It's a good thing that ATMs and other financial products and services comprise 91% of Diebold's (NYSE:DBD) revenues, because the consternation the company's electronic voting machines engender might eventually put it out of business.
In the just completed third quarter, Diebold saw total revenues grow 17%, on the strength of security products and services revenues, also up 17%. This growth was led by a 14% jump in ATM sales, primarily in Europe, the Middle East, and Africa, where sales were up 23% over last year. While election system revenue grew by 46%, that segment contributes only $61 million, or less than 9%, to Diebold's $703 million total. You can get the rundown on all of Diebold's numbers in this Fool by Numbers article.
And as the congressional elections inch closer, the rhetoric and screeching from those in opposition to electronic voting is ratcheting upwards. Princeton University professor Edward Felton has been leading the chorus of opponents by suggesting that electronic voting machines, and in particular Diebold's systems, can be easily hacked and introduced to viruses that would switch votes from one candidate to another. With Diebold's machines scheduled to be used in 357 counties in 2006, representing 10% of the country's voters, it's a serious charge, but flawed.
Diebold has countered the charge, pointing out that the researchers used an old system, ignored security precautions that are in place with all machines, and introduced a virus to infect a network on machines that are never connected to a network.
Regardless of the charges and rebuttals, however, perception is often stronger than reality. The fact remains that many people are concerned about the security of electronic voting machines and the veracity of the votes cast. If their candidate doesn't win the election, you can be sure blame will be laid on electronic vote-stealing. As if hanging chads, paper ballot stuffing, and registering the dead to vote haven't compromised elections before.
It may be that enough questions will be raised about electronic voting systems to thwart their nationwide implementation, regardless of what the 2002 Help America Vote Act (an act passed in the wake of the 2000 paper ballot Florida presidential election debacle) says. That might also explain why the company is forecasting only 8% to 12% growth in election system revenues for the current fiscal year, following a meteoric 80% jump in 2005. That's still more than the 5% to 7% growth it's estimating in ATM revenues where it competes against NCR (NYSE:NCR), but less than the 15% rise it anticipates for security-related products and services.
Margins improved for the company, rising 120 basis points over last year, as it increased prices primarily in North America, and also found the voting systems to be more profitable. The public may never cast its vote for Diebold's voting machines, particularly when the company manufacturing them is caught up in partisan rhetoric. But so long as they can access their money, there will still be a market for its other equipment.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
