical markets.

Satellite News: In terms of new products and initiatives, could you tell us about your research and development plans? What new solutions are you hoping to bring to market?

Rodav: The main product we are going to bring to the market is DVB-RCS. What we will see is an extremely powerful unit, carrying many new features including VPN. We believe in 2005, we will be positioned as the technological leader in this area. However, we are going to invest a lot in finding alternative and complementary technologies because we are looking into the future. I can’t mention what these new technologies will be but it is something we hope to surprise the market with in due time. I believe you will see these new technologies in 2006. These technologies are not going to affect our revenues in 2005 or 2006, however let’s say in 2010 and beyond it will be a source of our main revenues.

Satellite News: When we spoke to your predecessor Oren Most last year, he said two of the biggest opportunities for the company were in Russia and China. A year on, how do you view these markets?

Rodav: We have concluded a few contracts in 2004 in the Russian market, including a large contract with Russia’s largest open university, Moscow’s Institute for the Humanities, for one hub and 155 remote sites, providing Internet access, distance learning and video conferencing to the university’s branches located throughout the Russian Federation. This is the first distance education network of its kind in Russia. We continue to see this market as a growing market into 2005 and beyond.

Our business expectations in the Chinese market are progressing, however at a slower rate than expected a year ago. We are gradually strengthening our presence in this market and expect it to fulfil its promises throughout the next few years.

Satellite News: Geographically, which other markets do you think offer the most opportunities for the company in 2005?

Rodav: We believe that Latin America will be strong for us. Africa is going to probably very strong. What we call Eastern Europe and Northeast Asia is going to strong. We have also sold 30,000 VSATs in India and we think that is going to continue and it will be one of our main areas of opportunity.

Satellite News: Do you believe market conditions are in place for the company to expand VSAT penetration?

Rodav: Yes, we have seen further opportunities in 2004 than in 2003 and believe there will be greater opportunities in 2005 than in 2004. This expansion is a result of our ability to offer a full package of solutions and not just VSAT boxes. Such packages may include hybrid technologies, higher performance of the equipment, network management tools and tailored solutions for specific markets.

Satellite News: Could you tell us about your capital expenditure plans in 2005? What are the major financial challenges facing the company? Will the company need to undergo anymore restructuring throughout the next 12 months?

Rodav: There is no need for any restructuring for Gilat. Such moves were implemented in 2003 and provided their full financial effect in 2004, as proven in our results during 2004 for which our performance has improved quarter after quarter. Our 2005 plans are focused on business growth and expansion.

Satellite News: Where do you see the main opportunities for Spacenet in 2005? What regions do you think there will be strong growth for satellite broadband services? How do you see the SatLynx service developing in Europe?

Rodav: Spacenet’s growth in 2005 will come from widening and expanding the traditional enterprise/ SME/SoHo service offering with additional services, hybrid network solutions and wider geographical service offerings. We believe significant growth within the broadband market for 2005 will not derive from the consumer market, yet, rather from SoHo/SMEs as well as specific verticals markets.

Satellite News: How you see satellite broadband services developing in Europe throughout the next 12 months?

Rodav: We believe we will pass the DVB-RCS certification this year. We see a growing demand in the market for this standard that we will meet with both the production and certification on time. We have one issue about the certification that we find very disturbing. We see some competitors in the market that are using fully paid advertising to claim or make suggestions that they already have Satlabs certification. We believe such moves are unethical. We believe they also cause significant damage to the industry as a whole. Customers expect from the industry transparency. If one of the players will not play according to such standards, it will damage everybody. Customers will not only start questioning the integrity of that particular player, but the integrity of us as an industry.

Satellite News: What impact do you think the number of Private Equity companies investing in the satellite sector will have on the industry as a whole? What impact will this have on Gilat?

Rodav: We believe that overall, the Private Equity companies investing in the satellite sector will have a positive effect on the industry as it will require from all the players to focus more on their financial performance and less on ’emotional’ objectives. As Gilat is already focused on bottom line results, as can be evident from our financial performance in 2004, we believe that it will only have a positive effect on Gilat.

Satellite News: Finally, where do you hope to position the company on the satellite landscape globally?

Rodav: Gilat is very well positioned for extensive growth in the coming years. As a provider of technology and solutions, we believe we will be positioned as the vendor of choice for all operators, service providers and organizations who would be interested in quality, reliability, versatility and depth of capabilities at an affordable price. In addition, as a service provider we will be positioned as the world leader independent and managed network operator of small and medium sized global and regional satellite and hybrid networks with special requirements.

(Shira Gafni, Gilat Satellite Networks, e-mail, [email protected]; Patrick French, Northern Sky Research, [email protected])