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Sagem to pull out of handsets, Sagem-Orga future uncertain

Thursday 14 September 2006

Sagem is part of Safran group, created in 2004 as a French government-backed merger between Snecma and Sagem. Snecma business was aircraft engine manufacturing, whereas Sagem was a specialist in telecom equipment for aerospace industry, military industry, biometrics (fingerprint recognition) and handsets, smart cards, payment terminals…. Safran sales in 2005 reached EUR 8.7 billion and the company employs 58,000 people in more than 230 countries. Inside sources mention the merger was never accepted by people in both companies, and was never really implemented down to the field: managers never really accepted the merger, computer systems remained separate, company cultures remained antagonistic.

In the past, Sagem had been known to be one of the few companies to remain manufacturing fax units in Europe, and making profits out of these activities. Sagem activities in telecoms encompass handsets division, defense-oriented telecom activities and the Sagem-Orga division, in charge of smart cards born from the merger of Sagem previous smart cards activities with Orga acquisition in 2005. Sagem involvement in handsets manufacturing was a decision of Gregoire Olivier, historical CEO of the company who left beginning of September. So far, Sagem had resisted the push for delocalization, and is still manufacturing its handsets in France, along with an agreement with Ningbo Bird from China. But the movement is global: Alcatel sold its handset activity to TCL (China) in 2004, and Siemens sold its handset division to BenQ (Taiwan) in 2005.

The French government still has a 31.3 % stake in Safran, and another 19.1% is owned by company employees. Safran posted half-year proforma operating profit of EUR 231 million down 35% vs. H1/2005. Net profit for H1/2006 reaches EUR 133 million, down 36% vs. H1/2005. Safran already announced in July a lower than expected revenue of EUR 5.5 billion. The communications unit plays an important role in these figures with losses amounting to EUR 67 million vs. EUR 11 million in H1/2005. Another point is the restructuring cost of Sagem Orga smart card division.

The sale of Sagem handsets division could open a period of uncertainty for the smart card activities. At the time of Orga acquisition, the synergy between Orga activities and Sagem handsets, payment terminals, and biometrics had been put forward as a major reason for the acquisition. Once handsets division will be gone, the future of Sagem Orga might be uncertain, even if Sagem Orga activity is expected to break even in 2007.