The defense industry, particularly in the US, was singled out several years ago as a growth engine with great potential for Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE: GILT). After hiring its latest recruit - Brigadier General (Res.) Moshe "Chiko" Tamir - the company is creating a new defense division that will cater to defense establishments in an effort to realize its potential for Gilat. Tamir will head the 300 person division.
Tamir, a respected officer, retired from the IDF two years ago, despite the fact that the military court accepted his appeal not to lower his rank following in what came to be known as the "ATV affair". Previously, Tamir had admitted that he had allowed his under-aged son to drive an army ATV, and did not report the accident in which he was involved.
The appeal court cancelled the rank lowering directive, even though it ruled that this was a serious failure in his authority, saying, "Throughout his service, Tamir carried out all of his responsibilities in an outstanding manner." Among the positions he filled during his military career, Tamir was a Golani Brigade Commander and a Gaza Division Commander. In 1998 he won a Northern Command citation when he was the Egoz Unit Commander.
His appointment as VP and division head for Gilat's military division indicates the importance the company attaches to this field. In an interview with "Globes", Tamir declined to speak about his military past, but he did say that the transition to the business world has been fascinating. "It is a different world and an interesting change, but at the management level, it is quite similar, since people are the same regardless of what field they work in," Tamir said.
Cutting edge technology
Gilat, which is run by Amiram Levinberg, develops miniature communications satellite stations and supplies them together with related services. The new division will include the two companies that Gilat acquired in 2010: RaySat, which develops in-motion antenna systems, cost $25 million; and Wavestream, which designs radio frequency amplifiers, cost $135 million.
SIGS, Gilat's subsidiary in the US that supplies the local defense market, will also be part of the division. "The creation of the division is a natural extension of our declared strategy to enter the defense market, and that is why they hired me," Tamir said. "The idea is to enter what the military world calls 'information-based warfare. There are many systems, but the challenge is to bring the technology all they way to the front line, to integrate in-motion satellite systems into tanks, UAV's, boats, planes and at the front line."
Gilat VP Marketing Doron Elinav says that the relevant part of the US defense market is worth $4 billion, and there are possibilities in markets outside of the US. The homeland security market is also in need of mobile communications for emergency situations, Tamir added.
Tamir, Elinav and Yehoshua Levinberg - who is CEO Amiram Levinberg's brother and responsible for business development and strategy - say that Gilat has encountered competition from a number of companies specializing in various fields. However, "We think that Gilat is the leading company in the commtech field. It is the most prominent competitor in the field, but it is not active on the KA frequency, which the military has access to."
There is no military without satellite
Hasn't the economic situation in the US caused cuts and delays that affect the purchase of Gilat products?
Tamir: "The situation has influenced defense expenditure, but fortunately, the US satellite communications purchasing plan is one of the few that has not be harmed. The military's satellite communication needs have grown from year to year, and forecasts show similar levels. All over the world, militaries are adding satellite communication not only in divisions, but also in battalions and companies - which adds up to a large amount of products. Demand could fall, but Gilat is an extremely balanced company and active in many markets, so it wouldn't be seriously hurt."
Is US defense expenditure impacted more by a president who is a Democrat rather than a Republican?
"Whichever one is elected, communications equipment will have to be sent to the front line. As long as countries keep armies, and as far as I can see this will not change in the near future, there will be demand for communications systems. Our vision is to be the leading supplier in the field."
The demand is not necessarily for satellite communications systems, which is what Gilat specializes in.
"This question is almost always asked. Currently, and from my past experience, I can say that the ability for ground-based radio systems' to have full coverage on the modern battle field is limited. Each network needs satellite backup, and no military system is complete without satellite systems."
Tamir says that ground forces have switched over from the antiquated system of walkie-talkies and drawing on maps, to network-based systems similar to IT systems used in the business world. Except that the technological challenges on the battlefield are completely different than in an office: there is a need for in-motion communications, with relatively small antennas. "Our technology is intended for this field. Our equipment can send information on a network all the way to the first tank and the first infantryman on the front line," Tamir said.
Supplying the IDF is always prestigious
Does the fact that Gilat is an Israeli company affect its ability to sell in the US?
"Being an Israeli company in the defense field is an advantage, especially combined with Gilat's tradition and branding. It's true that it is difficult to break into the US defense market, and that's why our strategy included acquiring the US company Wavestream."
And what is happening in the Israeli market?
"Gilat will always have a soft spot for Israel, especially with someone like me who retired form the IDF just a short while ago. The IDF is a unique and strategic customer, including from a financial point of view. But the connection is not just financial, since Gilat is an Israeli company whose workers perform reserve duty in the IDF. The prestige of supplying the IDF is also known worldwide."
After years with no acquisitions, Gilat acquired two companies in 2010 in an effort to gain a foothold in the defense field. Have these acquisitions proven themselves so far?
Tamir: "It is too early to see financial results, but the capital that Gilat invested shows how much we believe that this is the right direction. Everyone who knows this field knows that these processes take time, and a year is not a long enough period of time to see changes."
Levinberg: "We acquired RaySat at the beginning of 2010 and we already see results. For example, we recently reported a $10 million deal with a Latin American country. A small company like RaySat would not have been able to close such a deal without being part of Gilat. The process is still underway at Wavestream."
Are there any future acquisitions on the table?
Levinberg: "We are still in the digesting stage of the previous acquisitions, so no additional acquisitions are currently in the works."
What are the sales targets for the new defense division?
Tamir: "We are not revealing our targets and do not want to make any pronouncements. We have reported in the past that Wavestream contributes $60-70 million a year. With RaySat and Gilat's existing technologies, the potential is very great."
Israel will always need an army to protect it
In his first interview since he joined Gilat six months ago, Tamir made a point of speaking solely about Gilat, and refused to speak about his past in the IDF or what is currently happening in the IDF.
However, he is willing to say a few words about the possibility that the social protest and the Trajtenberg committee might bring about cuts in the defense budget, following changes on Israel's southern border.
"The basic threats on the state of Israel do not change," Tamir said. "What changes every once in a while is implementation of resources. The militaries and arms are always there; the willingness to use them can change. During our 100 years of existence here, this willingness has waxed and waned, but Israel will always need an army to protect it, and we must never forget this."
Published by Globes [online], Israel business news - www.globes-online.com - on October 5, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011