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Are slots set to pay off?

Dec 2, 2008 5:09 PM
by David Stratton |

Now that the G2E dust has settled, industry experts have had a chance to evaluate and assess the impact of new casino offerings – notably slot products – on an industry in decline.

Most experts view the latest, high-tech slot machines as "innovative" and "competitive" from a creative and technological perspective, but none of the major manufacturers unveiled a "game changer" that would significantly alter their market share dynamics.

"Ultimately, the critical driver for the suppliers in the next year will be the willingness and ability of casino operators to upgrade slots with limited capital," said analyst David Katz of Oppenheimer & Co. Inc. "The key question remains … how conservative casino operators will be."

The limited number of new casino openings and expansions over the next 12 months will make it even more critical for slot manufacturers to expand the replacement market for existing casinos, Katz said.

That might not be easy, given the current cut back in spending budgets, Katz said, adding, "The purchasing strategies in the near term remain somewhat uncertain."

What is certain is that regional casino markets, as well as tribal gaming casinos, are "larger and remain stronger" than older, more entrenched markets such as Las Vegas and Atlantic City, Katz said.

As far as how the major slot manufacturers will perform in the near future, Katz said the "market dynamics" shouldn’t change significantly, with industry giant IGT capturing the lion’s share of the replacement and new casino market.

"IGT should continue to capture a 50 percent plus share of new capacity and 20 percent to 25 percent share of replacement business," Katz said. "Bally, WMS, Aristocrat and others should continue to capture their fair share of replacements."

Although the smaller manufacturers such as WMS and Bally may not ship as many slot machines as IGT, they could actually perform better – from a profit and loss perspective – than their industry-leading cousin.

"Both companies are relatively small in scale and can generate solid growth with a strong share of a modest replacement market," Katz said. "The growth of their international sales off depressed levels should increase the growth profile of the companies."

Translated into how the respective companies’ stock will perform, Katz said, "We believe the suppliers are introducing compelling products and despite the scarcity of capital, the suppliers should have a better year than Wall Street is expecting."

Here are some of the manufacturers’ offerings that will have the most impact in the near future:

WMS Gaming: The company unveiled several new technological marvels that rely on sensory immersion and transmissive technology to enhance its video slot games. They also improved its "community gaming" systems in which several players share in common bonus rounds. Also improved is the company’s video poker line.

Bally Technologies: Already with a stranglehold on the mechanical reel slot market, Bally improved its video slot games and broadened their appeal with new themes and higher pay tables. Bally also introduced its Dual Vision product, a side-by-side game that allows two people to play simultaneously with shared bonus rounds, and "Transparent Reels," a transmissive stepper slot with video enhancements.

IGT: The company focuses on a new 3-D technology called multi-layer display, which simulates stepper (mechanical) slots with a double LCD 3-dimensional technology, allows players to choose video or 3, 4 or 5 reel games. Also receiving high marks was IGT’s Star Wars participation game, and its range of mechanical reel slots.