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Industry CEOs deliver their vision

Week 45, 2006

Among the major questions discussed during the session, were the potential mergers in the smart card industry. We witnessed a mega-merger since the last Cartes exhibition (Gemalto was announced in December 2005), and, of course, many analysts consider that with such a gap between the industry leader and the followers, more events should happen in the near future. Industry leaders left the audience short of major announcements. Gemalto now has more than 50% marketshare, so it can't be a candidate for any major acquisition now. Mergers may happen between the other major industrialists: Giesecke & Devrient, Oberthur and Sagem Orga. Even if mergers do not happen within the industry, local acquisitions like I'M Technologies, Singapore, acquisition by Oberthur (cf. Smart Insights #06-41) are likely to take place. Olivier Piou mentioned that even with an ASP (Average Selling Price) down 35 to 38% over the first nine months of 2006, in the whole industry, marketshare remained about the same as last year. He concludes the market is not price-sensitive, a statement not everyone agreed on.Another major move is the upcoming integration between the global world of IT and the smart card industry. Olivier Piou, CEO of Gemalto, vision is the one of a big digital security space industry, where the smart card will only be a security device among others. Patrick Samier, Sagem Orga CEO, reminded the audience Sagem (and more globally the Safran Group) has been in IT security for the next 25 years, and the acquisition of Orga can be seen as a milestone in the development of this activity.

All Industrialists agreed on the fact very large memory SIMs are bringing a rupture in the SIM card ecosystem. But before large memory SIMs become a standard, the industry will have to solve a few issues like the standardization for the high-speed protocol (cf. Smart Insights #06-22). On the other hand, the SIM card, with its more than 2 billion units sold every year cannot be considered as a single market: there will be the need for different products to satisfy the needs of different market segments and locations. For the lower end market, price is the major decision-maker. For more advanced cards, very large SIMs may become shortly the major source of innovation in the smart card industry as they allow more interaction with the IT security market.

Of course contactless cards and NFC are seen as major evolutions in the industry. G&D has set up a joint venture with Nokia (cf. Smart Insights #06-26) to propose over the air applet download. Other industrialists said they'd like a more open solution than just one smart card manufacturer and one handset manufacturer. Gemalto's CEO thinks there is a need for a balanced approach between various stakeholders: the mobile operator, the payment operator and the transport operator; some field tests do exist like the Navigo transport pass in Paris that can be reloaded with a Sagem handset and Bouygues as a telco.

We're not sure this 2006 session of the world summit is the one with the most announcements. Voices in the industry say there is a real need for resting and stabilizing the industry before any new merger. Pierre Barberis, Oberthur Card Systems CEO concluded: "How can you trust any of us? Last year, in the same conference, Olivier Piou and Alex Mandl swore nothing was happening while they had spent all the previous week end negotiating the details of Gemalto merger."

Thierry Spanjaard
Chief Editor
Smart Insights