Verifone Acquisition

VeriFone Systems, Inc. (NYSE:PAY) is a global leader in payments and commerce solutions. The company designs, manufacturers, markets, and supplies a broad range of payment devices and services that enable secure electronic payment transactions and value-added services at the point-of-sale (POS). PAY has two operating segments, systems and services. Systems provides POS electronic payment devices and services provides device related leasing and maintenance, payment transaction routing and reporting, and commerce based services such as advertising on digital screens.

When PAY reported third quarter FY16 results on September 1 st, the share price declined by about 20% as investors were disappointed with the company's guidance for Q4 and FY17. At the core of investors' disappointment is the slower than expected uptake of EMV POS electronic payment devices in the US. To provide some perspective on this particular challenge, it is possible that there are tribal villages that have upgraded to EMV before the US has upgraded; in other words, pretty much every developed country and several developing and emerging countries have switched over to this more secure form of electronic payment.

Bottom line, the US will upgrade to the EMV POS electronic payment devices, albeit at a slow and steady pace; the important attach for this upgrade cycle is broader distribution and usage of POS terminals that are Apply Pay and Google Wallet compatible. With that stated, I see continued weakness in systems, which is partly attributable to it being a cyclical hardware upgrade cycle, but I see continued strength in services on management's investments and the profile of the business.

The key risks to my outlook are worse-than-expected results in systems or weaker than expected results in services, the industry pricing pressures stemming from the competitive environment, and an industry that remains fragmented.