Cashes In by Reading Cards

A Sherman Oaks company is cashing in on the cashless society.

American Magnetics Corp. makes a patented machine that reads information encoded in the magnetic strips on the back of credit cards and then relays the data to computers.

IBM, AT&T;, Mobil Oil and Exxon now use the magnetic card reader in everything from credit-card telephones and automated bank teller machines to gas station pumps that can pull money right out of customer's checking accounts, said analyst Johanna Loevenich of Bateman Eichler, Hill Richards Inc. in Los Angeles. That's made American Magnetics the leading manufacturer of card-reading devices, she said.

As electronic beeps continue to replace hard currency and checks as a means to debit and credit bank accounts, she said, American Magnetics hopes to garner an even larger chunk of a market that is worth "well under" $100 million but could grow to "hundreds of millions of dollars by the end of the decade."

"This company will boom as we move to a cashless economy," Loevenich said. "Right now it's pretty undiscovered."

That's no accident, according to a spokesman for American Magnetics. A low profile is just what the company wants. Drawing attention to the potential profit of the magnetic reading device market invites competition, the spokesman said.

However, American Magnetics recently broke its silence to announce that it has begun full-scale production of magnetic readers that were specially designed for American Telephone & Telegraph Co. to use in pay telephones. "We were just so happy to get the contract," said Hank Hendler, an American Magnetics vice president.

American Magnetics employs 375 people in research and manufacturing facilities in Torrance and Carson, where it has had operations for years. In December it opened a manufacturing plant in Nogales, Mexico, with an undisclosed number of workers. The move is part of the company's effort to cut labor costs to keep up with Japanese companies, its main competition.

American Magnetics was founded in 1971 to make the portion of a magnetic reader that touches magnetic tape--the equivalent of a needle in a stereo system. Over the years, the company expanded the product into an entire magnetic reader--the equivalent of adding a turntable, amplifier and set of speakers to a stereo needle.

For the first nine months of 1984, the latest figures available, the company earned $1.2 million on $12.4 million in sales. Loevenich says she expects the company's revenues to reach $17 million to $19 million for all of 1984 and about $23 million in 1985.

Today, the company's magnetic reader is used mostly for credit cards, which record charges to customers' accounts and are followed by a paper bill sent through the mail. But oil companies and banks are experimenting with debit cards, which charge a checking account directly as a sale is made.

Manual magnetic readers, which customers "swipe their cards through or dip their cards into," sell for about $70, Loevenich says. Motorized readers, which pull inserted cards into machines like 24-hour automated bank tellers, cost about $700.

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