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Technology
Computer Peripherals
NYSE: HYC
Hypercom Corporation
2851 West
Kathleen Road
Phoenix, AZ 85053
Phone: 602-504-5000
Christopher S. Alexander
President and Chief Executive Officer
Interview conducted by:
Diane Reynolds, Co Publisher
CEOCFOinterviews.com
June 2002
Bio of CEO,
Chris Alexander was
named President and Chief Executive Officer of Hypercom Corporation, effective November 1,
2000. He joined the company in 1993 as Chief Operating Officer of Hypercom International.
In 1998 he was named Executive Vice President, Global Operations, Hypercom
Corporation. In July 1999, he became President, Hypercom Transaction Systems Group
where he was responsible for worldwide point-of-sale and multi-lane markets, and the
Horizon Group, a national distributor of equipment that also provides a variety of support
services and customer programs. In addition, Mr. Alexander has over 20 years of
senior management experience in communications and data storage. He holds a Bachelor
of Science degree in Industrial Management from the Georgia Institute of Technology and an
MBA from Georgia State University.
Company Profile:
Hypercom
Corporation is a leading, global provider of electronic payment solutions that add value
at the point-of-sale for consumers, merchants and acquirers. Since 1978, Hypercom
has been designing innovative hardware and software products for the electronic
communications industry. Today the company’s products include secure card
payment terminals, Web appliances, peripherals, networking equipment and software
applications for
e-commerce,
m-commerce, smart cards and traditional payment applications. Hypercom maintains an
installed base of more than 5 million terminals in over 100 countries, which conduct some
10 billion transactions every year.
CEOCFOinterviews: New on the New York Stock Exchange and fairly new
at this position with a little over a year behind you, the company itself has come a long
way. Please tell my readers about this company.
Mr. Alexander:
Hypercom was founded in Australia in 1978 as a provider of telephone products. The company switched to transaction products in
1982. In 1983, Hypercom expanded into Asia,
and in 1990, the company relocated its headquarters to Phoenix. Hypercom expanded into Latin America in 1991, and
established a European presence in 1996. Hypercom
is today a leading global provider of electronic payment solutions. We design, manufacture, and sell
point-of-transaction card payment terminals. We
also have a networking division that develops customized networking solutions, and a
small, micro ticket leasing company. Our
chief competitors are VeriFone, and a French-based company called Ingenico. Hypercom’s fundamentals are very strong. Hypercom has no debt related to its core
business. And we are a good six to nine
months ahead of our competitors in terms of our finances and our value-added products. Hypercom went public on the New York Stock
Exchange in the late fall of 1997, and 2002 marks our fifth anniversary on the Exchange.
CEOCFOinterviews: You are a global supplier of payment solutions. Please explain that to my readers.
Mr. Alexander:
Hypercom is a leading global provider of card payment terminals, more commonly called
“card swipe machines” and the networking equipment and software applications
that support credit, debit, and other card payments at the point-of-transaction. When you go into a grocery store, restaurant, the
dry cleaners, or literally any small to medium sized retail location, there is a good
chance that you are going to see one of our payment terminals on the merchant’s
countertop. And it may well be one of our new
value-added ICE (Interactive Consumer Environment) touch-screen card payment terminals.
When you pay for your purchase with a
credit, debit or other payment card, that card is swiped through Hypercom’s
point-of-transaction terminal. The terminal
communicates with the host computer, which in turn authorizes the transaction and routes
the approval for that transaction back to the terminal.
A receipt is printed, and you are on your way.
One of the value-adds of our
Web-enabled touch-screen ICE terminals is that the consumer can sign right on the
terminal’s touch screen. The receipt is
printed out and it is also stored, with the signature, for fast and easy electronic
retrieval when required to settle a disputed charge.
Other value-added features include on-screen/on-terminal advertising, e-mail,
electronic statements, and more.
None of our competitors have these
capabilities.
CEOCFOinterviews: How
is the global business for your market?
Mr. Alexander:
Hypercom sells its products in more than 100 countries, and we maintain local offices in
over 25 of those. We are the leading provider
of card payment terminals in Latin America. We
are the second largest supplier in Europe. We
have the largest installed base in the Asia/Pacific region.
And we are number two, and growing, in the U.S. Internationally, we anticipate very good growth
for Hypercom, and indeed the entire industry, in the next four to five years.
CEOCFOinterviews: Where is the greater revenue coming from, the US
or abroad?
Mr. Alexander:
Approximately one half of our revenues come from our US-based activities, and the balance
from our international activities.
