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Is that bell tolling for Diebold's election business?

Analysts polled, vote for sale

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Prompted by a filing Diebold made last week with the SEC, analysts in the US are beginning to wonder aloud about the future of Diebold Election Systems.

In the filing, Diebold warned that further changes to the rules governing electronic voting could hurt its business. It said it is "vulnerable to these types of challenges because the electronic elections systems industry is emerging", and complained of inconsistency between states on how elections are run.

It also acknowledged that the rising concern over the reliability and security of its machines has had a negative impact on its relationships with election officials. Now speculation is mounting that the firm might try to jettison the division in a bid to repair its reputation.

Negative publicity about the voting machines - such as the HBO documentary Hacking Democracy - has cast a shadow over the 150-year old company, analysts say. Until its move into e-voting, the firm was better known for its safes and automated teller machines.

Gil Luria, an investment analyst who monitors Diebold for Wedbush Morgan Securities told reporters for the Associated Press: "This is a company that has built relationships with banks every day of every year. It pains them greatly to see their brand tarnished by a marginal operating unit."

Late last year, Diebold said it would announce its long-term strategy for the elections division early in 2007. It said at the time that the unit would be evaluated in terms of profitability, growth, and long-term strategic fit.

Luria says he expects to hear that the division will be sold: "I imagine at this point it's a question of whether have they found a private equity buyer yet or are they about to announce they are going to look for one."

But others are more circumspect. With the possibility of tougher rules governing the use of the voting machines, and no additional funding likely, the voting machines business is looking increasingly uncertain.

Kimball Brace, president of Election Data Services, notes that in Diebold's shoes, he'd be wondering about the benefits of staying in the market, but added that in such an uncertain market, finding a buyer might prove tricky. ®

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