US slot machine sales in a lull -IGT CEO-INTERVIEW-UPDATE 1

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Saturday September 04, 2010 05:19:17 AM GMT

* Slot sales wane as casinos pull back on spending

* Focus is on cost controls, slot machine bells & whistles

By Deena Beasley

LOS ANGELES, Sept 3 (Reuters) - International Game Technology <IGT.N> Chief Executive Officer Patti Hart, a one-time Silicon Valley executive, now lives on the Las Vegas Strip, within earshot of the slot machines on which the company's fortunes rest.

Slot sales have slowed amid a recession that has caused gamblers to hold on to their wallets and 30-year-old IGT does not expect a significant rebound before 2012.

Hart was tagged as CEO at the world's largest slot-machine maker, where she was already a director, in April 2009, shortly after the company's shares dipped below $8.

"Before I joined the board six years ago I had never heard of them," she told Reuters in an interview on Thursday. Earlier in her career Hart led Sprint's long distance division and was CEO at information technology firms Telocity and Excite@Home Inc, which ended up filing for bankruptcy.

Shares of IGT, which is based in Reno, Nevada, now trade around $15.40 -- down about 18 percent year-to-date.

CASINO SPENDING SEEN CAPPED THROUGH 2011

Hart expects IGT's casino customers to bump up their capital spending next year as consumer confidence edges higher, "but probably not to the levels that would impact our business dramatically."

IGT earns money on sales of slot machines and equipment, but also collects revenue from some machines based on how much money they pull in from gamblers.

The company, with a market cap of around $4.6 billion, is expected to log revenue of just under $2 billion for its fiscal year ending in September, according to analysts polled by Thomson Reuters I/B/E/S.

Global growth in slot machine sales has been fueled over the past decade by new casino openings, "but that has slowed dramatically. We are now fighting for replacements on floors that already exist," Hart said.

Slot machine makers have been buoyed by the approval of gambling in states like Ohio and Illinois, where politicians have looked to the industry to boost depleted tax coffers, but actual slot purchases take some time.

"A lot of new jurisdictions have approved gaming, but nothing has been deployed yet," Hart said.

Meanwhile, IGT has lost market share during the economic downturn as smaller, more agile competitors like WMS Industries Inc <WMS.N> sensed opportunity.

"They choose one niche in a broad product portfolio and pound away at your niche," Hart said. "There is a short-term impact on market share, but it forces you to be a better company."

She said IGT has retooled to focus on controlling costs and developing new game content.

"We are finding that patrons, particularly the younger generation coming up, are used to multitasking, being less focused," the CEO said. "To have what I would consider to be a bit of chaos in the game is starting to become important."

IGT has introduced games with 3-D technology and more complex versions of slots with themes like "Sex and the City."

The company announced a year ago plans to cut annual costs by $200 million.

Operating margins came in at 24.4 percent in the quarter that ended June 30 -- still short of IGT's target of 30 percent.

"We are not there yet. We have another year ahead of us," Hart said.

She does not expect increased price competition between casino game manufacturers.

"As new games enter, pricing kind of goes back up," Hart said. "Dropping the price doesn't drive incremental demand, because the return on the machine is quick."

IGT in July narrowed its outlook for fiscal 2010 earnings per share, but the range still fell short of Wall Street estimates, leading some equity analysts to lower their ratings on the stock.

Hart sees future growth in four areas: an improving general economy; expansion within existing geographies; casino openings in states like Ohio, as well as in Italy and Greece; and growth in new media -- such as online casinos, which are banned in the United States, but flourish in many overseas markets.

The company is also a leader in the development of server-based gaming, heralded for several years now as the next big advance in gambling technology. It allows casinos to download the latest games from a central server onto individual machines.

"Growth in everything but expenses is my goal," Hart said. (Reporting by Deena Beasley, editing by Matthew Lewis)

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