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Software timing remains the quarterly issue but if your time horizon is beyond 3 months, do you really care?



We are very bullish on the long-term fundamentals in the slot sector space.  Now that earnings calendar 2011 earnings estimates now appear achievable and beatable, we are not as concerned with the timing of the acceleration of replacement demand, and importantly for BYI, the quarterly timing of software shipments.  BYI may be the best positioned of the three big US slot suppliers because:

  • Unlike IGT, BYI should be a long-term participation game market share gainer
  • Quarterly ship share should increase sequentially at the expense of WMS
  • BYI maintains the highest valuation upside

We must admit that we have low confidence in Wednesday’s quarter announcement.  Not that we are predicting a miss – we’re actually above the Street.  However, software sales is always the wild card.  We don’t believe there will be any surprises in the core metrics other than software, but that shouldn’t be more than a timing issue.


We’re 2 cents ahead of the Street for the quarter and about 10 cents higher for the year.   We project BYI to post $190MM of revenue and EPS of $0.48 when they report F2Q11 results next Wednesday after close.  We don’t expect there to be a whole lot of news on the replacement front.  The consensus from our conversation with operators is that replacements should be flat to up moderately this year.



  • Product sales of $61MM with gross margins just shy of 50%
    • NA units of 2,600 and 1,000 international shipments
      • 2,250 replacement units and 350 new units (including some units to Cosmo)
    • ASPs of $15k
    • Other product sales flat YoY
  • Systems revenue of $50MM at a gross margin of 72.5%
  • Gaming operations revenue of $78MM at a gross margin of 72.6%
  • Other stuff:
    • SG&A: $54MM
    • R&D: $22MM
    • D&A: $5MM
    • Net interest expense: $2.2MM
    • Tax rate: 33% (R&D tax credit)

The Week Ahead

The Economic Data calendar for the week of the 31st of January through the 4th of February is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - lac1

The Week Ahead - lac2

Bearish: SP500 Levels, Refreshed



We had this right in November. We had it dead wrong in December. We are waiting for January to end.


Managing globally interconnected risk doesn’t happen in a vacuum. Globally, inflation is accelerating. Domestically, US Consumption has slowed materially in January versus December and that, alongside real-time inflation pressures, is why US Consumer stocks are underperforming.


We just covered our short position in Consumer Discretionary (XLY) because, at down -3.1% on the day, it’s immediate term oversold. If you’re looking for a line where we’d cover our SPY position, 1275 could be it. That would be our immediate-term TRADE view from here. If 1275 doesn’t hold, our intermediate-term TREND line of support remains all the way down at 1215.


From a long-term TAIL perspective, much like equities in Japan, all US Equities are doing here is debating where they’ll finally make their lower-high.


What was immediate term TRADE support this morning is now resistance at 1290. So 1 should provide some bearish fodder for the bulls to consider. Remember, consensus is still that US growth is “back” and that the SP500 is going to be up double digits in 2011.



Bearish: SP500 Levels, Refreshed - 3

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