Optimistic outlook

Optimistic outlook
Tags: Diebold, Incorporated, Manufacturers, NCR Financial Solutions, Wincor Nixdorf International
May 6, 2004

It took 137 years for Diebold Incorporated to achieve its first $1 billion sales year. Seven years later, in 2003, the company's sales reached the $2 billion milestone.

Eric Evans, Diebold's new president and chief operating officer, said the company hopes to get to $3 billion in just three to four more years.

An ambitious goal -- but one that seems within reach based on the early reception for the Opteva, the company's new line of ATMs introduced in March of 2003, as well as growing opportunities in Diebold's security and election businesses.

Buoyed by Opteva, Diebold's self-service business grew 7.4 percent in 2003, Evans told attendees of the recent Partners in Information Xchange (PIX) conference in Canton, Ohio, an event attended by more than 30 EFT networks, switch providers and software companies.

Up with Opteva

Fifty percent of the ATMs Diebold shipped in the United States were Optevas. The company recently received its first orders for the machines from other parts of the world, including the Middle East, Russia and China, where production is slated to begin soon at Diebold's manufacturing facility in Shanghai.

Members of Diebold's PIX listen to new COO Eric Evans as the two-day conference kicks off.

Certification efforts are under way in Europe, the region that Evans said presents Diebold's toughest challenge.

According to Diebold's research, it is the overwhelming ATM leader in North America, commanding a 62 percent share of the banking market with NCR in a distant second place with 26 percent. In Europe, however, Diebold sells fewer ATMs than either NCR or Wincor Nixdorf.

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Again according to Diebold research, NCR is the worldwide leader, with a 36 percent market share. Diebold trails with 32 percent, followed by Wincor Nixdorf at 16 percent. No other single manufacturer comes close to the top three in market share.

Evans hope Opteva can help change those numbers. In 2004's first quarter, orders for the Opteva line topped $60 million, according to the company's most recent earnings report.

Evans identified three market trends that promise continued strong ATM sales for Diebold: network mandates for Triple DES encryption; pending changes to the Americans with Disabilities Act that will require financial institutions to audio enable their ATMs; and Check 21, a piece of legislation recently signed into law that presents "huge cost savings opportunities" for FIs and may drive interest in incorporating check scanners into ATMs.

Dean Stewart, Diebold's director of Product Planning and Management, said that the Opteva drive-up models, the 740 through-the-wall and the 750 standalone island, were especially successful. Diebold sold 56 of the 750s before it started building them in December, he said. Diebold is planning new products for its Opteva line to address other market niches.

The 750 drive-up island is one of the hottest sellers in the Opteva line. Diebold sold 56 of them before it started building them in December.

The company also anticipates increased interest in its Agilis software, introduced in late 2003. Danny O'Brien, Diebold's senior vice president of Global Product Management, Marketing and Development, called Opteva and Agilis "vitally important steps in making Diebold a self-service solutions provider versus just a provider of hardware or software."

Solid security

Diebold's security business grew 18 percent in 2003. While largely still a U.S. business, Evans said Diebold believes there are growth opportunities elsewhere. Diebold acquired two Australian security companies in 2003, as well as a New England-based integrator and installer of security equipment in the U.S.

Its EMEA division partnered with 3SI Security Systems, a provider of cash staining systems, to offer those security enhancements across its ATM product line.

Voting problems, potential

In 2003, Diebold won the largest voting contract in the U.S., a deal worth $55 million, in Maryland. It has sold 65,000 voting terminals since entering the business in the U.S. in 2002, mostly in California, Georgia and Maryland.

In 2004's first quarter, however, the company was dogged by questions surrounding the security of its voting systems. California last week decertified touchscreen voting systems such as those manufactured by Diebold, a move that will prevent 14 counties from using their newly acquired terminals. Six of the 14 affected counties use Diebold equipment.

In April, a Maryland group called the Campaign for Verifiable Voting filed a lawsuit asking for paper back-up records of electronic voting in that state.

The company's electronic voting subsidiary, Diebold Election Systems, "accounts for three percent of our revenues and 100 percent of our publicity," Evans said at the PIX conference.

Evans expressed confidence that will change, when more specific standards are introduced in the U.S. Ninety percent of the votes in Brazil are cast on Diebold terminals (following Diebold's 1999 acquisition of Procomp Industria Eletronica), and the company's machines have been used in 450 elections in Georgia since November of 2002. "Once the standards are set, we think we'll have the technology solutions," he said.

The company is currently developing a voter-verifiable paper receipt because of customer requests, Evans said. "We're happy to sell the printers if customers want them."

Like ATMs, Evans said, voting terminals "all require service," another area of revenue generation for Diebold.

While the company recently reaffirmed its earnings forecast of $2.58 to $2.70 EPS for 2004, it has scaled back revenue expectations for its voting subsidiary to $80 million to $95 million for 2004. The voting business contributed a little more than $100 million in earnings in 2003.