Reply #1: OH: Diebold looking to shed its criticized elections equipment division [View All]

[freedomfries]

Diebold may exit race
Green company might be looking to shed its criticized elections equipment division

M.R. Kropko AP
Akron Beacon Journal, OH
March 6, 2008
Re-Post
http://www.ohio.com/mld/beaconjournal/business/16842805.htm

Diebold Inc. saw great potential in the modernization of elections equipment. Now, analysts say, executives may be angling for ways to dump its e-voting subsidiary that's widely seen as tarnishing the company's reputation.

Though Diebold Election Systems -- the company's smallest business segment -- has shown growth and profit, it's faced persistent criticism over the reliability and security of its touch-screen voting machines. About 150,000 of its touch-screen or optical-scan systems were used in 34 states in last November's election.

The criticism is particularly jarring for a nearly 150-year-old company whose primary focus has long been safes and automated teller machines.

``This is a company that has built relationships with banks every day of every year. It pains them greatly to see their brand tarnished by a marginal operating unit,'' said Gil Luria, an investment analyst who monitors Green-based Diebold for Wedbush Morgan Securities Inc.

In the calm after the November midterm elections, Tom Swidarski, Diebold's chief executive officer, told analysts in a conference call that the company plans to announce its long-term strategy for the elections unit early this year.
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Diebold indicated it still is ``vulnerable to these types of challenges because the electronic elections systems industry is emerging.'' The report also mentioned inconsistency in the way state and local governments are adapting to federal requirements for upgrades in voting technology.

More changes in the voting laws could further hurt business, the filing said.

Diebold spokesman Mike Jacobsen said that whenever Diebold evaluates one of its businesses, it looks for growth, profitability and characteristics that make it a long-term strategic fit.

Jacobsen would not say when the announcement about the subsidiary's future may come.

``I imagine at this point it's a question of whether have they found a private equity buyer yet or are they about to announce they are going to look for one,'' Luria said. He did not speculate on who that might be.

Diebold headaches have abounded.

Some of its voting machines have been criticized for lacking a voter-verified paper trail for post-election audits. Last summer, the Open Voting Foundation issued a report alleging that Diebold touch-screen functions can be changed with the flip of an internal switch. Activists have found source code online. And there have also been numerous lawsuits and leaked internal memos.

FTN Midwest Securities analyst Kartik Mehta wonders if a business that has been a lightning rod for criticism is worth it. He said Diebold leaders need to decide ``if that negative publicity is hurting them in selling products to financial institutions, security products to government or any of their other customers.''

Diebold jumped into e-voting in 2002, when it acquired Global Election Systems. It had some prior experiences with electronic voting through its Procomp business in Brazil.

The elections business was good for 8 percent of Diebold revenue and about 12 percent of profit last year, but some of that was from Diebold's voting and lottery contracts in Brazil.

By comparison, the ATM segment produced about 65 percent of the company's revenue and 63 percent of profit in 2006. Safes have evolved into Diebold's second-biggest segment, now called ``security solutions.'' It makes various devices and systems for business and government security. Last year it gave Diebold about 27 percent of its revenue and 25 percent of its profit.
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Diebold has always defended its voting machines and its own intentions, even after its former chairman and chief executive, Wally O'Dell, sought with little success to convince critics his strong ties with Republican politics as a fundraiser for George W. Bush were not the motive for the company's involvement in elections.

O'Dell resigned in 2005 and was replaced by Swidarski, who had been the company's president and chief operating officer. His main focus has been on expanding international business for ATMs, a less public business.

Voting machine makers such as Diebold; Election Systems & Software, of Omaha, Neb.; Sequoia Voting Systems, of Oakland, Calif.; and Hart InterCivic, of Austin, Texas, have had the federal Help America Vote Act of 2002 as a sales catalyst. That act had $3.9 billion of funding.

Kimball Brace, who closely tracks voting system vendors as president of Washington-based Election Data Services Inc., said there is uncertainty now, a result of possible legislation setting new requirements with no promise of additional funding.
http://www.ohio.com/mld/beaconjournal/business/16842805.htm