Everything I said in my # 247 message came true: Investing in dot.coms so they would buy Gilat's products, then seeing those investments go South, along with write-off associated with the VSAT equipment those companies "committed to;" no word on the Microsoft deal recently etc.
Their 1Q02 quarterly analysts session just ended. Very, very weak indeed. Why?
1)They apparantly signed only one new Enterprise customer in North America, which was Perkins Family Restaurant, which: (a) Constitues less than 150 sites (figure 150 sites x $120/mo/site x 60 months = $1.08M over five years! (b) Perkins is owned by CLH (which they listed as "another" new company. CLH also owns Friendly's, who Gilat signed a year or more ago. NET: All they did was expand the existing relationship with CLH versus "winning" significant new business. Ditto on the others, which were all simply renewals of EXISTING customer contracts (whoopee, they have the opportunity to sell more VSATs to MCI/US Postal for another three years...that doesn't mean USPS is committed to buying anything!). Dollar General and Goodyear are last years awards; big deal if they're still adding sites under those contracts. In short, nothing positive to report on the new orders front in North America. Trying to make a bad situation look good.
2) Starband. Going down the tubes. Need $25M more and quickly. Echostar has pulled out. (NOTE: Guess that means all those next generation Ka band plans are down the tubes now too!). Doubtful, in my estimation, if Starband will ever pay Gilat back. Plus, even if Starband business does pick up, they don't need equipment from Gilat for a long time since they have the Echostar stuff that's being returned to them, not to mention my guess they have a lot of stuff Gilat sold them over the past year sitting around in their warehouse. (Starband used to be a good source to dumpt Gilat product, until Gilat hit their committed $75M max exposure. Sure that helped Gilat past quarterly reports of units sold, revenues, at high margin etc. Worked only if Starband was successful, which they haven't been.)
3)They've got $500M in near term debt coming due. I don't see how they can ever find their way to pay that back, which means trying to negotiate with the lenders to extend the term, pay it off at cents on the dollar (they need money to do that, plus this would make them even more disliked in the investment community).
etc.
etc.
All of the above is IMHO, and my reading of the tea leaves.
Other plays? IMHO, in the VSAT world, there's an up and comer called ViaSat (VSAT). Hughes, of course, but so much of Hughes' valuation is dictated by DirecTV, and then there's the whole issue of the Echostar deal, which muddies the water. Bottom line: Limited potential for investing right now in VSAT area, with possible exception of ViaCast. DSL and Frame. You read the press. DSL imploded (Covad, Rythms etc., plus all the equipment manufacturers such as Copper Mountain etc.). Winners in the DSL market will be the Verizon's, SBC, etc. Bottom line? There's nothing wrong with cash right now.
All of above must be caveated with fact that this is all my personal opinion, no inside info, just knowledge of and appreciation for the industry (satellite in particular, networking in general). Good luck. |
