IGT, WMS report divergent results

Nov 4, 2008 5:10 PM

by David Stratton |

Two of the industry’s largest slot manufacturers reported quarterly earnings last week, and the results couldn’t be more divergent.

IGT (International Game Technology) reported a sharp drop in fiscal fourth quarter profit, in which earnings of $52 million was barely half of the $123 million reported a year ago.

The results "reflect challenging economic operating conditions affecting our customers and, in turn, our business," said IGT chief executive T.J. Mathews.

The company report cited "lower play levels and continued shifts in installed base mix to include more lower-yielding, stand-alone lease and central determination machines."

IGT’s slumping revenues were in stark contrast to those reported by WMS Industries, which posted record quarterly revenues of $151 million, a 14 percent increase over a year ago.

WMS also reported an increase in net income of 41 percent to $15.7 million, a 24 percent increase in cash flow and a 12 percent increase in shipment of new products.

"WMS’s record fiscal first quarter financial performance underscores the value of our ongoing focus on creating differentiated, high-earning products," said WMS CEO Brian R. Gamache. "In addition to solid revenue growth, our company-wide focus on operational excellence and operating discipline is delivering consistent margin improvements over prior-year periods."

Market analysts noted that, while the short term results for IGT weren’t encouraging, the future was far from bleak.

"Despite the lack of near to medium-term catalysts to drive earnings acceleration, we believe the long-term story remains intact for IGT," said UBS’s Robin Farley. "The industry is moving closer to the introduction of server-based technology at the end of 2009, and we believe this technology-driven replacement cycle will begin to accelerate into 2010, even with potentially disappointing profit in near-term quarters."

IGT is the industry’s leading slot manufacturer; WMS is the third largest. Bally Technologies, second behind IGT, will report quarterly results on Thursday (November 6).

In the meantime, several casino slot managers contacted by GamingToday have cited several reasons for the disparity in play levels between IGT and other manufacturers.

On a tour of a Las Vegas casino, its slot manager, who asked that his name be withheld, said IGT machines, which occupy more than 60 percent of the slot floor, are "for the most part, unchanged" over the past few years.

"The upright units, including the Game King and video poker series, are essentially the same as they were 10 years ago," the slot manager said. "The screens are at eye-level and there’s no platform for players to rest their arms and place items such as cups and ashtrays."

In contrast, the slot manager pointed out WMS and Bally machines, which he said are "more player-friendly in their design and ergonomic configuration."

Beyond the look and feel of the machines, the slot manager said that IGT’s high-yielding "participation machines," in which the slot maker takes a portion of the money raked in, aren’t profitable when they’re not being played by customers.

"It’s hard to take a percentage of something when there’s nothing to take," he said.

Thus, many slot managers are having participation machines replaced by cheaper leased models.

"I’m not knocking IGT because they have the market on so many games, such as video poker, electronic keno and wide-area progressives, such as Megabucks and Wheel of Fortune," the slot manager said. "I’m expecting they will have some nice new products at the upcoming G2E expo."

G2E (Global Gaming Expo) is scheduled for the week of November 17-21 in Las Vegas. All the major slot manufacturers and other suppliers to the casino industry are expected to be represented.

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