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The SBG system seems to be having some technological difficulties at CityCenter. We’re also not sure IGT will get its typical new casino market sure.

The casino at CityCenter is expected to open in December of this year.  Our sources indicate there are numerous technological difficulties associated with the Server Based Gaming (SBG) system.  Apparently, the system’s compatibility with non-IGT games has been inoperable.  We’ve also heard from other sources that SBG trials at tribal casinos have lacked functionality.  If so, what exactly would casinos be paying for?

CityCenter would be the most important test yet of SBG.  SBG has long been promised as the future of the slot machine business.  Serious operational issues could further delay widespread SBG implementation by years.  IGT needs to get the house in order quickly by fixing the problems and offerering some meaningful applications.

The second potential issue with CityCenter, as it relates to IGT, is slot market share.  Even as its overall market share has declined, IGT has maintained a 50-60% or so ship share into new casinos and expansions.  Unfortunately, IGT may struggle to obtain a 45% share at CityCenter.

We’ve been on the right side of IGT the last few months and still believe that we are about to embark on an extended slot bull market.  However, the near term looks to be pretty rocky.  IGT will report its fiscal Q3 on Thursday and we, like a lot of investors, think they could miss the Street consensus of $0.18.  Other than potential for new markets (Ohio, video poker in IL and PA, and more casinos in IA), there probably won’t be a lot of positive data points discussed on the conference call.  Given the lack of near-term visibility, we don’t expect strong earnings guidance from the company, either.

As we said in our 7/20 post, the right strategy might be to fade the optimism ahead of earnings.