Just two weeks after Hypercom Corp. announced it would step up its marketing efforts win new point of sale terminal customers, its rival VeriFone Holdings Inc. is undertaking a marketing push of its own aimed squarely at Hypercom's existing client base.
VeriFone, of San Jose, said Monday that it would cover some of the costs merchants would incur to switch to its terminals. It announced a "multimillion-dollar software investment" to update merchants' network connections and to provide software that merchants might need when installing its Nurit and VxSolutions products. The merchants would still need to purchase the terminals.
"We benefit if you run those applications on VeriFone's systems, but we know they weren't written for VeriFone's systems," Douglas G. Bergeron, VeriFone's chairman and chief executive, said in an interview Monday. "We're going to help you rewrite them, re-integrate them, and we'll take on that cost and that risk."
The announcement triggered a bit of bitter back-and-forth between the two companies. It came on the heels of a shift in Hypercom's focus to landing customer contracts by cutting costs. The Phoenix company said during its fourth-quarter earnings call two weeks ago that it wanted to secure servicing contracts to go with its terminal sales, and that it would reduce its profit margins, sometimes even selling terminals below cost, to win business.
VeriFone became the world's No. 1 terminal provider in November by acquiring the Israeli company Lipman Electronic Engineering Ltd. It reported net income for fiscal 2006, ended Oct. 31, of $59.5 million, on revenue of $581 million. Its shares closed at $36.80 Monday.
Hypercom reported net income last year of $4.7 million, on revenue of $248.6 million. Its shares closed Monday at $5.36.
Among VeriFone's assertions in the announcement of its pricing deal was a claim that most of Hypercom's products do not comply with the Payment Card Industry security standard.
A Hypercom spokesman said that it has products for every market segment that are PCI compliant, or will be by yearend.
Hypercom is also facing pressure from investors to review its strategy. RLR Capital Partners GP LLC said in a Securities and Exchange Commission filing Friday that is has acquired 5.1% of Hypercom's stock, and called for some strategic changes.
Robert L. Rosen, a managing partner of RLR, wrote in a letter to Hypercom's chairman and CEO that Hypercom should reconsider its plan to pursue acquisitions in the servicing market "until improvements are seen in the core business." Instead, it should puchase up to 18 million of its shares, he wrote. (Hypercom announced the acquisition plan during its fourth-quarter call.)
If Hypercom does not improve its operating margins, it should consider "a possible sale of the company," Mr. Rosen wrote.
Robert J. Dodd, an analyst for Regions Financial Corp.'s Morgan Keegan & Co. Inc., said that VeriFone is "playing up the uncertainty to try and win share." The plan to cover conversion costs is "a PR campaign in my view," he said. "That's not to say that PR campaigns don't work." He also said Hypercom has been "underselling" VeriFone "for a while."
A Hypercom spokesman said that VeriFone's offer to help merchants switch terminals is "a desperate act from a company that has been laying off dozens of people in the last two weeks."
Pete Bartolik, a VeriFone spokesman, said that his company recently laid off about 100 employees, largely related to the Lipman deal, and that most of the people who were let go were in "overlapping positions."
