Reaching for the stars (from Jerusalem post dec97.companies in the news
by NICKY BLACKBURN
(December 24) Gilat Satellite Networks has become a key player in the satellite communications industry.
It doesn't take much guesswork to realize how rapidly Gilat Satellite Networks Ltd. is expanding. Drive down a half-finished road
in the Kiryat Aryeh area of Petah Tikva and you soon get the picture. There, amid all the rubble and dust of a developing area,
stand two huge and luxurious buildings, one blue, one green, which together cost Gilat some $20 million.
While one block is already inhabited, staff members are already chomping at the bit to move into the other, which is nearing
completion. If 14,880 sq. meters of new headquarters and manufacturing facilities fail to impress, then take a look at the figures.
Founded in 1987, Gilat, which designs, manufactures, markets and supports Very Small Aperture Terminal (VSAT) satellite earth
stations and related hub equipment and software, has managed in less than a decade to become a key player in the satellite
communications industry.
In 1992, sales were $5.5 million. By 1996, they reached $75m. Estimates for 1997 suggest that sales will reach an all-time high of
$90-$100m., while cash reserves have now reached $100m., making Gilat richer than ever.
The research company Comsys, an expert on the VSAT industry, said: "Gilat's achievements over the past few years have been
extremely impressive. It has managed to take a new VSAT technology into an established market and carve out a considerable
market share."
Gilat, which is traded on the Nasdaq over-the-counter stock exchange and employs 400 people, was set up by five friends, four of
whom met while serving in the IDF. "When we started it was just one floor of a building and six employees," says Yoel Gat,
chairman, CEO and co-founder of Gat. "There were no venture capital companies around and no financing available so we
bootstrapped our way up. Luckily we had an infrastructure that was well entrenched and knew how to work together."
During the first five years the company developed two main products, both of which are geared towards customers who have a
large number of remote sites spread over a wide geographical area. The OneWay VSAT is a data broadcast receiver which can
be used for news distribution and paging, while the TwoWay VSAT is used by banks, retailers, gas stations etc., and has a number
of applications including inventory control, credit-card authorization, lottery transactions and prescription adjudication.
The TwoWay VSAT was introduced in 1992 and proved an instant success. Though the market was already laden with competing
products, Gilat managed within two years to snatch 15 percent of the market share from rivals. By 1996, this figure had risen to 37
percent and Gilat became the No. 2 player in the field, after the US company, Huges Network System.
Gilat's secret weapon was cost. It outsourced production of its RF equipment to builders of mass-produced radio equipment,
substantially reducing prices in the process. When the TwoWay VSAT was released onto the market, it cost just $4,500,
compared to competing products that cost at least $9,000.
On top of this, says Gat, Gilat's products soon became synonymous with dependability. "The TwoWay VSAT is the most reliable
in the industry," he boasts. "On average our product breaks down every 15 years, which is a far better rate than our competitors.
Our product works and works and works."
Today the TwoWay VSAT is Gilat's biggest seller providing some 75 percent of company sales.
In 1993 Gilat raised $23m. in a public offering on Nasdaq. A second offering was held in 1995 when Gilat raised an additional
$50m. enabling it to upgrade facilities and put more effort into product development. The company also began an expansion
program, opening offices in the US, France, China and Thailand.
In January 1997, Gilat acquired Florida-based Skydata Inc., which specializes in the VSAT-paging and data broadcast industries
and has an international customer base that includes AT&T Wireless, Motorola, PageMart and United Press International. The
acquisition offered Gilat an additional US base of operations to help support its customers and marketing efforts in North America
and also gave it an important springboard to Latin America. Through the recent merger Gilat aims to strengthen its line of
VSAT-based paging products, and in particular is looking at the distribution of paging information to remote sites.
Paging is not the only area where Gilat hopes to spread its wings. While the company continues to profit from the traditional VSAT
market, which is growing at a rate of 20-30 percent a year, it has also been hunting aggressively for new markets which might
speed up Gilat's development.
