IGT in pact with Japanese firm

Wednesday, Jan. 7, 2004 | 10:47 a.m.

Japan's largest manufacturer of pachinko machines has approved a partnership with Reno slot maker International Game Technology to cooperate on the manufacture of pachinko devices as well as other gambling machines in anticipation of the legalization of casinos in Japan.

While not a well-known name in the United States, Sammy Corp. is a popular brand in Japan with that country's largest market share of pachinko machines or "pachislot" machines, which resemble pinball games and are played for prizes rather than cash.

The collaboration comes at a time when Japan is discussing lifting a ban on casinos and would involve collaboration on research and development of games for casinos. It also calls for exchanging information about Japanese and domestic markets as well as creating machines for overseas markets.

IGT became one of the first U.S. companies to make inroads in Japan in 1990 when it introduced an independently operated Japanese subsidiary to make pachinko machines. The company operates an engineering, sales and administration office in Toyko and a development office in Osaka.

The deal won't be immediately significant for IGT, which maintains a small market share compared to the giants that dominate the business, IGT Vice President of Marketing Ed Rogich said.

Still, the pachinko market "has great potential," he said.

"It was a long and tedious process" to get licensed to develop machines, though the deal "will hopefully be something that will improve our presence there," he said.

"They're a formidable company and they recognize us as a formidable player as well," he said.

The Japanese gaming market is significantly different from the U.S. slot machine market, where games have a much longer life span and are more profitable, he said. By contrast, the Japanese government requires pinball parlors to change out their pachinko machines at least once a year, in part for security purposes.

In the company's latest quarterly financial statement, IGT said it anticipates that Japan as well as Mexico, Thailand and Taiwan all are seeing an "increased popular support" for legalizing casinos as a way to boost tourism.

Sammy Corp. last month bought a 22 percent stake in Japanese video game giant Sega Corp. after failing to come to a merger agreement with Sega. The companies announced plans to merge in February but terms could not be reached.

IGT's Japanese sales have seesawed over the past several years.

The company sold 11,850 pachinko machines for the fiscal year ending Sept. 30 2002, up from only 7,400 units in 2001, according to recent financial statements. But that was less than the 14,600 units sold in fiscal 2000 and 27,900 units sold in 1999. The company doesn't otherwise break out performance by country.

The company has increased its product development in Japan in the past year, shortening the gap between new game introductions, according to the company's latest quarterly financial statement. But the Japanese government also has tightened regulations, limiting game sales, the company said.

IGT stock traded today at $35.84, down 14 cents.