Lipman Electronic Engineering Ltd.

11 Haamal Street, Park Afek
Rosh Ha'Ayin, 48092
Israel
Telephone: (97) 23-902-9730
Fax: (97) 23-902-9731
Web site: http://www.lipman.co.il

Public Company
Incorporated: 1974
Employees: 985
Sales: $235.4 million (2005)
Stock Exchanges: NASDAQ Tel Aviv
Ticker Symbol: LPMA
NAIC: 333313 Office Machinery Manufacturing

Lipman Electronic Engineering Ltd. is a developer and seller of electronic payment systems and software, ranking as the fourth largest point-of-sale terminal maker in the world. Lipman Electronic's range products include wireless and landline point-of-sale terminals, personal identification number pads, electronic cash registers, and automated teller machines. These products are used to process credit and debit electronic payments and other electronic transactions related to prepaid, cellular-telephone airtime, lottery ticket purchases, loyalty programs, gift cards, and transportation ticketing. The company's products are sold to distributors, payment processors, and banks and credit-card companies, who sell the equipment and software to end-users—retail businesses such as fast-food chains, furniture stores, and convenience store chains. Lipman Electronic's products are sold under the "NURIT" and "Dione" brand names. The Israeli company's three largest markets are the United States, Turkey, and Latin America, accounting for 25 percent, 16 percent, and 15 percent of total sales, respectively. Lipman Electronic sells its products in approximately 16 countries.

ORIGINS

Rami Lipman and Aharon Lipman gave their company a fixed location, basing it in Rosh Ha'ayin, Israel, but it took nearly a decade before the brothers fixed their sights on the market that would drive their company's growth. Lipman Electronic was incorporated under the laws of the State of Israel in 1974, beginning as a small company producing electronic products for tuning communication receivers and digital radios for the defense industry. The company's expertise in developing advanced electronic products would carry it through for decades to come, but the market that would feed its growth into the 21st century had yet to take shape when the Lipman brothers embarked on their entrepreneurial career. The retail industry, not the defense industry, became the arena where Lipman Electronic's skills were put on display, providing fertile conditions that enabled the company to become one of the largest of its kind in the world.

The turning point in Lipman Electronic's development occurred after the introduction of the electronic transaction systems. Specifically, the development of automated, point-of-sale (POS) systems triggered the reorientation of the company's focus. Introduced in the early 1980s, POS systems represented a crucial step in the long-term shift away from cash and check payments toward electronic payment transactions. Compared to paper-based processes, POS systems improved accuracy, lowered costs, decreased transaction times, and improved settlement procedures, facilitating the gradual movement toward electronic payments. Lipman Electronic responded to the nascent yet promising market by abandoning its work for the defense industry in 1982, when the company began developing, manufacturing, and selling testing systems for public telephone exchanges, cash registers, and, most significantly, POS products, gearing all its equipment for use by the retail industry. The company completed the final step of its transformation in 1989, when it focused its product development efforts exclusively on electronic transaction systems, introducing its products under the "NURIT" brand name.

An early entrant into the electronic transaction market, Lipman Electronic, like its competitors, was forced to wait for the market to mature to realize it greatest goals. As the number of card-based transactions increased, the opportunity for growth increased as well. Further, the maturity of the market created a demand for more sophisticated devices, engendering the creation of personal-identification-number (PIN) pads, electronic cash registers, automated teller machines (ATMs), smart cards, and various other products that enabled consumers and merchants to complete their transactions electronically. Greater reliance on electronic payment methods, in turn, heightened the need for security measures, spawning a wealth of business opportunities, but the emergence of all the areas that would contribute to Lipman Electronic's growth would take years to materialize. Consequently, the company's stature was held in check, confined by the limits of its market. Lipman Electronic eventually would vie for global supremacy, but the company did not begin to record energetic growth until the market it served asked more of the company.