In 1993, it began work in the field of rural telephony with three new products: DialAway (rural telephony to remote areas),
FaraWay (satellite telephony), and ISAT (a voice frame relay product), which have recently been released onto the market. The
new products are specifically designed for developing countries such as China and India, where conventional telephone
infrastructure is poor.
Aware of the heavy competition in this area from giants such as Motorola and Loral which have invested billions in building the
necessary infrastructure, Gilat is trying to keep costs down. Its products use existing geostationary satellites which, according to
Gat, are more cost-effective than alternatives such as the planned Low Earth-Orbit (LEO) and geostationary satellite mobile phone
systems.
"Our system will cost five to 15 cents per minute, compared to $3 a minute for Iridium and Globalstar and our equipment costs will
also be low," says Gat. "Our technology exists, it requires no infrastructure, and there are no capacity limits, all of which are
weaknesses of our rivals. We offer a better price, less problems with regards to voice quality and no limit to the number of
channels we employ."
Gilat also aims to get to the market first. To do this it has opened a subsidiary in Holland, Global Village Telecom BV, which will
provide services and expertise, and establish joint ventures or partnerships with local service providers.
So far, Comincon of Russia has bought a FaraWay network to provide high-quality telephone services to businesses, and Global
Village Telecom recently set up a Chilean company which has been awarded the right, by the Chilean government, to provide
telecommunications services to over 1,500 villages in 42 regions in that country. Some 1,500 pay phones, worth an estimated $5m.
to Gilat, have been scheduled for delivery by December 1998.
"We have competitors, but for the first time in the company's history, we are the big guys in the field," says Gat.
Gilat is also focusing on developing a new product line for satellite-delivered Internet applications. At present getting high-speed
access to the Internet is expensive and difficult but Gat believes VSATs can overcome this gap. Two products recently developed
are Internet Access by Skystar Advantage, which uses a satellite link for the connection to and from the Internet backbone, and
SkySurfer 1, a receiver board placed inside the PC that receives Internet information at rates much higher than are available over
most current terrestrial telecommunication networks.
"This is a small field now but it's moving rapidly and we hope to be a major player in this arena," says Gat.
In the US, Gilat sold SkySurfer to Rite Aid, the country's largest pharmacy chain, for each of its 4,000 drugstores. It will be used
for on-line prescription verification and for broadcasting background music in the stores. Installation of the network began in
1997's last quarter.
In 1997, the new areas of paging, rural telephony and Internet access made up between 5-10% of company sales and Gat believes
that by 1999 this figure will have risen to 50%. He hopes to shake up these markets in much the same way that the TwoWay
VSAT did in 1992.
"We are much more market driven today," he says. "We're developing strategic business units that go after each of these markets.
The products may be similar to those we're developing elsewhere in the company but we want people with specific knowledge of
each field to develop them. At the end of the day we may sell the same product but it's to different people and in a different
language." In the meantime, however, Gat says Gilat has no plans to neglect its traditional products, but instead seeks to gain
market share by improving them.
"We still have huge opportunities to find new applications for our products," he says. "We aim to transform current manufacturing
rates of tens of thousands of VSATs, to 100s of thousands in the future."
To do this, however, Gilat must first of all incorporate all the growth that is now taking place at the company. Gat admits there are
disadvantages to rapid growth, not the least of which is having to train additional staff, and the danger of becoming a large and
unwieldy operation.
But he also believes that the influx of new staff will strengthen the company. "We can now concentrate on further areas," he says.
Nor does he think that Gilat has lost any of its continuity. All five of the original founder members still work for the company, while
some 45 of the first 50 staff members still contribute in some way to Gilat. Gat is thus highly optimistic about the future and
determined that his firm will stay in front. "We're in a better position today than we've ever been before. The same attributes that
brought us here should enable us to continue to flourish in the years ahead," he says.
Gilat's key strategy is to act big and think small. "We still maintain the spirit of a young entrepreneurial company which looks at
every deal as if our whole lives depended on winning it. Once we're in a deal - you don't want to be in our competitors' shoes."
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