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Tuesday, September 19, 2006

What Do Investors Think About Diebold Voting Machines?


Just what does the investment community think about Diebold voting machines and the controversies surrounding them? It looks like they don't think much of it at all right now, but this is a long-lasting topic that may not be easy to send away.

Before going much further, this has not been the first coverage of this ongoing issue. It also will not be the last.

There have been many questions about the accuracy and reliability of electronic voting machines. While I have been looking at this situation for a while with some question about the reliability of these machines, my focus is really about how reliable this makes Diebold (DBD) who makes the machines from an investor's point of view. Electronic voting machines could be a new large business for the dominant ATM manufacturer in the US. The company claims some 30,000 of its Optiva ATM's have been installed in the US since 2003, so you can imagine what a potential add to the business all of the thousands of electronic voting machines could add.

Before I go much further, I do need to make one statement. Paper voting ballots of today at most locations are the evolution of written out or manually checked ballots of the past. Those in turn were the evolution of hand raised votes or open outcry in public voting. Unless we are heading backwards on the evolutionary scale, electronic voting machines will be used in future elections. The real questions are the following: To what extent? How far out in the future? Who will make them? While these cannot be answered with shear certainty, it may already be a foregone conclusion. Evolution is something that occurs naturally or artificially through time, and it is probably safe to say that this is set to evolve too.

This video was added late last week to YouTube off of a Princeton effort to show how easy it was to taint or steal elections. Please understand that this inclusion here is not meant in a politically motivated effort by being discussed here, but it does bring up the question of how reliable the Diebold electronic voting machine will be and makes one wonder how much potential voting machine revenue could be there in all of the various elections and for other issues requiring a vote.

Diebold AccuVote TS voting machines were tested. The site said that 10% of November elections will use this, but the Fox demonstration and subsequent interview said 5% of the country uses the machines.

A Princeton University computer science professor named Edward Felten and two graduate students described how they had tested a Diebold AccuVote-TS machine they obtained, found ways to quickly upload malicious programs and even developed a computer virus able to spread such programs between machines. They also demonstrated how easy it was to pick the key locks on the machine.

The Princeton video itself is over 9 minutes and does run on audio, so you may wantto turn down your speakers if you are in a group setting or open office environment.

http://www.youtube.com/watch?v=lwWP-N1HqT0

The Princeton site is at the following URL:
http://itpolicy.princeton.edu/voting/

Here is the seperate FOX video:
http://www.youtube.com/watch?v=8JESZiLpBLE&mode=related&search=

The testers did a ficticious election between George Washington and Benedict Arnold, and even though the votes were cast for George Washington they were able to make Benedict Arnold appear as the winner without any trace of tampering and without any code remaining behind. It is probably a bit soon to start endorsing video off of YouTube for legitimate financial news, but this still brings about the question of how reliable these first generation electronic voter machines are and how vulnerable they are to election tampering. The malicious code can even spread from machine to machine, although this requires a virus to be uploaded into the machine.

We have noted in a previous article in July about some of the issues of public trust, and that was even before the later article written in August discussing the vulnerabilities to error.

Please understand that the efforts here are not only to focus on the legitimacy of voting machines as far as these going mainstream as the voting standard, but how this can help or harm Diebold (DBD) shares.

This is not a new controversy at all, and it probably won't stop being a controversy until our elections only have one candidate per job. CBS had an article from 2004 discussing many of the same controversies, but in far less detail. HERE is a sample of that: http://www.cbsnews.com/stories/2004/07/28/sunday/main632436.shtml

Diebold did issue a statement on this back on September 13. The middle comment from the company is as follows: "By any standard - academic or common sense - the study is unrealistic and inaccurate."

The company also responded to a New York Times editorial regarding equipment testing in Ohio on September 5, 2006.

You should also keep in mind that the "From" section of each of these videos has some interesting names on the YouTube site. There are names like "stopgeorge" and "neochosen"and "ivygate," so this might not be a fairly balanced report on that side of it. We tried to offer you both sides with all the above links. This topic, depending on what side you are on, is probably one that cannot be covered objectively. Conspiracy theorists could say that Diebold could fix an election, and Diebold could just as equally say that they are only paranoid. Unfortunately, both can be right and wrong in the same sentence.

Investors haven't made their minds up yet either, and we provided a link to a chart to demonstrate it. Shares of Diebold (DBD) had crept up to just over $42.25 on September 5, 2006, but then traded down to $41.00 before recovering to Monday's close of $41.97. Trading volume in the stock hasn't exactly been off the charts either of late, so it looks like the street doesn't know how to treat this yet. It may not even be an issue until 2008 when there is the possibility that voting machines are far more prevalent across the country. Either way, this controversy is one that is sure to remain almost no matter what happens.

Jon C. Ogg
September 19, 2006
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