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Jason Mercer

DBD AT A GLANCE

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Since 1995, the number of Americans that use ATM cards has jumped from 35 to over 65 percent. Also, rapid economic growth in China, Latin America and the Middle East has lead to expansion of the banking industry in those countries. Diebold(NYSE: DBD), one of the largest manufacturers of ATM machines, has seen increased revenue from those trends. However, net income for fiscal years 2004-2006 decreased due to higher information technology expenses.The rapid growth of the banking industries in India and China as well as a movement towards self-service technology (ATMs, internet banking) have provided a quickly growing market for Diebold's products. United Technologies made a $2.64 billion bid to buy Diebold, which was rejected in March 2008.^[1]

Business and Financials

Diebold manufactures and sells:

• Automated Teller Machines (ATMs)-electronic terminals that let a person withdraw/deposit money and check their balance without the help of a bank teller
• Vaults
• The RemoteTeller System®-system that lets the teller and customer interact through 2-way closed circuit television and pneumatic tubes to transfer money and forms. Basically, it is a drive-up teller window brought inside the branch.
• Electronic voting systems^[2]

Diebold sells its products directly to its consumers, which include:

• Banks
• Financial Institutions
• Public Libraries
• Government Agencies
• Utilities
• Retail Outlets^[3]

Diebold is divided into three segments:

• Diebold North America (DNA)(55% of 2005 revenue) sells Diebold products in North America.
• Diebold International (DI)(39% of 2005 revenue) sells Diebold products throughout the rest of the world.
• Premier Election Solutions, Inc.(Formerly Diebold Election Systems, Inc. (DESI))(6% of 2005 revenue), otherwise known as Global Systems, Inc. manufactures and sells election systems.^[4]

^[5]

^[6]

Note: Diebold has not released financial reports in more than a year due to an ongoing federal investigation into how it reports revenue.^[7] This investigation has entailed costs of about $6,570,621.^[8]

Revenues for years 2004 to 2006 have increased whereas net income has decreased. Revenues increased in the financial self-service, election and security systems segments. Financial self-service saw considerably strong growth in Latin America, Europe, the Middle East and Africa. Diebold also increased market share in the financial, government and retail security markets.^[9] The decreasing net income was the result of increased operating costs and pricing pressures in Europe, the Middle East and Africa. The company's tax rate also increased to 40% in 2005 but decreased to 30.5% in 2006.^[10] Since 2005, Diebold has been following a plan to eliminate at least $270 million in costs by 2010. It intends to cut down on U.S. warehouses, from 89 to 3. The company has also closed a plant in Ohio and moved production to a North Carolina facility, losing 100 jobs in the process.^[11]

^[12]

The Americas serve as the largest market for Diebold's products. However, Asia's demand for ATMs, one of Diebold's main products, has increased greatly during the last few years. China and India have been especially lucrative targets of ATM expansion.^[13] Diebold became the exclusive ATM provider for the Beijing 2008 Olympics, setting up its own ATMs in the Olympic and Media villages.^[14]

Trends and Forces

Increased Demand for ATM's Means Increased Business for Diebold

^[15]

^[16]

ATM demand in India and China has increased in the past few years, fueled by the regions' prosperity. Increased buying power leads to growth in the financial services market. Relatively large portions of their populations still have limited access to banks, meaning commercial banks have an incentive to increase their presence.^[17] ATM machines are an effective way of increasing their presence without the cost of constructing an entire building and hiring staff. The number of ATMs in China and India are estimated to increase from 125,000 in 2006 to 350,000 in 2010.^[18]

Self-Service Movement

Self-Service has expanded beyond just ATMs and gas stations. In 2006 consumers worldwide rented 600 million DVDs, booked 500 million plane tickets and purchased $300 billion in goods and services through self-service channels. ^[19] Advancing technology has allowed consumers to carry out more transactions on their own. Diebold is setting itself up to take advantage of this trend through securing five U.S. patents on technology that will connect mobile phones to ATMs. This new technology will let consumers find the nearest ATM and make withdrawals and wire transfers through their phones.^[20]

Proliferation of Identity Theft

Identity theft is a constant threat to consumers throughout the country. Since credit card companies are making it harder to steal customer information, identity thieves have turned to skimming PIN numbers from ATM machines in order to gain access to others' bank accounts. Current estimates place average loss per ATM at $900 and $2.75 billion in total losses due to identity theft.^[21] Companies that manufacture ATMs thus have an interest in constantly upgrading their technology in order to deal with the threat of skimmers. However, more advanced technology tends to make the ATMs more expensive, so in order to keep selling as many as possible, the same producers cannot make the machines too expensive. Diebold has addressed this issue by developing new skimming detection technology (which usually costs between $1,200 and $1,500 per ATM) that is included in its new card readers at no extra charge.^[22]

Competition

NCR is a global technology company that produces ATM machines as well as self check-out machines for supermarkets.

