For POS Terminal Makers, Service Revenue Gaining Importance

Point-of-sale terminal makers want to be known for more than solely selling hardware. All three of the major terminal makers–Ingenico S.A., Hypercom Corp. and VeriFone Systems Inc.–are turning to recurring service revenue to bolster their financial results.

France-based Ingenico is the latest to make its pronouncement (see story). It anticipates generating 1 billion euros ($1.2 billion) in annual revenue by 2013. The company reported 2009 revenue of $953.6 million.

The terminal makers are pursuing service-related recurring revenue because it is easier to predict than revenue from hardware sales, says George Sutton, senior research analyst at Craig-Hallum Capital Group LLC, a Minneapolis-based investment firm.

“All of the major POS vendors are looking to grow recurring revenues given the more-attractive business model and improved predictability that they represent,” he says.

San Jose, Calif.-based VeriFone is attempting a similar shift to recurring revenue, to 30% from about 15% to 17% of services by the end of 2012, notes Gil Luria, vice president of equity research at Wedbush Securities Inc., a Los Angeles-based equity research firm. “Both (Ingenico and VeriFone) are putting an emphasis on this transition in order to create a more stable and predictable business,” he says.

VeriFone announced May 28 that it expects to generate $60 million in annual revenue from its in-taxi advertising business by the beginning of 2011. VeriFone entered the in-taxi advertising business in 2007 (see story).

Hypercom says $102.9 million of its $406.9 million in 2009 revenue came from its services business, which the Scottsdale, Ariz.-based company intends to grow, a Hypercom spokesperson says.

One of its most-recent initiatives involves Phoenix Managed Networks LLC, a company formed late last year through a joint venture with The McDonnell Group LLC to run Hypercom’s HBNet transaction-transport business (see story).

Hypercom expects its transaction-transport service, which provides data-communication links for transaction-based applications to such diverse industry players as payment processors, financial institutions and retailers, to get a huge boost from the new venture. Hypercom has a 40% stake in Phoenix Managed Networks.

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