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International Game Technology ( IGT - Analyst Report ) is set to redefine gaming and systems solutions with ‘IGT Cloud’ in the upcoming ICE Totally Gaming (ICE) conference, scheduled from January 24-26, 2012, at the Earls Court Exhibition Centre, London.
According to IGT’s senior vice president of International Sales, Craig Churchill, ICE will showcase the results of the company’s multi-million dollar platform, with more in store for the attendees beyond delivering cloud-based services on IGT Cloud.
IGT Cloud will offer services on the basis of the Software as a Service (SaaS) model that enables users a smooth and efficient gaming experience on land-based, mobile and online devices. IGT will provide the cloud service in association with CA Inc ( CA - Analyst Report ) , who will administer the game content using IGT Floor Manager and sbX Analytics. IGT Cloud is also set to be launched in EMEA and Latin America.
Moreover, IGT Cloud is set to open up new opportunities for casino operators. Through the new opportunities, the casino operators can offer its players an ultimate gaming experience and the operators will be able to yield higher performance in terms of floor-wide performance.
The casino sector continues to face macro-economic concerns due to high unemployment levels. This forced many casino operators to reduce their costs in an attempt to preserve their liquidity, subsequently resulting in a slower machine replacement cycle. This trend appears to be hurting IGT’s growth outlook. We believe that the cloud initiative has the potential to offset this negative effect, since it would lower costs for casinos.
Moreover, fewer new openings and increasing competition from Bally Technologies Inc. ( BYI - Snapshot Report ) and WMS Industries Inc. ( WMS - Snapshot Report ) will keep the stock range bound in the near term.
IGT Fights the Odds
While sluggish replacement sales will remain a primary headwind for IGT in the near term, we expect sbX to continue to enjoy high demand in both the domestic and overseas markets due to its cost effectiveness. With the IGT Cloud services, we expect IGT to gain traction in the casino gaming industry, as it would likely be well accepted by new casino properties, thereby improving the company’s top line.
Despite the near term headwinds, we believe that international expansion, an impressive product portfolio, cost-cutting initiatives, reducing dependence on the domestic machine replacement cycle, new contract wins, solid free cash flow and strong growth from the interactive business will drive growth over the long term.
We have a Neutral recommendation on the stock over the long term (6-12 months). Currently, IGT has been allotted a Zacks #3 Rank, which implies a Hold rating on a short-term basis.
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