CEOCFOinterviews: Your chief financial officer has retired, how did
that affect the company, especially after the company has ‘righted’ itself
financially?
Mr. Alexander:
Jon Killmer announced his retirement and we are going to miss him. Jon was instrumental in helping the company in its
financial and operational turn-around. Now
that the company is back on the path to profitability, and now that we have a new CFO in
place, Jon deserves to retire knowing that he has accomplished a great deal for Hypercom. Our new CFO, John Smolack, has terrific, in-depth
experience with Wall Street. He joins us at
an exciting time as we continue executing Hypercom’s corporate strategy based on our
technology-leading ICE point-of-transaction terminal platform.
CEOCFOinterviews: Are you going in other directions, other than
what you are targeting today?
Mr. Alexander:
Yes, and that has its basis in our three-point strategy for managing the business.
The first point is that we are
constantly re-tooling our cost structure. In other words, we are constantly looking to see
if the resources we are applying to certain projects today are as valid as when we first
started applying them. As you know, projects sometimes take on a life of their own and one
day you wonder why you ever started the project. Now,
we question those projects informally every day, and on a formal basis every quarter.
The second point in our strategy is to
give our customers compelling economic reasons to spend their money with us. There are only three ways to do that. You have to show your customers where they can
increase their revenue, where they can preserve their revenue, or where they can reduce
their cost. If you can do that, you can
provide your customers with compelling reasons to spend money with your company. That is the thrust of our R&D -- to find ways
to save our customers money or help them improve their profits.
The third point to our strategy, and
this really gets to the heart of your question, is that we have to find ways to leverage
our core competencies and our assets into future growth platforms. We believe the traditional point-of-sale industry
has excellent growth potential. That is borne
out by Frost & Sullivan’s industry forecast, which projects a 35% growth rate
compounded for the next five years. We
certainly want to continue to play in this industry.
But, as we look to the future, we also
want to leverage our core competencies and our assets into non-traditional areas. Our core competencies include the secure
transmission of financial data and the versatility of our products. That versatility, coupled with our ability to
safely move billions of dollars in transactions week in and week out, allows us to expand
into non-traditional, non-payments areas such as electronic benefits transfer, sports
licensing, and age and identity verification. And
certainly, recent events would lead us to believe that age and identity verification at
the point-of-transaction is becoming more and more of an issue, domestically as well as
internationally. Our move into such
non-traditional growth areas represents our biggest opportunity, as well as our biggest
challenge.
Four to five years from now, I would
like to see one half of our revenues coming from our traditional electronic payment
business and the other half of our revenues coming from some of the new growth
opportunities I just mentioned.
CEOCFOinterviews: I think security is more important than ever. So many things have been hacked into, information
on databases; it’s a little scary.
Mr. Alexander:
It is scary. Some of what you just mentioned is, frankly, due to sloppy data handling. However, there is no question that this is another
growth area for Hypercom. We are, for
example, looking closely at credit card fraud and identity theft. These crimes are escalating dramatically. Credit card fraud is expected to exceed $4 billion
this year alone, and it is only going to get worse. It
is a huge crime, and one that everyone pays for – consumers, merchants and the card
payment industry. The need to bring this
under control, and indeed, eradicate it, demands a technology that can cost-effectively
eliminate it while complementing today’s magnetic stripe and smart cards. We now have the means of achieving that with
biometrics.
CEOCFOinterviews: Where is the biggest growth in the markets you
are addressing?
Mr. Alexander:
As I mentioned, the versatility of our product is key, particularly in comparison to our
competitors. Our competitors do not have
Web-enabled, touch-screen, color-screen VGA card payment terminals. So, the versatility of that platform is going to
provide us growth opportunities.
The second area of growth is in new
trends, and certainly the biometric concept will fit in that category.
The third area of growth is going to
come from new applications, and this is of particular importance. Financial processors and merchants are moving
quickly to differentiate themselves from their competition.
To do this they are, in part, adding larger and more complex applications to
the card payment terminal. The vast majority of the approximately 22 million terminals
installed worldwide carry 256K of memory. That’s
not enough to handle the new applications. And
that gives us a significant edge, because our standard terminal is now being shipped with
1.5MB memory. It’s a bit like laptop
computers. Every 18-24 months, new
applications are adopted that require more memory. The
same thing is now happening with card payment terminals.
And that is benefiting Hypercom.
