IGT eyes double-digit growth

Jan 21, 2003 7:19 AM

IGT, the No. 1 slot machine maker, is banking on double-digit earnings growth for the near future as more states legalize gambling and casinos turn to cashless machines.

President and Chief Executive Thomas Baker said in an interview on the sidelines of the American Gaming Summit recently that the advent of video technology was changing the nature of the slot machines, which casinos say offer some of the best returns to the house of any game in the gambling business.

Baker recently has aimed for a 15 percent increase in earnings per share and expects to keep that target this year.

"I think that is something we should be able to do this year, too," Baker said. "It is something I think we can do for a while."

The familiar "one-armed bandits" that spin three reels when a lever is pulled and pours out coins is virtually a thing of the past.

"Gaming machines years ago were gaming machines -- people played because they liked to gamble. Now people play because it is fun," said Baker.

Not only is it fun, but it is now accessible to many as gaming expands.

"Given the widening budget deficits in many states, we believe that the expansion of gaming should be a key focus in upcoming legislative sessions," wrote Bear Stearns analyst Jason Ader, predicting Pennsylvania and Maryland would legalize gaming and Native American casinos would expand.

Ader, who rates IGT outperform, forecasts earnings per share of 93 cents in the fiscal first quarter ended in December, up from 70 cents a year earlier, also reflecting IGT’s 2002 purchase of competitor Anchor Gaming.

Baker predicts about one new state will allow gambling each year for 10 years, beginning with New York’s recent decision.

At the same time a combination of aging machines and new technology is spurring a new wave of replacements, Baker says.

The roughly 700,000 slot machines in the United States today are about 10 years old, on average. The last new technology to shake the industry was the advent of automatic dollar bill takers in the early 1990s, Baker said.

U.S. replacements have dropped to just over 10,000 per quarter from 18,000-22,000.

The company sold 30,700 slots in its September quarter.

Video slots do things a one-armed bandit never could, including ways to increase the number of bets for each "spin".

An old style slot calls a winner when three symbols line up in a row, but a computer-based slot also can look for winners when symbols line up on diagonals and other unorthodox lineups -- for an additional price to the gambler.

Many slots now feature brand names such as an "I Love Lucy" machine that shows snippets of footage from the television series and "Wheel of Fortune", based on the television show.

"Familiarity can bring in people," Baker said.