Silicon Gaming loss causes stock to plunge

Silicon Gaming Inc. reported far steeper losses than analysts expected Thursday, prompting a sell-off that caused a 40.5 percent plunge in its stock price.

The company's weakening balance sheet and latest bad news -- including the announcement it no longer qualifies for listing on Nasdaq -- sparked a wave of pessimism over Silicon's long-term prospects. Silicon executives couldn't be reached for comment.

The Palo Alto, Calif., developer of the revolutionary Odyssey slot machine said its fourth-quarter loss widened to $10.8 million -- more than double its revenue of $5 million -- compared with a $6 million loss in the 1997 period.

For the full year, Silicon said, it lost $37.7 million, compared with a $23 million net loss in 1997.

The fourth-quarter loss, equivalent to 77 cents a share, surprised securities analysts who had predicted losses ranging from 2 cents to 45 cents a share. The estimates for the full-year ranged from break-even to a loss of $1 a share, far less than the $2.75 reported Thursday.

The result sent Silicon stock plummeting to 78.125 cents a share, down 53.125 cents, in heavy trading Thursday. It has traded as high was $11.50 in the past year and $20 in the past 24 months.

But the 4-year-old company has stumbled en route to its goal of producing a new, high-tech generation of interactive slot machines that would capture 25 percent of the casino gaming machine market by 2000.

Higher-than-expected development, production and sales costs and casino resistance to the relatively high price tag for Silicon's Odyssey platform helped make the company's financial projections unattainable.

Through the first nine months of last year, Silicon reported $17.3 million in revenue, but $44.2 million in costs and expenses.

Last July, the company issued $17.25 million of 12.5 percent notes to help cover rising expenses. During the year, it also obtained a $10 million bank credit line and other equipment financing to help tide it over until sales picked up.

In a bid to boost revenue, Silicon also revised its former sales-only strategy, allowing casino customers to opt for a revenue-participation plan that would theoretically get more of its slots in circulation.

The plan called for the company to receive 20 percent of the win generated from each machine, which could generate recurring revenue exceeding that of outright unit sales if the machines are in play long enough. But the money comes in more slowly that from an outright sale.

As conditions worsened and competition increased, the company slashed 20 percent of its 200-person workforce in December and announced other plans executives hope will trim overhead and boost revenue.

But by year-end, according to its balance sheet, Silicon's liquid assets had dwindled to about $8.4 million while its total debt exceeded $58 million. The company's announcement Thursday indicated unit sales had slumped sharply in the fourth quarter from both the year-earlier period and 1998's third quarter.

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