Thursday, September 2, 2004

Diebold Learns What Edison Knew: Voting Machine Sales Are Tough

By Bob Drummond, Bloomberg News U.S., September 1, 2004


Diebold Inc. got off to a fast start in the voting machine industry. After almost 150 years of making safes, bank vaults, jailhouse doors and, more recently, automated teller machines, Diebold bought Global Election Systems Inc. and its AccuVote line of computerized voting terminals in 2002.

In a little more than three months, Diebold snared the biggest U.S. voting machine contract ever: a $54 million deal with the state of Georgia. ``It was successful beyond our wildest dreams, initially,'' says Diebold Chief Executive Officer Walden O'Dell, 59.

As the 2004 elections near, the euphoria has faded. Computer security experts at Johns Hopkins University in Baltimore and Rice University in Houston say Diebold's touch-screen voting machines are vulnerable to vote rigging; security concerns and operating flaws have led to a ban on their use in November in parts of California and Ohio.

Diebold's election system sales are headed for a second straight drop, to a company forecast of $75 million to $85 million, from $100 million in 2003 and $111 million in 2002.

Diebold, based in North Canton, Ohio, learned that it's tough in the U.S. to profit from elections -- a market that has bedeviled entrepreneurs since Thomas Edison tinkered with vote- counting machinery in the 1860s. ``We walked into a minefield,'' O'Dell says.


Diebold shares have fallen 9.2 percent this year, compared with a 0.1 percent gain for the S&P Midcap 400. The decline came even though ATM sales and services, which account for 70 percent of Diebold's revenue, rose 16 percent during the first half of 2004.

Share prices didn't fall because of the company's financial performance, says Don Taylor, who manages $1.8 billion, including 524,000 Diebold shares, in the Franklin Rising Dividends Fund in Fort Lee, New Jersey. Investors are selling Diebold shares because the company makes touch-screen voting machines, he says.

``The voting machine business has been a disappointment since they got into it,'' Taylor says. ``I'd like to see them sell the business, personally, though I highly doubt that's going to happen.''

`A Crisis'

O'Dell, known as Wally, says he has no intention of selling the unit. He says he wants to help the U.S. solve a serious problem, not to help mischief makers fix elections. ``The country had a crisis,'' O'Dell says, sporting a navy blue tie spotted with U.S. flags.

``It was instantly apparent to me that we could help, that there was going to be money spent on the problem and that it was synergistic with what we were doing,'' he says. Diebold plans to stick with the voting machine unit regardless of profit, O'Dell says.

``They got more than they bargained for,'' says Kimball Brace, president of Election Data Services Inc., a Washington, D.C.-based consultant on voting equipment. ``A lot of people suddenly came into this market thinking, `Hey, let's get some of all this federal money they're going to spend.' And they found out this is a very demanding business.''

Profits from a hoped-for boom in voting machine sales after the 2000 election crisis have been elusive at other companies as well.


The industrial age introduced mechanical voting machines. Those are the booths in which voters click levers to make their selections. After New York State amended its constitution in the 1890s to permit the debut of the lever-action machines, faith in new technology helped drive their acceptance.

``Should the tally of voters who entered the booth kept by the election inspectors and poll clerks not agree with the machine, the conclusion would be that fallible man was mistaken, and that the machine's record was accurate,'' Scientific American magazine reported on Nov. 24, 1894.

Punch-Card Ballots

Computers came onto the scene in the 1960s, after Joseph Harris, a political science at the University of California in Berkeley, came up with the idea of a voting machine that put holes in punch-card ballots that could be counted automatically.

The Harris Votomatic was first used in 1964 in California, Georgia and Oregon, according to a 1980 oral history interview with Harris, who died in 1985. International Business Machines Corp., which developed the punch card for other computer uses, bought the Votomatic company and stayed in the field only briefly.

It sold the rights in 1969 because voting machine makers were inherently targets of controversy and complaint, Harris said. ``All candidates believe that they are going to win, and if a new system is tried out, they will explain their failure to be elected by saying it was because the machine failed to function properly,'' he said.


O'Dell may be right that citizens want new voting machines, but one thing that hasn't changed since Thomas Edison invented his vote counter is that it's tough to make voting in a democracy more efficient -- and make a profit doing it.

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