From massive layoffs to mergers?
Oberthur net result for 2006 was only EUR 9.5 million, a 68% fall compared to 2005. Gemalto 2006 results were even worse: the company made just EUR 1.6 million profits out of a sales figure exceeding EUR 1.6 billion. Q1/2007 figures have shown little improvement, with a 12% increase vs. Q1/2006 for Oberthur Card Systems, but a 7% decrease for Gemalto sales compared to Q1/2006.
The times when Europe represented 80% of the smart card market are long gone. According to Eurosmart, Asia Pacific now accounts for more than 45% of microprocessor card shipments whereas Europe only represents 41%. Chinese and Indian smart card companies are gaining more weight every day. It is only logical that the 'historical' industrialists are hit by the changes.
At the same time, the focus of the industry is changing. ID segment is increasing both in volume and in value added, as ID projects usually represent a large systems integration business. Even if the mobile communication business is expected to have an 18% growth in volume in 2007 according to Eurosmart, its most basic technologies are now more easily available than in the past to new entrants in the smart card industry, and the higher end segment is not taking off as fast as expected. On top of this, the banking segment is growing with the expansion of contactless and EMV cards, but offers little differentiation means and significant margins to the industrialists.
When announcing the Gemplus – Axalto merger into Gemalto, in late 2005, Olivier Piou, forecasted the smart card industry would dissolve into a branch of the much larger IT security industry. This has not happened yet, even if smart card based IT security projects abound.
What's the status now? Gemalto and Oberthur Card Systems announce massive layoffs, Giesecke & Devrient (G&D) is also hit by falling ASPs, and Sagem Orga is also the victim of management crisis at group level. Future mergers and acquisitions are bound to happen shortly. The industry abounds with rumors: according to some, Oberthur Card Systems could acquire Sagem Orga, or even build up a larger player putting together Giesecke & Devrient, Oberthur Card Systems and Sagem Orga. There are even rumors about an acquisition of Oberthur Card Systems by Gemalto… But the surprise could come from the arrival of new players. Close ties can be built between historical players and Asian industrialists, or a major IT security vendor could weigh in the industry and buy any of the smart card vendors.