For North Canton, Ohio-based Diebold Inc., the second quarter of 2009 was relatively positive, financially speaking. Unlike its strongest competitor, Duluth, Ga.-based NCR Corp., which posted a year-over-year net income decline of 91 percent, Diebold posted an 11 percent year-over-year net increase.
Diebold's next closest market competitor, Germany-based Wincor Nixdorf AG, also posted a year-over-year net sales decline of 11 percent for the third quarter of fiscal year 2008/2009.
Diebold's financial results came as a pleasant surprise to industry analysts, who have for the last three years watched the company closely. As Diebold spent the better part of last year tightening its belt and getting its financial statements up-to-date, many analysts waited by the sidelines with bated breath, somewhat unsure of what to expect.
"Diebold has be making significant progress on margin improvement, similar to what NCR accomplished several years ago," said Sam M. Ditzion, chief executive of Tremont Capital Group, a strategic planning and consulting firm that specializes in the ATM industry. "Diebold cut $100 million in costs over the past three years and has indicated that there is more to come. Some analysts assumed that Diebold would have disastrous numbers given the financial crisis and recession, but this most recent quarter ultimately exceeded expectations in many respects."
NCR, which also has done a great deal of cost-cutting over the years, is not suffering any more or less than Diebold or Wincor; but Diebold's economic strides are more noticeable.
Diebold spokesman Mike Jacobsen says Diebold's SmartBusiness 100 initiative — a directive the company announced in mid-2006 to cut corporate expenses by $100 million before the close of the same year — paid off. Now Diebold is focused on continuing that budget slimming through the next generation of the initiative, SmartBusiness 200.
"The idea was to take $100 million of cost out of our supply chain, by trying to move things more efficiently from one place to another," Jacobsen said. "When you look at procurement activities, we're focusing on cutting expenses and travel."
Jacobsen says Diebold's senior management team, which took the helm in early 2006, is continually looking for ways to improve the bottom line.
"The progress we've made in working capital management — in free cash flow — has bolstered our results in the economic downturn," he said. "We've made, like a lot of companies, some tough decisions."
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In August 2008, Diebold president and chief executive Tom Swidarksi announced during an investors' call that the company was closing its Newark, Ohio, manufacturing facility — a closure that led to 100 job reductions. He also said Diebold planned to reduce its global workforce by 5 percent (800 jobs) by the end of the year.
NCR and Wincor Nixdorf also have made similar workforce reductions.
In July, after announcing plans to move its corporate headquarters to Duluth, Ga., NCR said it would be cutting its Dayton, Ohio, workforce from 1,300 employees to 100 by the end of 2010. (Most of those jobs, however, are moving to Duluth, where NCR has said it expects to hire additional staff.)
In March, NCR said it expected to cut 252 jobs in Dundee, Scotland. And in early 2007, NCR reduced its global workforce by 1,200 employees, 650 of which were cut from the Dundee facility.
Since September, Wincor Nixdorf's workforce has decreased by 69 employees, and the company said in July that further realignment and cost-cutting measures were expected.
A new vision?
Cost-cutting is part of the story, to be sure. But other trends are emerging, and for Diebold and NCR, they revolve around sharpened focused on services and products that go beyond ATMs. Both will remain strong ATM players, but each say they are carving niches in specific industries, preparing for the next phase of growth.
Deposit automation or intelligent deposit is expected to increase in 2010, both players say. Wincor Nixdorf, which has strong ATM alliances with JP Morgan Chase & Co. and Wells Fargo, also is counting on stronger product investments from U.S. FIs in 2010 because of more growth in Check 21 ATMs.
Thus far, regional banks and credit unions have been slow to adopt the technology, instead investing more on cost-reduction technology and services. Diebold sees that trend as positive, since the outsourcing of services is expected to be its driving revenue force going forward.
During Diebold's earnings call Aug. 4, Swidarski said: "The constrained capital environment creates further opportunities to grow our Integrated Services business. By outsourcing various non-core operational functions to Diebold, such as ATM network, security and other related operations, our customers were able to conserve capital while lowering operating expenses."
Wincor Nixdorf also has focused its attention on more service and solutions, but until Wincor ups its hardware presence among U.S. FIs, it won't have the edge-potential of Diebold.
For NCR, while it's moving the manufacture of its ATMs back in-house and says it expects to maintain a strong ATM market position when the economy recovers, the entertainment sector will play an increasingly important role.
NCR CEO Bill Nuti said during NCR's second-quarter earnings call that the company sees strong potential in DVD and video-game kiosks.
"The acceleration of our entry into the entertainment vertical through the acquisition of TNR is yet another example of our commitment to be the global leader in self-service," he said. "These and other moves to enhance our infrastructure and operations are aimed at optimizing our pace of innovation and driving improved margins by unlocking production and cost efficiencies."
John Bruno, NCR's executive vice president of industry solutions, says NCR is looking for verticals where it can be the dominant global force.
"(In) the self-service market, (a) new area like entertainment does not yet have an established global leader for the long-term, and we're excited about this business."