Triton is a subsidiary of Dover (DOV), a conglomerate that owns a portfolio of manufacturing companies. Its manufactures products for the industrial products, engineered systems, fluid and electronic technologies markets.

Wincor-Nixdorf provides Information Technology products to the banking and retail sectors. The company produces ATMs and automated deposit machines for banks as well as software for Internet and telephone banking.^[29]

Voting Machine Competitors

ES&S(Election Systems and Software) has installed a total of 170,000 machines worldwide and played a part in 30,000 elections worldwide.^[30] In November 2006, 67 million votes for the U.S. congressional election were counted on ES&S machines.^[31] The company produces both paper and touch screen voting machines.^[32]

Premier Election Solutions, Inc.(formerly Diebold Election Systems, Inc.) has installed 151,000 machines throughout the U.S. The company changed its name in 2008 in an effort to escape controversy surrounding its voting machines.^[33] In 2004 researchers found its voting machines were flawed and could let one person cast multiple votes in the same election. In addition, the software used in its voting machines was not certified by the government.^[34] Premier also produces paper and touch screen voting machines.^[35]

ES&S and Premier's electronic voting machines can be easily tampered with and only 27 states have laws requiring all electronic machines to have hard copies of each vote, meaning a recount in any of the other 23 states would be impossible.^[36] For example, during the 2004 presidential election a voting machine in a Columbus, Ohio suburb registered over 4,500 votes even though only 638 people cast votes in that area.^[37] Almost 3,900 extra votes were added to Bush's count.^[38] The proven unreliability of electronic voting machines has incited support for a return to more traditional paper ballots.^[39] Both Premier and ES&S have developed electronic voting machines that print out a summary of a voter's choices in an effort to solve the problems inherent in electronic voting machines.

References

1. ↑ UPDATE 1-United Tech CEO: Still awaiting Diebold financials
2. ↑ Diebold Inc. full description.
3. ↑ Diebold Inc. full description.
4. ↑ Diebold Inc. full description.
5. ↑ DBD 2006 10-K. Item 6, Page 43.
6. ↑ DBD 2006 10-K. Item 6, Page 18.
7. ↑ DBD 2006 10-K. Item 6, Page 42, Note 14.
8. ↑ "Diebold Reports 2008 Second Quarter Preliminary Financial Results" BusinessWeek.
9. ↑ DBD 2006 10-K. Item 6, Page 23.
10. ↑ DBD 2006 10-K. Item 6, Page 23.
11. ↑ "Diebold Reports 2008 Second Quarter Preliminary Financial Results" Market Watch.
12. ↑ DBD 2006 10-K. Item 6, Page 43.
13. ↑ The Dragon and Tiger of the ATM Markets: China and India. Report by Celent.
14. ↑ "Diebold Chosen as The Exclusive ATM Provider in Key Beijing Olympic Facilities." MSN Money.
15. ↑ The Dragon and Tiger of the ATM Markets: China and India. Report by Celent.
16. ↑ The Dragon and Tiger of the ATM Markets: China and India. Report by Celent.
17. ↑ The Dragon and Tiger of the ATM Markets: China and India. Report by Celent.
18. ↑ The Dragon and Tiger of the ATM Markets: China and India. Report by Celent.
19. ↑ "NCR chief says consumers driving new self-service movement"
20. ↑ "Diebold Gets Patents For Mobile ATM Technology" InformationWeek.
21. ↑ "ATMs play bigger role in identity theft."
22. ↑ "Diebold Wins Award for Advanced Skimming Detection Technology."
23. ↑ NCR 2007 10-K. Item 6, Page 14
24. ↑ NCR 2007 10-K. Item 6, Page 18
25. ↑ DOV 2007 10-K. Item 6, Page 15
26. ↑ DOV 2007 10-K. Item 6, Page 22
27. ↑ Wincor-Nixdorf 2006-2007 Financial Report
28. ↑ Wincor-Nixdorf 2006-2007 Financial Report
29. ↑ Wincor-Nixdorf At a Glance
30. ↑ About ES&S
31. ↑ About ES&S.
32. ↑ ES&S Products and Services-Voting Equipment
33. ↑ "Diebold to Change Its Name"
34. ↑ "Diebold to Settle with California." InternetNews.com
35. ↑ Products & Services: Voting Equipment
36. ↑ "Dobbs: Voting machines put U.S. democracy at risk"
37. ↑ "Dobbs: Voting machines put U.S. democracy at risk"
38. ↑ "Dobbs: Voting machines put U.S. democracy at risk"
39. ↑ "TrueVote Applauds O'Malley For Funding Transition to Paper Ballot" January 16, 2008