Partner Communications, Israel's second largest mobile operator, posted a 2.1 percent rise in quarterly profit but said the launch of Apple's latest iPhone would hurt cash generation in the second half.

Partner, which operates under the Orange brand name and whose controlling stake is up for sale, overcame a fall in revenues with a decline in expenses and an increase in its subscriber base.

The company said on Monday the results were in line with its prior outlook on profitability for 2009, with capital expenditures on fixed assets expected below 600 million shekels.

Looking ahead to the second half of the year, the launch of the Apple iPhone in the coming months is likely to increase the company's working capital due to the build-up of inventory and the sale of part of the handsets bundled together with airtime packages as opposed to separate payments for the handsets, Chief Financial Officer Emanuel Avner said in a statement.

Net income in the second quarter was 288 million shekels ($74.6 million), or 48 cents per diluted share, despite a 1.6 percent fall in revenues to 1.54 billion shekels.

Partner posted an EBITDA of 574 million shekels, up 1.8 percent from the same period last year.

The company said revenues were hit by a reduction in the billing intervals from 12 seconds to one second under new laws mandated by regulators, as well as by tougher competition.

Gilad Alper, an analyst at the Nessuah Excellence brokerage, said Partner's results were decent.

These numbers demonstrate the resilience of the sector despite the recession, Alper wrote in a client note. He rates Partner as market perform with a target price of 70 shekels.

Partner's Nasdaq-listed shares were down 0.9 percent at $17.38 in early trade.

The company said its subscriber base grew by 41,000 to 2.944 million customers, an increase of 3.4 percent from the second quarter last year. Some 1.1 million were subscribers to its lucrative third-generation (3G) network.

Last week, Bezeq Israel Telecom's mobile phone unit Pelephone -- Israel's third-largest mobile phone provider -- reported a 29 percent increase in quarterly profit to 233 million shekels. Its subscriber base rose to 2.694 million.

Helping to offset a competitive and saturated mobile market, Partner is banking on a move to Voice over Broadband (VoB) and as an Internet service provider to boost revenues during the downturn.

Partner said it would pay a dividend of 230 million shekels, or 1.49 shekels a share, on Oct. 13. In the second quarter last year, it paid a 200 million shekel, or 1.26 shekel a share, dividend.

Hong Kong's Hutchison Telecommunications International has a 51 percent majority stake in Partner but intends to sell its holdings.

Last week, Scailex Corp said it submitted a binding bid for Hutchison's stake in Partner.

We believe the negotiations for the sale of Partner ... will determine the share price for the mid-term, Alper said.

($1 = 3.87 shekels)

(Editing by Steven Scheer)

Israel Electronics T-mobile Iphone