In laying out near-term forecasts, three of the top banking technology vendors said that sales to banks, especially small ones, have been surprisingly resilient, and that their projections remain largely on track.
Fiserv Inc., Fidelity National Information Services Inc., and Metavante Technologies Inc., which all released their third-quarter results this week, said banking customers are motivated to pursue technology that could save them money, such as check imaging, though they have been holding off on more speculative investments, such as mobile banking.
Fidelity affirmed its full-year earnings projection, while Metavante raised its target. And though Fiserv narrowed the top end of its forecast, it still expects sales to remain stable. Hitting these targets would demonstrate that small financial companies remain willing and able to invest in projects at a time when spending at the top end of the market is slowing.
"We've been pleased by sales in '08 and a little surprised by how strong they've been," Michael D. Hayford, Metavante's chief operating officer and a senior executive vice president, said during a conference call with analysts Tuesday. "If we put down the newspaper and shut CNN off, we'd be pretty upbeat."
Small banking companies are generally weathering the storm, Mr. Hayford said. "There's a lot of focus on day-to-day execution. There's a lot of focus on managing costs," and technology that can add to the top line or cut expenses are high on bankers' wish lists.
One popular item is imaging, which can help banks reduce costs by eliminating transportation expenses, he said.
On the other hand, bankers are slowing their spending in areas they consider optional; Mr. Hayford said that mobile banking, which had been a hot area for the past year as bankers tried to create a new delivery channel, has cooled somewhat, and that demand for his company's mobile offering "is taking off slowly."
Jeffery W. Yabuki, Fiserv's president and chief executive, said during a conference call Tuesday that bankers are investing in electronic payments. Demand is "growing rapidly" for online bill payment, wire transfers, debit transactions, and imaging technology such as remote capture, as well as for Fiserv's check-clearing network, which can reduce clearing costs by reducing the number of intermediaries that handle paper checks and images.
A substantial majority of Fiserv's revenue comes from small banks and credit unions, he said, and many vendors' products and services, such as core banking, are essential for their clients.
"While we do believe the market softness will continue, the nondiscretionary nature of the services we provide across this segment should continue to allow us to deliver stable streams of revenue and new sales," Mr. Yabuki said.
Fidelity targets both large and small banks, and Lee Kennedy, its president and CEO, said Monday that many of his big-bank customers have been pushing out deals for nonessential projects.
"If the software sale is discretionary in nature, there's been some of a pullback and a delay in signing deals," Mr. Kennedy said.
Fiserv and Metavante, which also have some large financial customers, agreed that sales to the biggest companies in the banking market have slowed dramatically.
John Kraft, an analyst at D.A. Davidson & Co., said the fact that vendors are still talking about revenue growth, "or flattish at worst," could indicate that their small-bank customers, which have had less exposure to subprime mortgages, could see a competitive opportunity in the market turmoil.
The small banks "want to take advantage of this market and take share from the big guys," said Mr. Kraft, who has "buy" ratings on Fiserv and Fidelity shares and a "neutral" rating on Metavante's. "You're probably not going to see banks buying new couches to put in their branches, but they're still spending."
The three vendors were more cautious about the big-bank market, where a wave of mergers and acquisitions could lead to some customer losses. PNC Financial Services Group Inc. said last week that it would buy National City Corp. Wells Fargo & Co. is purchasing Wachovia Corp., and last month JPMorgan Chase & Co. acquired Washington Mutual Inc.'s banking operations.
Mr. Yabuki said that consolidation among banks could lead to consolidation in the banks' vendor contracts. "There are not that many providers. Everyone knows what everyone else is doing."
The downturn has could als prompt more consolidation among vendors. "There are probably too many competitors in this space," Mr. Yabuki said.
Mr. Kennedy said Fidelity has no plans to step up its stock buybacks or to accelerate loan paydowns. Instead, it is hanging on to cash for possible acquisitions.
"We want to make sure that we've got as much dry powder as possible to take advantage of opportunities that may present themselves to us," he said.
Though all three vendors said profits dropped from a year earlier, the results were skewed by various factors, and their earnings beat Wall Street's expectations or came close to doing so.
Fiserv said its net income fell 36%, to $78 million. Revenue grew 17%, to $1.08 billion. In July it sold a 51% stake in its insurance unit, and in December it acquired CheckFree Corp. Excluding those factors, Fiserv's earnings of 81 cents a share missed the average estimate of analysts by 2 cents.
Fidelity said its earnings fell 82%, to $43.6 million, while revenue grew 25%, to $893.8 million.
The revenue included $142.8 million from eFunds Corp., which Fidelity bought in September of last year. In July, it spun off its mortgage servicing business, Lender Processing Services Inc.
Fidelity's adjusted earnings from continuing operations of 42 cents a share topped analysts' estimate by 2 cents.
Metavante said its net income fell 30%, to $35.1 million, while revenue grew 4%, to $424.5 million. The biggest factor there was the vendor's November spinoff from Marshall & Ilsley Corp., a transaction that increased Metavante debt load fivefold. Its cash earnings of 35 cents a share met the average estimate of analysts.
Fidelity affirmed its full-year adjusted earnings outlook of $1.51 to $1.57 a share.
Fiserv narrowed its expected full-year adjusted earnings from continuing operations to a range of $3.28 to $3.32 from a previous range of $3.28 to $3.40.
Metavante said its full-year cash earnings would beat its previous guidance of $1.41 a share, but it did not say by how much.
"The third quarter exceeded our expectations in nearly every regard," said Frank Martire, Metavante's president and CEO.
