Consolidation in the electronic funds processing business appears to have burned the processing and software sales company eFunds Corp., which took a drubbing in the market Wednesday after lowering its earnings guidance the night before.
Analysts said the problems eFunds described - soft sales, large customers dropping plans for technology implementations - in some ways reflected continued weakness in technology spending across a swath of industries, but in others were quite specific to the Scottsdale, Ariz., company, which has stumbled as larger competitors like Concord EFS have flourished.
Indeed, the analysts said, eFunds' slide comes amid a boom in electronic payments. Processors including Concord EFS and First Data Corp. may be facing internal problems of their own, but those problems - integrating acquired businesses, branching into new business lines - look more like growing pains.
Observers said that eFunds - a Deluxe Corp. spin-off once considered the premier vendor of software for operating automated teller machines and point of sale systems - had fallen behind in its technology and gotten upstaged by nimbler new competitors. Concord, for one, has been buying up EFT networks that compete with eFunds' debit processing network, and an aggressive new software company, ACI Worldwide, has begun pressuring that part of eFunds' business.
John A. "Gus" Blanchard 3d, eFunds' chairman, president, and chief executive officer, put much of the blame on "delayed decision-making" by his customers but acknowledged, "We have contributed to the present situation ourselves."
He said eFunds executives would review the company's product lines and that "we have already gone into overdrive."
But with Mr. Blanchard, the former head of Deluxe, due to retire soon (an executive search firm has been engaged to find his successor) and with the announcement Tuesday that chief financial officer Paul Bristow would be departing this month, eFunds appears to be on shaky ground.
Late Tuesday the company warned that second-quarter and full-year revenues and earnings would be below projections and said 300 jobs would be eliminated. It blamed shortfalls in a variety of areas, including software sales, and said it would take a charge against earnings in the second quarter.
Diane Salucci, eFunds' vice president of corporate communications and investor relations, said in a telephone interview that the company was dogged by "uncertainties in a number of industries. It's not that we're in trouble, but we're not going to make what we said we would."
Craig Peckham, an analyst at Jefferies & Co. in New York, cut his rating on eFunds Wednesday to "hold" from "buy." Mr. Peckham had lowered his financial projections on Monday, but he said in a note to clients Wednesday that the reduced guidance "vastly exceeded what we had contemplated."
Shares in eFunds hit a low of $7.95 Wednesday and closed at $9.35, down 29%.
George Albright, the chairman of Speer & Associates consulting firm in Atlanta, said eFunds has simply failed to keep up and that the consolidation of the ATM networks into giant companies - Concord EFS is the largest - has taken its toll. "The business has changed dramatically. They have not changed to the same extent," he said. "It's a tough business right now, primarily because of Concord."
At the same time, eFunds' forays into new areas - it manages some 11,000 ATMs nationwide itself and has broadened its range of software offerings - have not yet generated the revenues or profits that the company had projected, Mr. Albright said.
The challenge facing eFunds may be to regain its competitive edge, said Theodore Iacobuzio, director of the consumer credit practice at the TowerGroup consulting firm in Needham, Mass. "Can a smaller player survive in a business that is dominated by an 800-pound gorilla?" Mr. Iacobuzio said.
