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IGT ready for a rebound

29 Mar 2011

By Howard Stutz
LAS VEGAS, Nevada -- International Game Technology is picking itself up off the canvas.

The slot machine giant has taken more blows than a punch-drunk fighter over the past two years.

But IGT, which is estimated to control roughly 60 percent of domestic slot machine market, is starting to win over its harshest critics.

The company, which is headquartered in Reno but maintains a large corporate presence in Las Vegas, is proceeding with several initiatives that are designed to ward off the competition and win back the love of the skittish investment community.

IGT's efforts are also geared toward gaining lost market share, despite the continuing nonexistent slot machine-replacement business that has pressured sales on the slot machine industry.

Most analysts praised the products IGT displayed at last November's Global Gaming Expo trade show at the Las Vegas Convention Center.

During IGT's first-quarter earnings conference call in January, Chief Executive Officer Patti Hart said her company's efforts paid off. IGT captured 70 percent of the casino floor in the newly opened Casino Troia in Lisbon, Portugal, and 50 percent on the slot machines at The Cosmopolitan of Las Vegas, which opened in December.

"In both cases, our server-based systems, combined with our games, allow us to help our partners differentiate themselves with the market-leading slot floor," Hart said. "We are confident that opportunities for replacement sales will return. When our customers reinvest in their slot floors, IGT will be there as always with leading products and solutions."

Hart's words are resonating with Wall Street.

The company's share price on the New York Stock Exchange, which hovered around $40 in late 2007 before sinking more than 70 percent over the next 18 months, has since rebounded into the high-to-mid teens. The stock closed at $15.69 on March 23.

Credit Suisse gaming analyst Joel Simkins had a negative opinion of IGT much of the last two years, advising investors to put their money into rivals, including Bally Technologies and WMS Industries.

Lately, Simkins has softened his tone.

He recently hosted several investor meetings in Los Angeles with Hart, who succeeded TJ Matthews as CEO in April 2009.

Simkins believes IGT has the potential to pounce when the replacement market opens up, new jurisdictions come on line, and gaming operations improve.

"We believe management is steering the ship in the right direction as its product quality, service, and culture of doing business are gradually improving," Simkins said. "IGT is doing a better job developing games that players will want to play and that casinos will want to purchase or lease. A strong balance sheet and more than $300 million of annual free cash flow cushion the downside."

IGT spent two years eliminating some 700 jobs and cutting more than $200 million in corporate expenses. Several longtime executives, including Matthews, left the company. Hart has restructured the corporate management with experienced executives from technology firms in California's Silicon Valley.

During the investor meetings, Hart expressed candid views of the gaming industry and IGT's outlook, according to Simkins.

"A company that has been stuck in a particular mindset and culture for decades cannot be changed overnight," Simkins said. "But we believe management has made some significant progress to shake up the organization and reposition IGT for the long term."

Hart told analysts in January that IGT is also focused on the short term. The company and its rivals are watching off-and-on development opportunities in Illinois, Ohio and Canada and preliminary gaming expansion talks in Massachusetts and Texas.

"The time between legislation and revenue for us is so elongated that focusing your work force much on those is really not in the best interest of any of us," Hart said. "We're very focused on making sure we have product to be competitive in the short-term market, in the U.S. and outside the U.S."

Abroad, she said IGT has been active in Italy and Greece.

On March 17, IGT announced a deal with a subsidiary of the California Nations Indian Gaming Association to increase the jackpots offered in the Megabucks-style progressive networks the company uses in the state's tribal casinos.

IGT Chief Operating Officer Eric Tom said the jackpot increases will be "at levels not offered by any other gaming manufacturer."

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