VeriFone Banks on a Looming Upgrade Market in the U.S. And Canada

China, India, and other high-growth payments markets get a lot of attention nowadays, but leading U.S.-based payment-terminal marketer VeriFone Holdings Inc. still sees plenty of opportunity close to home. San Jose, Calif.-based VeriFone's aggressive focus on North America comes even as its pending acquisition of Israel-based rival Lipman Electronic Engineering Ltd., which has strong market share in Europe and Asia, heads for a planned Nov. 1 close. VeriFone on Thursday reported that operating income, which excludes certain amortization and stock- and debt-related expenses, rose 49% to $33.4 million for its third fiscal quarter ended July 31 from $22.4 million in the year-earlier quarter. Net income was $16.8 million, an increase of 156% from $6.5 million a year earlier. Revenues grew 17% to $147.6 million from $125.7 million in the 2005 period. Chairman and chief executive Douglas G. Bergeron said at a late-afternoon analysts' conference call that he foresees no problems in closing the Lipman deal by Nov. 1, even though it still needs U.S. Department of Justice antitrust clearance and approval of both companies' shareholders. Bergeron expects word from the DoJ any time, and shareholder meetings are scheduled for mid-September. The nearly $800 million deal will bring to VeriFone Lipman's strong wireless-terminal business and sizable presence in such markets as China, India, the United Kingdom, and Spain. According to Bergeron, Lipman is No. 1 or No. 2 in all of its markets outside the U.S. (Digital Transactions News, April 10). With Lipman about to expand VeriFone's overseas footprint, Bergeron still sees plenty of fertile fields in the U.S. and Canada. Asked by an analyst about the U.S. upgrade opportunity from traditional dial-up terminals to Internet Protocol (IP) systems that provide for faster transaction times and more features, Bergeron said, “We're told by the people who are paid to count this stuff that the vast majority of the U.S. payment marketplace outside of big-box retail and grocery is still predominantly dial-up.” He estimates that's about 20 million units, half currently VeriFone. “Call it five or six billion dollars, it's a lot of money,” he said. In his prepared remarks, Bergeron also highlighted Canada, a stronghold of France-based rival Ingenico. VeriFone started a major drive in Canada only in 2004, when that country generated $4.6 million in revenues for VeriFone. In fiscal 2006's third quarter alone, sales were $5.4 million. “We are enjoying phenomenal success in a growing market,” Bergeron said. In large part because of Canada's planned shift to chip-based payment cards beginning next year, Bergeron said opportunities exist to upgrade 570,000 systems. Bergeron also claimed VeriFone's MX870 system has won eight of nine big orders since mid-2005 for multifunction, full-color touchscreen payment systems that comply with Payment Card Industry (PCI) security standards. Customers include Walgreen's, Disney Stores, American Eagle, Hobby Lobby, and PetSmart, among others.