Of the two Lipman brothers, Aharon Lipman took the lead in terms of playing an active role in running the company. A director and president of the company at its inception, Aharon Lipman added the role of chairman once his company shelved its work for the defense department and turned its attention to the retail industry. A decade after assuming the post, Lipman led the company into the public sector, completing an offering of stock in 1993, when Lipman Electronic debuted on the Tel Aviv Stock Exchange. The year also marked the formation of Lipman U.S.A., Inc., a wholly owned subsidiary created to serve North American customers. The formation of the subsidiary provided the company access to what would become its largest market, eclipsing the importance of its efforts in Israel. Lipman sold 60 percent of his most important business in 1997 to an unaffiliated company, but at the decade's end he purchased the stake he had previously sold, giving Lipman Electronic the full benefit of its efforts overseas just as the electronic transaction market was beginning to ask for more of its equipment developers and vendors. Lipman Electronic ended the decade, and its first 25 years in business, with nearly $37 million in revenue. At the company's 30th anniversary, management celebrated reaching a figure more than three times the total recorded in 1999. The period witnessed energetic growth, as the electronic payment industry and the POS terminal market in particular offered opportunities to expand that Lipman Electronic exploited.

COMPANY PERSPECTIVES

Excellence is the cornerstone of all our endeavors. At Lipman, we place great emphasis on maintaining the highest possible standards of quality. Our products combine innovation and technological advancement with security and reliability. Maximum quality, maximum cost efficiency and maximum ease of use are the pillars upon which Lipman has built its reputation as the industry leader. Providing supreme customer support is the very essence of our business ethos. For Lipman, customer satisfaction is not a slogan; it is a core value, inspiring us to develop strong and lasting relationships with our customers based on trust, integrity and a devotion to outstanding service. As a customer-driven company, we make it our business to be attentive to the needs of our customers, and to have the ingenuity and resources required to provide the right solutions at the right time.

RAPID GROWTH ENTERING NEW CENTURY

A number of factors contributed to Lipman Electronic's robust financial growth as it entered the 2000s. Advances in technology and the public's growing use of electronic payment methods spawned new types of products that could be used in a variety of new applications. The advent of smart cards and stored-value cards, for instance, promoted the adoption of POS terminals in taxicabs, lottery systems, and by healthcare and government agencies. The use of more traditional cards, such as credit and debit cards, increased as well. According to the Nilson Report, card-based payments in the United States—Lipman Electronic's largest market—increased from 19.7 percent of total consumer payment transactions in 1995 to 28.6 percent by 2001. Elsewhere, particularly in developing countries where few electronic transaction systems had been in service during the 1990s, the rate of growth was higher, presenting Lipman Electronic with tantalizing opportunities. Conditions were ideal for the company, but it also benefited from its own actions rather than merely waiting for external forces to move it along. Perhaps the most important decision in the company's history was made years before market conditions became conducive toward fast-paced growth. In 1995, the company incorporated wireless POS terminals into its product line, becoming one of the first major POS manufacturers and vendors to delve into the wireless arena. Lipman Electronic's development of wireless POS terminals put it in a prime position to take advantage of the widespread adoption of wireless devices in the first years of the 21st century, giving the company one of its signature strengths when it ranked as a global leader in the POS terminal market.

As Lipman Electronic entered the 21st century, it found itself in a race chasing the industry's three largest vendors, France-based Ingenico S.A. and two U.S.-based companies, VeriFone Holdings, Inc., and Hypercom Corporation. The industry elite branched into the wireless arena, but they made their moves several years after Lipman Electronic had launched its foray. The company's early lead in the wireless market distinguished it from larger rivals, as did its approach to international expansion. Major competitors were active in many more markets than Lipman Electronic, participating in POS terminal markets in upwards of 100 countries. Lipman Electronic followed a more disciplined expansion strategy, choosing markets with high growth potential and tailoring its products and services to the needs of its select markets. By 2003, when the company ranked as the fourth largest POS terminal maker in the world, it operated in 16 countries, collecting the bulk of its revenues from the United States, Turkey, and Spain, which, combined, accounted for more than 75 percent of its total sales.

Known for its skill in the wireless segment and for a focused growth strategy, Lipman Electronic stood poised to take on larger rivals as its 30th anniversary approached. The company's sales total in 2003 reached $117 million, which was substantially less than third place Hypercom's $232 million in sales, but Lipman Electronic pushed forward aggressively to narrow the gap. In 2003, the company formed a joint venture with two other partners, taking a 25 percent stake in the partnership, and began to develop and market prepaid cellular airtime payment systems in Israel. The following year it formed another joint venture partnership, this time taking the lead with an 80 percent interest, and began marketing automated teller machines (ATMs) in Israel. Lipman Electronic began installing ATMs in 2005 and seized 9 percent of the market by early 2006, when the company presided over 139 ATMs in its home country.

