E-Voting Boosts Earnings Despite Hacking Concerns

And then Diebold's political partisanship came into question. While the company worked on upgrades and redesigns, Diebold's CEO Walden O'Dell was sending out fundraising letters in 2003 telling Ohio voters that he was going to "help Ohio deliver its electoral votes to the President."

Democrats quickly seized on the letter as proof that Diebold's opaque, touch-screen systems were somehow rigged to favor Republican candidates.

The political complaints didn't affect the widespread use of AccuVote in the 2004 election, but the letters may have cost O'Dell his job. Two years later the Diebold board of directors forced O'Dell out, replacing him after the election unit started turning a profit.

And the politic attacks may have taken a toll that's hard to measure in dollars -- the company's once sterling reputation has been damaged by controversy.

"If this leadership in the company had a choice they would not have gotten into the business in the first place, for sure," said Gil Luria, research analyst, for Wedbush Morgan Securities. "Diebold has worked 150 years to build a great brand for physical security, and over the last two years it's seen that brand erode substantially because of this business."

Despite Controversy, Earnings Boosted

But the damaged reputation hasn't hurt revenues. Even with the controversy, the company's election division is profitable, contributing about $180 million in sales to its most recent quarterly results. Sales of AccuVote account for only 8 percent of the company's overall sales, with ATMs and security systems making up the vast majority of revenues.

The money is likely to continue rolling in during the coming years because only a third of the nation's voters will use electronic voting systems for this year's election. Experts say governments around the country will likely invest another $3 billion on electronic voting systems in the coming years.

But Diebold's No. 1 spot in the market and profitability probably will not be enough to keep the company in the elections systems business. Analysts say it would not be surprising to see a spin-off in the months after this midterm election.

"It's a profitable business, and any profitable business somebody is gonna want to own," said Luria. "And in this case it's much better off in private hands -- maybe a private equity firm -- managing it for cash flow, because there's still cash to be made in this business over the next few years."

Analysts say that even if Diebold succeeds in selling its election unit for $100 million, it will be considered a costly diversion from the core business that made company the bulk of its money, not to mention its reputation for security.

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