WMS: TAKEAWAYS FROM IGT

From IGT’s conference call:

Analyst question: Why were domestic product sales better than I expected?
My answer: Because you don’t do the work.

Industry unit sales were up around 40% in the December quarter based on our exhaustively detailed schedule of new casinos and expansions. Clearly, the sell side doesn’t maintain this incredibly useful database.

All the slot guys will have a strong December quarter in terms of slot sales. I was actually very happy to hear this question because if the analysts didn’t know that Q4 slot sales were going to be good, then they certainly don’t know that 1H CY2009 slot sales will be awful. We project industry unit sales to new and expanded casinos to fall 40% and 70% in FQ1 and FQ2 2009, respectively.

Yeah but replacement demand is facing an easy comp from 2008 so that will pick up some of the slack, right? Wrong. IGT’s CEO, TJ Mathews, clearly stated that industry replacement demand will be lower in 2009 than 2008 due to capex cutbacks by the operators.

So with these industry dynamics, how does WMS meet the 10% revenue growth projections? More market share gains? WMS market share would have to almost double from its recent 15-20% to make the consensus revenue projections for 1H CY2009. WMS market share has actually trended lower the last 2 quarters. How about gaming operations? Slot play is trending lower, not higher, due to the economy. I wouldn’t bet on gaming ops beating consensus expectations.

IGT’s quarter essentially confirmed our thesis that slot sales, while strong in Q4 CY2008, will be down considerably in 1H CY2009. This is not good for WMS.


How does WMS grow revs 10% in 1H CY2009 in this environment?
What have you done for me lately?

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