ON FURTHER REVIEW, IGT DOING BETTER

Market share stabilizing in more than one area.

The big takeaways from the following charts are that slot sales are surging and IGT’s installed base and participation share is (finally) stabilizing.  While we liked the slot sector over the near and long term, our concern surrounding IGT was continued declines in their participation share.  That is why chart 2 is so encouraging for our IGT thesis.  The stock is looking pretty washed out here.

Now that Aristocrat has reported, we can confirm that the top 5 manufacturers have shipped 62.4k units to North America.  If we include MGAM, which sold 1.4k units, that gets us to a total of 63.8k.  Our best guess is that the rest of the smaller suppliers (Speilo, Aruze, Ainsworth, etc) shipped a total of approximately 3k units. Tallying up the total gets us to a total of 67k North America shipments in 2011 compared to 63k in 2010.   We estimate that replacement comprised 54.6k of the total shipments to NA vs. 49.4k replacements in 2010 – an 11% increase.

In 2H11, replacements increased 7% YoY to 26.2k.  Almost all the YoY growth in 2H11 occurred in the 3rd quarter, which we estimate had 13.3k replacement shipments and was up 14% YoY while 4Q was up only 1% YoY at 12.9k shipments.

Our estimate for 2012 replacements hasn’t changed much since our last replacement market recap 6 months ago. We believe 2012 will come in at around 59k units with most of the growth back-end loaded, given the tougher 1H comparisons.

ON FURTHER REVIEW, IGT DOING BETTER - SLOT1

The following chart shows our estimate of participation and lease revenue share for the three largest players in the space.  As shown, IGT’s market share has been in a steady decline for almost 7 years since 2004. However, over the last 6 quarters, IGT’s share has been stable to slightly improving.  We view this very favorably.  Growth for IGT and the industry should resume with all of the new markets and casinos opening in the next few years.

ON FURTHER REVIEW, IGT DOING BETTER - slot2

ON FURTHER REVIEW, IGT DOING BETTER - slot3