A sweeping reorganization plan announced by the struggling point of sale terminal maker Hypercom Corp. includes restructuring its sales team and outsourcing its manufacturing.
Philippe Tartavull, the Phoenix company's president, said in an interview Friday that the moves are aimed at boosting sales and revenue in several key markets.
"Our strategy is very simple," he said. "We're going to recapture our revenue in the countries where we already have infrastructure and where we have lost market share, but the market is growing by double digits."
Under the new sales strategy, Hypercom will concentrate on rapidly growing regions and areas where it is entrenched, including the United States, Europe, the Middle East and Africa, and Australia and New Zealand.
Mr. Tartavull rejected the idea that Hypercom is "abandoning any regions," but said the company would not enter any new ones.
And in some regions, the company has plans to expand. For example, he said it would redouble its efforts in Australia. "We have a good infrastructure in Australia. We have the infrastructure and sales force to attack that country aggressively."
The plan, made after a four-month review of the sales and marketing organization, will cost 14 salespeople their jobs. Hypercom expects to take a charge of around $500,000 in the second quarter to cover severance costs.
The terminal company said it will outsource its manufacturing — including supply chain, production, assembly, and testing — and reorganize and reduce the manufacturing and operations management team in Phoenix as part of this transition.
Hypercom's main manufacturing facilities are in Shenzhen, China, and Atibaia, Brazil. Printed circuit board assembly operations formerly handled in Shenzhen have already been outsourced to a company in Malaysia.
Hypercom's U.S. service and repair operations have been moved from Phoenix to Hermosillo, Mexico, and the remaining operations are planning to move into a smaller headquarters in Phoenix. The old site has been sold.
Hypercom reported in May that its first-quarter revenue rose 6.3% year over year, to $64.8 million, but it posted a net loss of $2.5 million, compared to net income of $3.1 million a year ago.
In November the company said it would outsource some of its sales, contracting with Symbol Technologies Inc. to sell its multilane systems to large merchants.
Hypercom has lost considerable market share in recent years. In 2002 it generated 18.4% of terminal shipments worldwide, putting it in third place behind Ingenico Group of Neuilly-Sur-Seine, France, which had 24%, and VeriFone Holdings Inc. of San Jose, which had 23.4%, according to The Nilson Report.
By 2005 Hypercom had slipped to fourth place, with 10% of the market, and had been overtaken by Electronic Engineering Ltd. of Israel, which had 11%. In 2006, VeriFone acquired Lipman, becoming the top terminal company. (The Nilson Report did not yet have figures for 2006.)
Gil Luria, an analyst with Wedbush Morgan Securities, said in an interview Friday that Hypercom had already hinted it would shift to contract manufacturers. The new sales and marketing strategy was the bigger news, he said.
"They don't have the scale to compete in every country with VeriFone and Ingenico," Mr. Luria said. "What they've decided to do is focus on the countries where they are doing well and are growing. And they'll probably de-emphasize markets that don't have those situations."
Mr. Luria said that the United States is one of Hypercom's stronger markets. Many of its buyers are merchant processors like First Data Corp., companies that Mr. Luria said prefer to use "dual sources," such as Hypercom and VeriFone.
He said VeriFone would likely prefer that Hypercom remain healthy in the United States, because a Hypercom failure in this country would open the door to Ingenico, which could be a stronger competitor to VeriFone.
George F. Sutton, an analyst with Craig-Hallum Capital Group LLC, said that the moves are "all about reducing fixed costs and becoming profitable at lower revenue levels. It's kind of Management 101."
Mr. Sutton said that Hypercom has discussed outsourcing its manufacturing in the past, and that production is now largely a commodity business. "Third parties can purchase less expensively and have higher efficiencies in the manufacturing process," he said.
Where Hypercom can differentiate itself is in research and development, certification, and marketing and sales, he said. "The ultimate vision" of the reorganization, he said, is to "make the company profitable on an independent basis, and obviously make it more attractive to a potential buyer."
