Investment house

Nessuah Zannex

has downgraded

Gilat Satellite Networks

(Nasdaq:GILTF) from a Buy to a Hold.

Analysts Robert Goldman, Kathryn Robertson and Daniel Meron say that Gilat's fourth quarter results for 2000 were lower than they had expected. The investment house had forecast revenues of $182 million for the quarter, while Gilat posted revenues of just $174.6 million.

The company's revenues for 2000 increased by 49% to $504.6 million, compared with $338 million in 1999. Most of the firm's revenue growth was generated by sales to the consumer market by a firm in which it has holdings called


(formerly known as Gilat2Home), which came to $100 million. Starband is America's only two-way, high-speed, satellite-delivered Internet service provider.

Meanwhile, Nessuah Zannex believes that the slowdown in the corporate sector, which is Gilat's core market, is worse than expected. Many corporate customers are delaying their orders and the combined lack of capital, the demise of the market, and the budget cuts initiated by hard-pressed service providers are expected to hurt Gilat's growth in the coming year.

The slowdown is evident in Gilat's order backlog, which is a little more than $300 million, which is slightly higher than it was in 1999. The analysts believe that in the coming year Gilat's corporate business will grow by less than 5% to $425 million, compared with a previous forecast which projected growth of 17%. Gilat's telephony business in rural areas is expected to grow by 15% to 20%, while its VAST (very small aperture terminal) corporate business is expected to grow by 10% to 15%.

Starband's lack of funding

Gilat's sales to the consumer market are growing slower than expected, despite the fact that its Starband recruited over 25,000 subscribers in recent months. Nessuah Zannex says that despite its high price, the demand for the service is being kept intact by business-oriented subscribers.

Starband's main problem is funding, the analysts write. They believe that without additional financing, the venture's expansion might be slow. The investment house believes that Starband needs more than the $75 million allocated to it by Gilat. Nessuah Zannex forecasts that Gilat's revenues from consumer business will come to $138 million in 2002, and that its revenues in 2002 will reach $179 million.

The analysts note that Gilat will be reorganizing in the first quarter of 2001, a process that could continue into the firm's second quarter. The reorganization includes staff dismissals, cessation of specific product lines, a switch to a wholesale strategy in international markets, and drawing on funding from a third party. Accordingly, analysts believe that Gilat will have additional one-time expenses.

Nessuah Zannex has slashed its forecasts and expects that Gilat's revenues for 2001 will come to $563 million, and that its earnings per share will reach $0.85 cents, compared with a previous forecast of $675 million revenues and an EPS of $2.62.

Earlier, Nessuah Zannex had forecast that Gilat's 2002 revenues would come to $647 million, and that its EPS would reach $1.7.