Slots were Stars of Gaming Expo

19 September 2003

LAS VEGAS -- Slot machines were the stars of the Global Gaming Expo trade show that wrapped up Thursday in Las Vegas, but manufacturers have about 18 months to prove their promised potential or their companies' stocks may flag, analysts warned.

Deutsche Bank analyst Marc Falcone said suppliers should continue benefiting from the domestic and international expansion of gaming, the introduction of new technology and favorable demographic trends that support long-term growth in the casino industry.

Merrill Lynch Vice President David Anders agreed that investors love slot makers because "intellectually they make so much sense." However, several analysts suggested the industry has only about a year and a half to prove that new gaming markets will significantly boost their sales or the slot makers could see their stocks tumble.

Slot makers have made large investments in their companies for several years on the promise gaming will proliferate, "and something needs to happen soon or investors will give up and values will fall back" Anders said.

While the Standard & Poor's 500 Index has been flat in the two years since the 2001 terror attacks, shares in Alliance Gaming have soared 200 percent, International Game Technology 160 percent, Shuffle Master 120 percent and WMS Gaming, which temporarily withdrew from the market, 40 percent. The Dow Jones casino index in the same period increased 85 percent.

Falcone also warned: "If gaming expansion does not continue to accelerate in 2004, the group could pull back as current values."

Analysts and insiders are counting on new technology unveiled at G2E and the promise of faster casino proliferation to help slot makers maintain the industry lead they have enjoyed since the terrorist attacks.

International Game Technology finance chief Maureen Mullarkey said her company is investing more than $90 million a year in research and development.

Also, she predicted that chances were good gaming restrictions would be liberalized in California, Maryland, New York and Pennsylvania before the end of 2004, further boosting slot machine sales.

Alliance Gaming accounting chief Steve Des Champs said gaming markets are "poised" for expansion, with 450,000 unit sales likely worldwide in the next three years, compared with 750,000 units already installed.

A study released this week by Deutsche Bank, which assumes gaming will spread domestically, projects an installed base of 1 million slot machines by 2010 in North America alone.

High regulatory barriers that prevent easy entry into the slot machine market and strong pricing power also favor the industry, Falcone said.

"These dynamics should result in solid top-line growth at healthy margins," he said.

Analysts also said earnings continue to look strong but stable with no significant acceleration in sight.

Spokesmen for other slot makers at the Gaming Investment Forum, held in conjunction with G2E, voiced similar optimism.

WMS Gaming finance chief Scott Schweinfurth said because of the combination of market conditions, the manufacturing group stands on the brink of the next growth phase.

Related Links
Global Gaming Expo (G2E) 2003

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