VeriFone Hopes to Counter Worldwide Slump with Security Push

Reduced buying from merchant acquirers, the stock-market downdraft, and currency fluctuations teamed up to take a big bite out of payment card terminal maker VeriFone Holdings Inc.'s latest financials. VeriFone late Tuesday reported a $182 million loss for its first fiscal 2009 quarter ended Jan. 31, and its boss predicts sales trends won't improve quickly. “Our business continued to weaken in the quarter,” chief executive Douglas G. Bergeron said at an analysts' conference call. “We saw across-the-board softening in demand throughout our markets, with only a few notable exceptions.” The biggest hit to VeriFone's bottom line came from a one-time, $178.3 million goodwill impairment charge mostly attributable to the fall of San Jose, Calif.-based VeriFone's stock price in recent months. VeriFone reported a $33.5 million loss a year earlier. On an adjusted basis, the revenue picture looked rosy enough: $214.2 million, up 15.3% from $185.7 million in fiscal 2008's first quarter. But revenues have been falling for six months now; they declined 12.8% from $245.5 million in the fourth quarter. North American revenues of $83.9 million were 10% lower sequentially though still up nearly 24% from a year earlier. “Our U.S. financial business was adversely impacted by an accelerating decline in merchant activations,” Bergeron said, adding that processors, acquirers, and independent sales organizations “were motivated to reduce inventory, and we expect this to continue in the current quarter.” The picture was better in VeriFone's big multilane retail segment, in part because merchants ordered upgraded equipment to meet upcoming security deadlines. Significant new orders came from Safeway Inc., Limited Brands Inc., and RadioShack Corp. The revenue stream from international customers suffered not only because of the worldwide economic slowdown but also because the rising U.S. dollar raised prices anywhere from 10% to 30% on a local currency basis in many countries. Compared with the fourth quarter, first-quarter revenues fell 6% from Asia and in the teens from Europe and Latin America. “We remain disappointed with the revenue environment and somewhat pessimistic about any expectations for near-term improvements,” Bergeron said. For now, VeriFone is concentrating on cost control and laying the groundwork for better times through more sales of highly secure hardware and software. And security, according to Bergeron, means more than just complying with the Payment Card Industry data-security standard, or PCI. Without mentioning specific companies, he noted that hackers have breached PCI-compliant merchants and processors (Heartland Payment Systems Inc. is the latest, Digital Transactions News, Jan. 20.) But when an analyst asked if VeriFone was getting “push-back” from the card networks and processors in implementing technology with stronger security, noting that VeriFone a year ago demonstrated equipment that encrypted data at the point of sale, Bergeron acknowledged that higher security isn't an easy sell. “I think it's not really a push-back, but there's a natural inertia that exists in large enterprise implementations, at large retailers and certainly at processors who run very complex data-processing networks,” he said. But he added that “the need is out there and the solution is very compelling.”