E-voting profits no pot of gold

By Alec Rosenberg, San Mateo County Times, June 12, 2004



Excerpts:



Electronic voting looked to be a gold mine for vendors after the hanging chad fiasco of the 2000 presidential election led the U.S. government to set aside a few billion dollars to pay for new voting machines.



But the business has yet to deliver on the bottom line, bogged down by politics, reliability problems and a growing concern about security, highlighted by leading vendor Diebold's problems in California, where the Secretary of State banned its machines in four counties.



Even vendors that have avoided Diebold-style controversy are finding it difficult to reach profitability.



Oakland's Sequoia Voting Systems, the No. 2 e-voting vendor, said its sales rose 75 percent last year to $81 million, but margins fell and it had a $3.5 million operating loss.



Parent company De La Rue, based in England, took a $23 million goodwill write-down on the Sequoia business and expects Sequoia's losses will increase this year.



A London Times Online report last week said a broker suggested caution after De La Rue's new Chief Executive Leo Quinn "may consider the closure of Sequoia, its loss-making U.S. electronic voting business."



Sequoia refuted the closure report, saying it was supposition from an analyst.



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The company remains committed to e-voting, but Graham acknowledged it is a tough business.



"This industry has been in turmoil," Graham said. "Who would have ever anticipated the series of events as they unfolded?"



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The U.S. e-voting machine market is led by Diebold with sales of about 55,000 e-voting machines (18,000 in California), Sequoia with



50,000 (14,000 in California) and closely held Election Systems & Software with 35,000 (440 in California).



Diebold Elections Systems' 2003 operating profit dropped 32 percent to $6.4 million as revenue fell 10 percent to $100 million, and the firm significantly scaled back its 2004 election systems revenue and profit projections.



Diebold and Sequoia are each part of profitable, billion-dollar-plus companies that focus on cash and security.



In May 2002, De La Rue paid up to $35 million for an 85 percent stake in Sequoia, which has more than 100 employees in seven U.S. locations. De La Rue attributed Sequoia's operating losses to "intense price competition over the last 18 months with unit prices falling by an average of 25 percent" and cited the "uncertain legislative environment and political resistance." Sequoia's biggest test may come in September, when it debuts 3,500 machines in Nevada with paper printouts.