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Diebold analysts question reasons behind shake-up

Sept. 25, 2005

Alison Grant

Plain Dealer Reporter

 

Diebold Inc. lost almost a fifth of its share value last week after chopping its profit forecast and changing top management for the second time in recent months.

 

Chief Operating Officer and President Eric Evans left the company. Chairman and Chief Executive Walden O'Dell said he would add the responsibilities of COO and president.

 

The shake-up and weaker forecast caught some analysts off guard and left corporate-governance experts questioning whether O'Dell would be wearing too many hats.

 

The Summit County maker of automated teller machines and electronic voting equipment said Wednesday that its third-quarter revenue from ATMs would be $50 million lower than earlier forecast.

 

Voting machine sales will be $10 million less in the third quarter because of delayed deliveries to the hurricane-swept Gulf Coast, Diebold said.

 

Yvonne Varano, with Jefferies & Co., said O'Dell left unanswered questions after his conference call Wednesday with analysts who cover the company.

 

Varano said she wanted more clarity about why regional banks are delaying orders for ATMs - O'Dell said the delay was worst in the Southeast - and a better explanation of what O'Dell meant when he blamed some of Diebold's lowered forecast on "operating inefficiencies."

 

Varano downgraded Diebold to a "hold" from a "buy."

 

O'Dell told analysts that the company would have more explanation for its profit shortfall when it releases third-quarter results Oct. 26.

 

Kartik Mehta, with FTN Midwest Research, an equity research firm in Cleveland, said ATM demand is probably off because community banks have been spending all year to comply with Sarbanes-Oxley, the law to reform financial reporting, and other regulations.

 

At Matrix USA in New York City, Ivan Feinseth said he put a sell recommendation on Diebold last November.

 

Feinseth said penetrating more of the competitive North American ATM market requires getting banks interested in sophisticated ATMs that are far more than cash dispensers.

 

"But they cost more, so you have to show the bank why it's worth it to them," Feinseth said, "and Diebold hasn't been doing that."

 

The company rolled out its Opteva line in the spring of 2003, but getting customers to switch to the new model has proved harder than the company expected.

 

One person, four jobs

O'Dell's decision to take on the job of chief operating officer struck corporate watchdogs as a bad move. The COO oversees day-to-day management of the company, while the chief executive is responsible for big-picture strategy.

 

After executive scandals at Enron and Co., some companies decided to go the other direction, separating even the duties of chairman and chief executive.

 

Carly Fiorina, former CEO of Hewlett-Packard Co., never hired a COO after Hewlett-Packard's left, maintaining that "you can't separate strategy from execution." But her failure to fill the spot is seen as one reason the H-P board fired her in February.

 

"Maybe [Diebold will] get down to a one-person company, then it would be appropriate," said James McRitchie, editor of Corpgov.net. "But I don't think it's appropriate when you're a public company, where there should be transparency and accountability."

 

Sayan Chatterjee, professor of management policy at the Weatherhead School of Management at Case Western Reserve University, said it's very unusual for a chief executive to take on four roles.

 

"I've never seen it in a large company of Diebold's size," he said.

 

Diebold spokesman Mike Jacobsen pointed out Friday that O'Dell held the titles of chairman, president and CEO from 2000 to January 2004, when Evans was hired.

 

"We've got great depth in leadership at Diebold," he said.

 

Speculation hits Web

The news about troubles at Diebold also hit online opinion sites where voting-rights groups long have criticized what they say are security problems in Diebold's voting equipment.

 

U.S. Newswire carried a release saying that a whistle-blower, "Dieb-Throat," was spilling the beans on practices at the company.

 

The insider, when contacted by a reporter, described a company groping to get its voting-equipment business stabilized after a series of equipment malfunctions and sales setbacks.

 

"We have no response to that kind of nonsense," Jacobsen said.

 

Diebold shares closed Friday at $36.15, down 18.5 percent from Tuesday's close.

 

To reach this Plain Dealer reporter:

 

agrant@plaind.com, 216-999-4758

 

 

2005 The Plain Dealer

2005 cleveland.com All Rights Reserved.

 

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