The fourth area for growth is
geographic. Look at the three largest
countries in the world, China, India and Russia. China
has the infrastructure to accept a terminalization on a countrywide basis, and in fact,
that is taking place today. India’s
infrastructure is such that that country is just beginning to get to the point where it
can terminalize on a countrywide basis, and I think that over the next 12-24 months you
will see an increasing deployment of terminals in that country. Russia, as it exists today, does not quite have
the infrastructure needed to achieve a countrywide terminalization. So we see China today, India tomorrow, and Russia
some time in the future. Each of these
represents opportunities for Hypercom.
CEOCFOinterviews: How much are you spending in research and
development?
Mr. Alexander: Well, this year our goal is to devote approximately
$25 million, or about 8% of our entire revenue, to R&D. That is
significant for a company our size, but it is money well spent.
CEOCFOinterviews: If they are projecting a 35% increase in your
industry, will you be able to keep up with the demand?
Mr. Alexander:
Oh yes, we have a manufacturing plant in China that provides us with low cost, high volume
manufacturing. We also have a large
manufacturing operation in Brazil. I
won’t say we have limitless capacity, but we certainly have capacity that will easily
accommodate the growth rate in this industry.
CEOCFOinterviews: Now the equipment, the software, everything you
are supplying the customers. Is this a
purchase or a lease option? How often do you
go back and update them?
Mr. Alexander:
In the US, our major customers are the large electronic processors such as First Data
Corporation, Concord EFS and NPC, who in turn sell our terminals to their merchants. Internationally, our major customers are the
financial institutions, which also serve as the issuers of credit cards in their regions. These are companies such as Nat West
in the UK or the Hong Kong Shanghai Bank in China. The
majority of our large customers purchase our products. So
do most of our smaller customers – Independent Sales Organizations – and the
like. However, customers can lease our
products if that’s what they want to do. One
option is to lease them through Hypercom’s micro-ticket leasing organization, Golden
Eagle Leasing.
CEOCFOinterviews: How
important is service to your company and how do you provide that service to your
customers?
Mr. Alexander:
Service is a fundamental and very important aspect of what Hypercom brings to the table. We offer the industry’s only five-year
warranty on all of our terminals. As I
mentioned earlier, we have 25 offices around the world that are ready to help if a product
does not perform as expected. Further we
expect service and support to generate approximately $50 million of our projected $300
million in revenues this year.
CEOCFOinterviews: Does this company have the cash or credit for any
expansion you maybe planning.
Mr. Alexander:
When you look at whether we have the cash and can we grow, and where do we stand, we have no debt related to our core business so we feel we have plenty
of leverage if we needed to go to the bank. We
have a strong cash position if you look at our free cash flow; it is three times that of
our competitors. We have a very strong
balance sheet.
CEOCFOinterviews: What avenues of growth will you take? Will it be strictly organic, through acquisitions
or joint ventures?
Mr. Alexander:
Let me say this on acquisitions. Certainly there is a good reason for our industry to do
some consolidation. I don’t believe that
we will be on the sidelines when that happens. However,
if we are on the sidelines, I think the growth areas we discussed earlier represent a
considerable opportunity for Hypercom even if we don’t play in the consolidation
game.
CEOCFOinterviews: Lots of companies today in the technology
industry are starting to consolidate.
Mr. Alexander:
Well, you certainly see that across the whole sector. Hypercom and its competitors
probably represent the last sector of the electronic payment industry to consolidate.
CEOCFOinterviews: What would you say to a potential investor
looking at your company for the first time?
Mr. Alexander:
We have some significant competitive advantages, and when we look at those competitive
advantages, they are in the strength and versatility of our products. We have a vision and a strategy. And I believe that when you look around the
industry, you will see that other players will have a vision or a strategy, but I
don’t think you will find that they commonly have both. Hypercom does.
Hypercom has an extraordinarily solid
and experienced management team, which gives us a significant competitive advantage. We have financial strength. We have a very strong balance sheet. We have very valuable brand equity. We are known, globally, as the technology leader. And we are recognized for our ability to provide
superior service and support of our products. I
believe that all of these competitive advantages should cause the potential investor to
look as us, and frankly, like what they see.
CEOCFOinterviews: Do you have any closing thoughts for my readers?
Mr. Alexander:
Hypercom has a very clear technology lead and very strong momentum. We have a well-established worldwide organization.
We have a global leadership position. We
have significant depth and breadth of management. We
have a wide range of support and services. We
have some extraordinarily innovative products. We
have a corporate focus that is singularly focused on building shareholder value. That is our goal.
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