OVF Cited in Diebold Election Systems List of Woes

From: Alan Dechert <dechert_at_gmail_dot_com>
Date: Mon Mar 05 2007 - 17:45:26 CST

I went to the bank today (US Bank) and used a new Diebold ATM to make a
deposit. I've never seen such a nice ATM. It asked me if I wanted a
receipt.

You know how the usually have a bin with envelopes for deposits, and there
are usually empty envelopes strewn all over the place. Not here. This
machine prompted me saying, "do you need an envelope?" I pressed "yes" and
it handed me an envelope.

Worked real nice.

Poor old Diebold. They should stick with ATMs.

"Open Voting Foundation issued a report alleging that Diebold touch-screen
functions can be changed with the flip of an internal switch.Open Voting
Foundation issued a report alleging that Diebold touch-screen functions can
be changed with the flip of an internal switch."

http://hosted.ap.org/dynamic/stories/D/DIEBOLD_VOTING?SITE=WIRE&SECTION=HOME&TEMPLATE=DEFAULT

Mar 4, 3:29 PM EST

Diebold Weighs Strategy for Voting Unit

By M.R. KROPKO
AP Business Writer

CLEVELAND (AP) -- Diebold Inc. saw great potential in the modernization of
elections equipment. Now, analysts say, executives may be angling for ways
to dump its e-voting subsidiary that's widely seen as tarnishing the
company's reputation.

Though Diebold Election Systems - the company's smallest business segment -
has shown growth and profit, it's faced persistent criticism over the
reliability and security of its touch-screen voting machines. About 150,000
of its touch-screen or optical scan systems were used in 34 states in last
November's election.

The criticism is particularly jarring for a nearly 150-year-old company
whose primary focus has long been safes and automated teller machines.

"This is a company that has built relationships with banks every day of
every year. It pains them greatly to see their brand tarnished by a marginal
operating unit," said Gil Luria, an investment analyst who monitors Diebold
for Wedbush Morgan Securities Inc.

In the calm after the November midterm elections, Tom Swidarski, Diebold's
chief executive officer, told analysts in a conference call that the company
plans to announce its long-term strategy for the elections unit early this
year.

Swidarski declined an interview request to shed more light on the voting
segment's future.

But in an annual report filed last week with the Securities and Exchange
Commission, Diebold's discussion of its election systems business pointed
out various ongoing concerns. Diebold acknowledged that complaints about its
voting products and services have hurt relations with government election
officials.

Diebold indicated it still is "vulnerable to these types of challenges
because the electronic elections systems industry is emerging." The report
also mentioned inconsistency in the way state and local governments are
adapting to federal requirements for upgrades in voting technology.

Further changes in the voting laws could further hurt business, the filing
said.

Diebold spokesman Mike Jacobsen said that whenever Diebold evaluates one of
its businesses, it looks for growth, profitability and characteristics that
make it a long-term strategic fit.

Jacobsen would not say when the announcement about the subsidiary's future
may come.

"I imagine at this point it's a question of whether have they found a
private equity buyer yet or are they about to announce they are going to
look for one," Luria said. He did not speculate on who that may be.

Diebold headaches have abounded.

Some of its voting machines have been criticized for lacking a
voter-verified paper trail for post-election audits. Last summer, the Open
Voting Foundation issued a report alleging that Diebold touch-screen
functions can be changed with the flip of an internal switch. Activists have
found source code online. And there have also been numerous lawsuits and
leaked internal memos.

FTN Midwest Securities analyst Kartik Mehta wonders if a business that has
been a lightning rod for criticism is worth it. He said Diebold leaders need
to decide "if that negative publicity is hurting them in selling products to
financial institutions, security products to government or any of their
other customers."

North Canton, Ohio-based Diebold jumped into e-voting in 2002, when it
acquired Global Election Systems. It had some prior experiences with
electronic voting through its Procomp business in Brazil.

The elections business was good for 8 percent of Diebold revenue and about
12 percent of profit last year, but some of that is from Diebold's voting
and lottery contracts in Brazil.

By comparison, the ATM segment produced about 65 percent of the company's
revenue and 63 percent of profit in 2006. Safes have evolved into Diebold's
second biggest segment, now called "security solutions." It makes various
devices and systems for business and government security. Last year it gave
Diebold about 27 percent of its revenue and 25 percent of its profit.

If profit is the key measure for Diebold, the voting business would seem to
be a good fit. But for this segment, a 2006 gross profit (before taxes,
costs and expenses) on products and service of about $83.5 million isn't the
whole story.

"I've been surprised that Diebold has stayed in the voting business for this
long, considering the size of the company and the other sources of revenue,"
said Avi Rubin, a computer scientist at Johns Hopkins University and a
frequent foe of Diebold voting systems' programming. Rubin is director of
ACCURATE, an e-voting research organization funded by the National Science
Foundation.

Diebold has always defended its voting machines and its own intentions, even
after its former chairman and chief executive, Wally O'Dell, sought with
little success to convince critics his strong ties with Republican politics
as a fundraiser for George W. Bush were not the motive for the company's
involvement in elections.

O'Dell resigned in 2005 and was replaced by Swidarski, who had been the
company's president and chief operating officer. His main focus has been on
expanding international business for ATMs, a less public business.

Critics remained. About the time of the November elections, HBO aired a
scathing documentary entitled "Hacking Democracy" that again raised
questions about the security of Diebold machines.

Might Diebold choose to keep the voting business and grow it?

"It's a possibility, but I'd assign it a very low probability," Luria said.

Voting machine makers such as Diebold; Election Systems & Software, of
Omaha, Neb.; Sequoia Voting Systems, of Oakland, Calif., and Hart
InterCivic, of Austin, Texas have had the federal Help America Vote Act of
2002 as a sales catalyst. HAVA, with $3.9 billion of funding, urged the
nation to move past punch card voting and hanging chads that delayed the
conclusion of the 2000 presidential election.

ES&S, Sequoia and Hart InterCivic declined comment on a possible Diebold
Election Systems sale.

Douglas E. Rodgers, managing partner and chief executive officer of
Washington-based investment banking firm FOCUS Enterprises Inc., said he has
worked with Diebold executives on recent acquisitions. He could not comment
on Diebold's intentions for voting systems.

Kimball Brace, who closely tracks voting system vendors as president of
Washington-based Election Data Services Inc., said there is uncertainty now
in the elections market, a result of possible legislation setting new
requirements with no promise there will be additional funding.

He couldn't say what Diebold will do.

"If I were in these guy's shoes, I'd be looking close and hard at what I'm
doing in this marketplace," Brace said. "But given the uncertainty, who
would buy it?"

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Received on Sat Mar 31 23:17:04 2007

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