The price of saving money

International Game Technology wants to cut its operating costs by $100 million a year, but it needs to spend money to save money.

The Reno-based manufacturer of slot machines said in a filing with the

Securities and Exchange Commission last week that it expects to spend between $16 million and $21 million in the next few months on the costs of big layoffs it announced 10 days ago.

The company will reduce its staff by approximately 460 positions 8 percent of its worldwide workforce through a combination of early retirement offers and layoffs. About 300 of the lost jobs will come at IGT's Reno facilities.

That plant, the largest manufacturing operation in Nevada and the largest private-sector employer in Washoe County, had about 3,000 workers before the staff reduction.

The staff reduction is only part of a cost-reduction drive that will continue into 2009, IGT executives told securities analysts in presentations in recent days.

Among other steps to be taken by the company, they said, are:

* Looking for ways to use materials more efficiently.

* Increasing the efficiency of manufacturing operations.

* Taking a close at research and development expenses and set priorities for new products.

* Reviewing the areas of responsibilities of the company's management team.

The company told securities analysts its goal is to get its operating margins back to about 30 percent. Margins have been around 26 percent in recent months, and slipped to under 24 percent in IGT's most recent fiscal quarter.

The company's traditional line of business manufacturing and selling slot machines produces the lowest margins of any of business units.

Machine sales account for 31 percent of the company's revenues and a 46 percent gross margin.

More attractive are IGT's gaming operations essentially, those linked networks of slots that provide big payouts. That business generates 53 percent of the company's revenues at a 58 percent gross margin.

And most attractive of all is what the company calls "non-machine sales" a category that includes server-based gaming systems that allow casino operators to run their floors from a central location.

Non-machine sales generates only 16 percent of IGT's revenues these days but the segment produces gross margins of 70 percent.

And the segment continues to grow.

Last week, for instance, IGT showcased slot-tournament software that will allow casino operators to keep track of head-to-head and real-time tournament concepts through a server-based system. The software was created by a third-party developer, Strategy9 of Toronto, and rolled out at the Global Gaming Expo in Las Vegas last week.

The company needs sales of server-based gaming and other new products to offset a sharp slowdown in its traditional markets.

Unit sales of traditional slot machines in the company's most recent fiscal year were 58 percent below their levels of 2004. At the same time, however, the company's revenues in its last fiscal year were the second-highest ever.

The company is telling analysts, too, that it wants to be cautious and keep liquid in the face of economic uncertainty. Along with its cash, IGT had $1.2 billion available through its line of credit at the end of September.