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Size matters

Week 08, 2008

Last week, we announced Ingenico takeover attempt on Hypercom. The process has not been completed, and Hypercom is now in the process of acquiring the terminals activities of Thales eTransactions (cf. Payment section in this issue, and Smart Insights #08-07). As a result, Hypercom becomes a sizeable #3 in the terminals industry, after Ingenico and Verifone.  Thanks to this movement, Hypercom has acquired more smart card expertise, and a more global geographical coverage.

This week, Oberthur launches a EUR 76 million bid to acquire the Swedish card manufacturer XPonCard. The acquisition seems bound to succeed as it is supported by XPonCard Management. With this movement, Oberthur claims it would become the #2 in the Smart Card industry, after Gemalto, and ahead of Giesecke & Devrient.

Theoretically, company size and ranking allow to obtain economies of scale, in purchase and manufacturing processes, as well as in management. But the recent history of the merger between Gemplus and Axalto to form Gemalto has proved that these economies of scale not always offset the difficulties that occur in a merger.

In an industry where most major customers have a multi-sourcing policy, reducing the number of players, and going one step up in the smart card vendor ranking may have a direct impact on choices customers have to make: there was an old saying: "no IT director had ever been fired for choosing IBM". There is still a premium associated with leaders, and top ranking companies. But other differentiation factors also play a role: product offer, service reliability, proximity of vendor's branch, level of service, capacity to develop specific firmware or software, …

Yes, size matters, but not everyone is after size ...

Thierry Spanjaard
Chief Editor
Smart Insights