Terminal Kingpin VeriFone Doesn’t See a Turnaround Until 2010

Largely confirming what it projected in late November, point-of-sale terminal provider VeriFone Holdings Inc. says North American business from independent sales organizations and merchant processors was off in the fiscal fourth quarter ended Oct. 31, and prospects for fiscal 2009 aren't much better. San Jose, Calif.-based VeriFone eked out a 2.8% increase in net revenues, $244.7 million compared with $237.9 million in fiscal 2007's last quarter. But, thanks mostly to a $285.7 million impairment charge for writing down goodwill and intangible assets, VeriFone posted a $362.5 million net loss compared with an $18.9 million profit in the year-earlier period. North America is VeriFone's weak spot, with net revenues off 16% in the fourth quarter. International revenues grew 20%, mostly due to strength in emerging markets. In a conference call late Tuesday with analysts, chairman and chief executive Douglas G. Bergeron said business from VeriFone's financial-services unit that sells to processors and ISOs in North America is down, echoing what he said just before Thanksgiving (Digital Transactions News, Nov. 24). “Clearly this market is heavily dependent on the rate of new store openings, which is down significantly from previous years,” he said. “New stores and restaurants are simply not being opened, and shopping centers and strip malls are not successfully replacing stores that close their doors in this recession.” Another indicator of the weak market is VeriFone's sales of wireless terminals. Wireless units accounted for only 24% of worldwide sales in the fourth quarter compared with 30% in the third “as the recession disproportionately affected restaurants,” said chief financial officer Robert Dykes. Restaurants are a key market for mobile terminals as they embrace pay-at-the-table transactions, but consumers aren't eating out as much lately. Near-term prospects for special terminals for taxicabs are better, according to Bergeron. VeriFone's multilane segment that serves large national retailers is holding up better than the financial-services unit, though it too is struggling with the soft economy and store closings. Customers, however, are upgrading POS terminals and related systems to comply with the Payment Card Industry data-security standard, or PCI. “We won a number of major national chain deals in the quarter,” Bergeron said without identifying any customers. Bergeron said VeriFone's “most promising opportunity” in North America lies with its petroleum segment, which sells specialized POS systems to gas stations/convenience stores. Petroleum retailers are retrofitting gas pumps to meet the card industry's so-called Triple DES, or Data Encryption Standard, security mandates by July 2010. The petroleum segment currently accounts for 8% to 9% of VeriFone's business?some 95% of that generated in the U.S. and Canada?down from a historical average of 12% to 13% because of high gas prices and jobbers' problems in getting credit this year. Bergeron expects the petroleum segment to return to its earlier average in fiscal 2009. For fiscal 2008, VeriFone posted net revenues of $921.9 million, up 2.1% from $902.9 million in 2007. Largely because of the fourth-quarter impairment charge, VeriFone reported a net loss of $421.2 million compared with a loss of $34.1 million in 2007. Bergeron indicated that more impairment charges could be forthcoming. VeriFone is predicting revenues of $920 million to $1.0 billion in fiscal 2009, with most growth coming from overseas. “To be candid, I believe our markets have weakened further since our last conference call,” he said. “I do not yet see the light at the end of the tunnel and it could very well get worse before it gets better.” Still, he predicted the company would fare better than its competitors and would “come out of 2009 a learner, stronger business.”