E-Voting Boosts Earnings Despite Hacking Concerns

Nov. 6, 2006 — -- Disaster is often an opportunity for building a great business. For the industry leader in electronic voting, the calamitous 2000 Presidential election provided an opportunity to earn hundreds of millions of dollars, but not without controversy.

Back in 1871, Chicago's Great Fire burned the city to the ground leaving its residents with nothing. Homes and businesses burned, lives and vital records left smoldering in the ashes.

But that moment of loss was a moment of opportunity for the Diebold Company. Hundreds of safes bearing the Diebold name survived the inferno with their contents intact, tempering the brand with a reputation for safety, security and ruggedness.

More than a century later a disaster of another kind seemed to offer an opportunity to Diebold. The Florida "hanging chad" debacle left a presidential election in question and focused the country on the task of finding a better way to vote.

In 2000, Diebold supplied Brazil with a $100 million electronic voting system, and that country's election went off without a controversy. The system worked, and company officials believed Diebold was ready to grab a big part of the billions that would be invested in upgrading the U.S. system.

Six years later the company has become the leading player in a growing market for electronic voting systems. The company's election division earned nearly $200 million in its most recent fiscal quarter, and Diebold's stock price currently lingers near its 12-month high.

Despite continued concerns from politicians, election supervisors and academics about glitches and the possibility of hacking into electronic voting systems, a surge in demand during the last five years has grown the industry and made e-voting a very profitable enterprise.

So why do some observers expect Diebold to leave the voting business altogether?

Soon after the 2000 election, Congress weighed in on the need to improve the country's voting systems. It passed the Help America Vote Act of 2002, which committed federal dollars to help states and localities upgrade outdated systems. According to officials at the United States Election Assistance Commission, more than $3.1 billion has been spent on new voting systems and training since then.

Diebold's experience building ATMs had earned the company billions, and electronic voting seemed similar enough to make it a logical extension of its efforts.

Diebold aggressively pursued the market, buying a Texas firm and quickly rolling out a touch-screen voting system, called AccuVote that made it the largest publicly-traded player in the election systems market in the U.S.

Its main rivals, Sequoia Voting Systems and Election Systems & Software, are niche private firms that don't have other ongoing business that generate the money to fund a big sales force or research and development. So their ability to quickly roll out and sell to thousands of local election commissions was limited compared to Diebold.