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Slot surge coming!

Dec 17, 2007 11:12 PM

Despite an overall lull in the gambling manufacturing industry, Waukegan-based slot-machine maker WMS Industries Inc. is gearing up for the next big upgrade in machine technology.

WMS management discussed the company’s recent results and the outlook at their annual shareholders meeting last week. The company predicts that many casinos are poised to upgrade their slot-machine technology.

In the U.S., which has 750,000 slot machines, the last big replacement boom was about six years ago, when casinos swapped old coin-operated equipment with new technology that pays off winners with paper receipts.

The next technological frontier is server-based gambling. Slot machines will be programmed from central servers in casinos’ back rooms, enabling management to switch a minimum bet from $2 in the afternoon, when low-budget senior citizens are wagering, to $10 in the late night when high-rollers come in.

The next generation of equipment will allow a single better to sit in front of a single video terminal all night and play different games””for instance, playing Monopoly one moment and video poker the next.

WMS and rivals such as International Game Technology and Bally Technologies are testing the servers now, but the real rollout isn’t expected until late 2008 and 2009.

"The next big equipment replacement cycle is just around the corner," WMS President and CEO Brian Gamache said in an interview before the annual meeting. "We’re still working on field trials and on getting regulatory approvals. This won’t happen overnight, but it should evolve over a period of four to five years."

Joel Simkins, an analyst with Macquarie Research in New York, said that "longer term, we are positive on the adoption of server-based technologies throughout the casino gaming industry. WMS can play a prominent role in the deployment of server-based solutions."

He predicts WMS’ earnings will more than double by fiscal 2009 to $134 million, then jump another 25% to more than $167 million by 2010. The latter total would represent a 17% return on assets.

Even in the current lull, WMS has supplied equipment to more than a half-dozen new "racinos" ”” casinos at race tracks ”” in Pennsylvania and suburban Miami. There have also been casinos opened on Indian reservations in Oklahoma, as well as the new Four Winds casino near New Buffalo, Michigan, last summer.

Gamache estimates that WMS’ North American slot machine marketshare has risen to 22%, up from 19% a year ago. IGT remains No. 1 with more than 50%.

Growth is coming even faster overseas. In the emerging casino capital of Macau, WMS was the first game maker to introduce Mandarin-themed games recently.

"Asia will be a huge market opportunity for us eventually," Gamache said. International sales, just 10% of overall revenue five years ago, now account for more than one-third of sales.