ACQUISITION OF DIONE IN 2004

The company's most notable achievements in the months surrounding its 30th anniversary took place outside Israel. In January 2004, the company made its debut on the NASDAQ National Market, selling 2.25 million shares and raising nearly $90 million to fund its expansion. Later in the year, the company put the proceeds to work by completing the acquisition of Di-one PLC, a POS terminal vendor based in the United Kingdom. The acquisition, completed in October 2004, provided Lipman Electronics with entry into the United Kingdom, which immediately became the company's fourth largest market, added significant sales in Finland and South Africa, and strengthened its capabilities in the U.S. market, particularly its relationship with multi-lane retailers such as large supermarkets.

KEY DATES

1974:

Lipman Electronic is founded.

1982:

After serving the defense industry during its inaugural decade, the company tailors its products for the retail industry.

1989:

Lipman Electronic introduces its point-of-sale products under the "NURIT" brand.

1993:

The company debuts on the Tel Aviv Stock Exchange.

1995:

Wireless POS terminals are incorporated in the company's product line.

2004:

Dione PLC is acquired.

2006:

VeriFone Holdings announces its acquisition of Lipman Electronic.

Lipman Electronic also recorded growth through internal means during the period, increasing its market share in every country within its operating territory. The company registered its greatest growth in countries such as Brazil, China, India, and Turkey, where conventional landline telecommunications were poor, providing an ideal setting for it wireless POS terminals to garner sales. Additionally, the company was recording robust growth in Latin America, where governments were modernizing their economies by using electronic payments to improve value-added tax and sales tax collections. Latin America accounted for $10 million of Lipman Electronic's volume in 2003. By 2005, the region accounted for $35 million of total sales.

The advances made during the first half of the decade brought Lipman Electronic tantalizingly close to passing its closest rival, Hypercom. In 2005, Hypercom generated $245 million in sales. Lipman Electronic collected $235 million during the year. Just as the race between the two companies tightened, however, it appeared to be over. In April 2006, the industry's second largest competitor, VeriFone, announced it had reached an agreement to acquire Lipman Electronic in a bid to usurp Ingenico and become the largest POS terminal vendor in the world. The $793 million deal, expected to be completed in October 2006, was hailed by VeriFone's chairman and chief executive officer, Douglas Bergeron, who coveted Lipman Electronic's wireless capabilities. "Everywhere they compete, they have the leading share of the wireless installed base," Bergeron said, referring to Lipman Electronic in an April 11, 2006, interview with American Banker. VeriFone, with $485 million in sales in 2005, was expected to control 33 percent of the global POS terminal market after acquiring Lipman Electronic, eclipsing the 22 percent share held by Ingenico. For Lip-man Electronic, the deal meant an end to more than 30 years of independence, but its legacy of achievement, particularly in the wireless segment, formed a vital component of what promised to be the largest terminal maker in the world.

PRINCIPAL SUBSIDIARIES

Lipman U.S.A., Inc.; Lipman Elektronik ve Danismanlik Ltd. (Turkey); Dione Ltd. (U.K.); Lipman do Brasil Ltda. (Brazil).

PRINCIPAL COMPETITORS

Hypercom Corporation; Ingenico S.A.; VeriFone Holdings, Inc.

FURTHER READING

Breitkopf, David, "In Brief: Report: VeriFone, Israeli Rival in Talk," American Banker, March 29, 2006, p. 10.

―――――, "VeriFone Vaulting to Top Globally in Lipman Buy," American Banker, April 11, 2006, p. 5.

"Lipman Bids for Bigger Share of POS Market," Cardline, October 8, 2004, p. 1.

"POS Terminal Vendor Lipman Gets NASDAQ Listing," Cardline, January 30, 2004, p. 1.

"VeriFone to Buy Lipman Electronic Engineering for $793 Mln," America's Intelligence Wire, April 10, 2006.