Verifone is taking a scalpel to its business after seeing soft results during its second fiscal quarter, enacting a plan to cut 5% of its personnel and look for opportunities to jettison older, underperforming parts of its business.
Citing "difficult market dynamics," Verifone CEO Paul Galant said the company will trim its headcount in areas that aren't critical to its business to save about $30 million next year, and will continue investing in new technology as it strives to shift its focus to services and away from pure hardware.
"Our ongoing level of investment to transform Verifone from a box shipper to services provider is critical to help us mitigate some of the economic challenges we are now experiencing," Galant told analysts during a conference call to discuss earnings on June 7.
In its core payment terminal business, Verifone is suffering from a slowdown in sales from the "EMV bottleneck," Galant said. He noted that acquirers are running into delays in getting equipment tested and certified by third parties as many retailers finally began implementing EMV this year following the Oct. 2015 liability shift for counterfeit card fraud.
Verifone expects the EMV-certification crunch will abate around October, and Galant said the bottleneck shouldn't affect revenue for the full year. Separately, Galant said prospects look good the company's early sales of EMV-enabled automated fuel dispensers to gasoline retailers, who are facing their own EMV liability shift in 2017.
Global markets are posing problems for Verifone. Deteriorating economic conditions in Latin America and emerging markets in Asia are depressing sales there, and competitors are putting pressure on pricing, Galant said.
Verifone still has high hopes for Carbon, its latest payment terminal, which will roll out to merchants by the end of this year and connect to Verifone's evolving platform of services including applications, software and payment gateways to support loyalty and rewards programs, along with currency conversion, Galant said.
To cope with ongoing economic challenges in key markets, Galant said Verifone is adjusting its expectations to see lower results this year.
Verifone posted net revenue of $526 million for the latest quarter, up 7.4% over $490 million from the same period a year earlier. Verifone's second fiscal quarter ended April 30.
The cutbacks Verifone plans are not alarming, given economic conditions in key markets outside the U.S., said Gil Luria, an analyst with Wedbush Securities.
"Verifone is mostly suffering from weakness in emerging markets, specifically Brazil and China," Luria said.
The competitor Verifone is most worried about is Ingenico, and it's trying to compete by diversifying its business, he said. Verifone in January acquired AJB, a technology and switching solutions provider.
"Verifone is shifting more of its revenue to [come from] services, but it has not been as successful as Ingenico, especially since Ingenico is spending a lot more on acquisitions," Luria said.