Second-quarter earnings reports this week from the banking industry's two largest technology vendors underscored their differences in focus.
Fiserv Inc. of Brookfield, Wis., which has been emphasizing efficiency, reported Wednesday that its earnings dropped 8% from a year earlier, to $108.2 million, or 64 cents a share, which fell short of the average Wall Street analyst estimate of 71 cents.
Revenue grew 12%, to $1.8 billion. Related Links
Fiserv's 2Q Earnings
Fidelity National's 2Q Earnings
Fiserv lowered its full-year earnings guidance by 12 cents a share, to a range of $2.86 to $2.94, to reflect its deal to sell its investment services business to TD Ameritrade Holding Corp. for at least $225 million. That deal, announced in May, is expected to close by October.
On Tuesday, Fidelity National Information Services Inc. of Jacksonville, Fla., which has been focusing on expansion, said its earnings climbed 29.9%, to $91.4 million, or 59 cents a share, which met the average Wall Street estimate.
Revenue increased 15.1%, to $1.2 billion.
Fidelity reiterated its full-year earnings outlook of $1.97 to $2.03 a share.
In terms of revenue, Fidelity, a company formed just four years ago as a division of Fidelity National Financial Inc., came within a hair's breadth of overtaking Fiserv as the largest technology vendor serving the financial services industry. It almost certainly would do so when it closes its $1.8 billion deal to acquire eFunds Corp. of Scottsdale, Ariz. That deal is expected to close this quarter.
eFunds has not announced a date for its second-quarter earnings report; in May it reported first-quarter earnings of $16.6 million on revenue of $134 million.
In an interview Thursday, Lee Kennedy, Fidelity National Information's president and chief executive officer, downplayed the horse-race aspects of its competition with Fiserv.
"It wasn't our objective to overtake them," Mr. Kennedy said. "The objective was to develop a wide range of integrated processing capabilities."
As an example, he cited Wachovia Corp.'s agreement to use more of his company's mortgage servicing and card processing services. Wachovia already used Fidelity's Mortgage Servicing Package for its portfolio of first mortgages. On Tuesday, Wachovia also agreed to use a system to service home equity lines of credit and to process transactions made on credit cards it issues that access those home equity lines.
"Institutions are looking for more complete processing solutions," Mr. Kennedy said. The card processing capability came from Certegy Inc. of St. Petersburg, Fla. He had been Certegy's chairman and chief executive before it merged with Fidelity National Information in February of last year.
The Wachovia agreement was the first time in which a processor combined mortgage servicing and card processing in this way, Mr. Kennedy said. "The HELOC deal with Wachovia is a clear example of integrating these capabilities into a single platform."
He would not discuss any acquisition plans beyond eFunds, though he noted that his company has made 30 to 40 acquisitions since it was formed in April 2003, when Fidelity National Financial, the nation's largest title insurer purchased Alltel Information Services from the Little Rock, Ark., telecom company Alltel Corp.
John Kraft, an analyst at D.A. Davidson & Co., noted that both Fidelity National Information Services and Fiserv had been reported to be looking at eFunds, at prices of about $1.5 billion.
"Fiserv has always been very disciplined, a low bidder in this space," Mr. Kraft said. "In the recent past they've not been winning deals," at least in part because Fidelity has been willing to spend more for acquisitions. "Fiserv is not focused on getting bigger, but on growing faster. They're basically executing on their plan."
Thomas Hirsch, an executive vice president at Fiserv and its chief financial officer, said Fiserv also plans to remain active in the acquisition market, but "with the private equity money, it has been very expensive out there," he said.
"We are very economically disciplined from a standpoint of value," Mr. Hirsch said in an interview Thursday, and in the absence of attractive deals, the company has bought back 30 million shares in the past two years to enhance shareholder value.
Fiserv is doing some deals, he said, citing as an example the Dutch security software firm NetEconomy, which Fiserv bought in March to provide risk management and fraud-fighting. The company is now selling NetEconomy's offerings to its 6,000 core-processing customers, he said.
"That's what we're focused on as a company, to add more value to our core clients," he said, "and to earn more revenue from those customers."
Mr. Hirsch would not discuss Fidelity National Information's revenue gains, or the likelihood of a change in the the rankings of the top financial technology vendors.
David J. Koning, an analyst at the brokerage firm Robert W. Baird & Co., said that although Fidelity is doing bigger deals, Fiserv's approach may prove more profitable.
"Fiserv may not get as much revenue growth but it has great margin expansion," Mr. Koning said in an interview, and though its results may not have been exciting, they were solid.
Fidelity also disclosed Tuesday that a previously reported theft of files by an employee was larger than originally thought. The employee stole 8.5 million consumer records, more than triple the 2.3 million it had announced when it first reported the theft earlier in July.
"We had a bad employee, a dishonest employee, who found a way around the safeguards and systems we had in place," Mr. Kennedy said. "The good news is that there wasn't any fraud, to our knowledge, that has taken place on those accounts."
An internal investigation of the theft is nearly complete, he said, and he does not expect to report any more records were stolen.
