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Arnold M. Knightly

IGT reports lower earnings

21 April 2008

LAS VEGAS, Nevada -- Slot machine giant International Game Technology on Thursday tried to overshadow a disappointing second quarter by announcing an agreement to install server-based networks and products at MGM Mirage's CityCenter.

Results for IGT's second quarter ended March 31 came in below already-lowered analysts' expectations when earnings per share dropped 16 cents from the previous year. North America product sales declined and costs and operating expenses rose.

Reno-based IGT posted net income of $68.4 million, or 22 cents per share, for the most recent quarter, a 46.6 drop from net income of $128.2 million, or 38 cents per share, a year earlier.

Analysts polled by Thomson Financial expected earnings of 34 cents per share in the most recent quarter.

Quarterly revenue fell 6 percent, to $573.2 million from $609.7 million.

"IGT's second-quarter results were challenged by the current market environment," IGT Chairman and Chief Executive Officer TJ Matthews said.

Bear Stearns gaming analyst Joseph Greff said lower international product sales and lower gaming-operations margins accounted for the earnings miss. Product sales in the quarter fell 13.6 percent to $232.2 million from $268.6 million.

Analysts seized on the CityCenter news as a glimmer of hope for the company's long-term growth.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski wrote in a note to investors that the CityCenter announcement "will probably overshadow" the earnings release.

"We believe these are the types of announcements that may start to push IGT shares higher as there are still a lot of server-based doubters," Wieczynski wrote.

Meanwhile, UBS analyst Robin Farley said in a note to investors, "We believe this is the announcement that the industry has been waiting for."

She said the introduction of server-based technology "will lead to a technology-driven replacement cycle" that will begin to affect earnings in 2009 and accelerate into 2010.

The company announced earnings before stock markets opened for trading Thursday. IGT shares fell $2.31, or 6.08 percent, to close at $35.70 on the New York Stock Exchange.