http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2006-11-06T205209Z_01_N06268397_RTRIDST_0_FINANCIAL-DIEBOLD-VOTINGMACHINES.XML

Reuters

Diebold voting machine business should go-analysts

Mon Nov 6, 2006 3:52 PM ET

By Dan Wilchins

NEW YORK, Nov 6 (Reuters) - Diebold Inc. <DBD.N> voting machines generate intense controversy but little revenue, a sign that the company should sell that business to focus on its main automated teller and security operations, some analysts say.

Diebold's voting systems, once touted as a way to avoid a repeat of the 2000 Florida election debacle, have come under fire from critics who question their vulnerability to tampering, and are again in the spotlight ahead of Tuesday's closely watched U.S. mid-term elections.

Diebold, a safe and ATM maker, got into the elections business in 2002.

At the time the business looked promising as states sought replacements for decades-old technology that played a big role in the disputed elections that U.S. President George W. Bush ultimately won.

But voting machines have proven a tough way for Diebold to make money, as computer scientists have found security flaws and lawsuits have rained on the company, all from a business that generated less than 6 percent of the safe maker's revenue in 2005.

"They shouldn't own the business, but they haven't gotten around to selling it. Every time there's a lawsuit, the brand could be hurt," said Gil Luria, analyst at Wedbush Morgan Securities in Los Angeles, on Monday.

Diebold spokesman Mike Jacobson said the company is always evaluating which businesses it should be in.

The 2004 elections wreaked havoc on Diebold's reputation, when then-Chief Executive Walden O'Dell openly raised money for President Bush and said in a fund-raising letter that he was "committed to helping Ohio deliver its electoral votes to the president."

O'Dell resigned in 2005, but critics have continued to slam the machines' security against tampering.

In September, computer scientists at Princeton University published a paper explaining how the computers could be modified to steal vote data or change votes, and a recent HBO documentary raised questions about the Canton, Ohio-based company's systems.

Diebold said the HBO report was riddled with factual errors, and generally says its voting systems are safe, accurate and secure when properly administered.

Questions about the machines' security have spurred lawsuits, some of which are still pending, and one of which Diebold settled in 2004 for $2.6 million.

LAWSUITS UNLIKELY

Analysts said last week that lawsuits are unlikely after Tuesday's elections, because mid-term congressional races attract less attention than presidential ones. But a new round of litigation could loom in 2008, analysts said.

If Diebold did sell its voting machine business, the most likely buyer would be a private company with the stomach to nurse the technology into maturity, analysts said.

One analyst who asked not to be named estimated the business could sell for about $150 to $200 million.

Not everyone is convinced selling the voting machine operations makes sense now.

"That business could really grow. Why give the growth to someone else?" said Harrison Grodnick, senior portfolio manager and principal at Minneapolis Portfolio Management Group in Minneapolis, which owns Diebold shares and has about $500 million under management.

The company has sold voting systems in the United States and Brazil, and other countries may also sign on.

It may be best for a private company to bear the risk to its reputation while developing this business, Wedbush Morgan's Luria said. "The U.S. probably needs these machines, but they're not perfect yet."