onami Corp, best known for video games such as the Metal Gear Solid and Castlevania series, got licenses to make and sell casino gaming machines in the US market as recently as 2005.
Since then, Konami, which means 'a small wave' in Japanese, has almost inconspicuously made large gains, with some analysts estimating its share of slot machines sold at 10 percent to 15 %. "The real story is that a lot of investors don't even know about Konami and that it is a meaningful player in the slot market," Roth Capital's Eilers said.
He projected total 2010 slot machine sales in North America of about 71,000 units, worth about us$ 1.1 billion.
The American Gaming Association (AGA), which says slot machines continue to be the favorite casino game of a majority of Americans, estimates an installed base of nearly 833,000 gaming machines spread out across 38 US states.
Konami's success has been attributed to a mixture of factors, including its engineering talent, experienced localized management team and strong backing from its parent company in Japan. Its recent slate of games has also been well received and many casino managers, who are otherwise reluctant to loosen their purse strings in a down market, have spoken of the increasing popularity of those games, several analysts noted.
"They've been able to leverage their engineering talent from Japan really well to incorporate unique aspects in their games that the other suppliers don't have," analyst Eilers said. He pointed to the company's Advantage Revolution game as an example of its differentiated product offering. "The Advantage Revolution game has a mechanical drive shaft which can shift between a video slot machine and a mechanical reel. There's nothing else like it in the marketplace."
Janney Capital Markets analyst Brian McGill agreed and said the Advantage product was "very popular and allowed them to gain a footing in lot of casinos they hadn't been in earlier." Besides the technology edge, pricing has also helped drive Konami sales. "We've heard that Konami typically prices units in-line to slightly below major competitors," Sterne, Agee & Leach analyst David Bain said.
Roth's Eilers said apart from WMS, all the other major players - IGT, Bally and Aristocrat -- have suffered from the new competition, with Janney's McGill pointing to Aristocrat as the worst hit. "Konami has taken share equally from the three of them but the major loser has been Aristocrat," McGill said.
While analysts agree on Konami current run, they are not as unanimous on its ability to continue to grow share and challenge the big players consistently. "These trends can change on a dime without unique technology. So right now we see it as more (noticeable) as its content is a little hot." Sterne's Bain said.
Bain said that while Konami has been shipping 10 to 15 % of domestic placements recently, their market share of total installed base in casinos is much lower - at about 5 % or so. And even though the US business has received strong backing from its parent, the analyst said casino gaming equipment was still not a core business for the Japanese company, which he said has a relatively small focus on it.
The Japanese company's Gaming & System division, which includes its North American and Australian units, contributed about 8 % to Konami Corp's revenue for the fiscal year ended March 31. However, others were more bullish.
"We have heard Konami described by its competitors as a 'niche' player but, given the multi-year improving trends, this seems less and less likely," Goldman Sachs analyst Steven Kent noted in a note dated June 15. "We fear that the major slot players are not paying enough respect to this smaller player and that the big four - IGT, WMS, Bally, and Aristocrat - may soon become the big five."