Credit Crunch Blamed For Diebold's 800 Job Cuts

Implications: 2006-2007 has been a transition period for Diebold as it completes an investigation by the SEC and DOJ based on its "bill and hold" method of reporting revenue, which meant a sale was recorded and ownership was given to a customer, however, delivery didn't occur until a later period. After the Office of Chief Accountant advised Diebold regarding its "bill and hold" method, Diebold has adopted a new accounting method and will immediately recognize revenue at the same time a product is delivered to its customers. Diebold began eliminating jobs in 4Q07, when 100 employees received pink slips. Diebold's 2007 revenue is estimated at $2.95 billion, up from an estimated $2.93 billion in 2006. Diebold will restate financial results for 2003-2006 and the first quarter of 2007. As U.S. banks scale back on branch construction and deployment of ATMs due to major write downs in 2007 and more expected in 2008, Diebold is feeling the crunch and plans to scale back its strategic plans for 2008.

Analysis: Diebold is scaling back its strategic plans for its financial self-services and security units as U.S. banks scale back branch expansion and ATM deployments in the midst of a credit crunch and major write downs that occurred in 2007, with more write downs expected in 2008, which has reduced banks capital slush funds. Additionally, projected weak sales with regional banks in 2008 may drive down any growth realized with large national banks and the planned 800 job cuts are expected to occur in the North America, Brazil and Western Europe markets.

1.  Diebold had to contend with French labor unions in 2006 and 2007 and incurred a $5.9 million restructuring cost after it closed its France Plant to move EMEA (Europe/Middle East/Africa) Production Operations to a new facility in Budapest, Hungary to cut production costs

2.  Although Diebold plans to continue its $100 million cost reduction program, Diebold will continue to invest in deposit automation solutions, integrated services and outsourcing capabilities, software offerings, new security markets and IT infrastructure to shore up its global competitive positioning and regain market share

Takeaway:  Diebold has faced competitive pressures, including pricing pressures and technology developments from competitors NCR, Wincor, OKI and Fujitsu, which has led to a decline in global market share and an unfavorable geographic product revenue mix, as international regions continue to grow faster than the North American market which has higher margins. As a result, the faster international growth occurred despite increased pricing pressures in parts of Asia and Europe. Diebold has  opened plants in China and India to meet the demands for ATMs and to compete effectively in those regions and the closure of its France Plant and restructuring of its EMEA Operations will help Diebold cut costs further to meet its $100 million cost reduction plan and to weather the credit crunch banks are facing in the U.S., which may result in flat or declining growth in its financial self-services and security units in 20008.