Making money out of smartcards is an uphill struggle as prices are constantly tumbling and process was given an added twist in 2006 as most of the growth was in lower priced produces for developing countries.
The forces that led Gemplus International SA to merge with Axalto Holding NV to form Gemalto NV are still at work and in its first year as a combined company income of 45.2m euros ($59.9) was turned into a loss of 66.3m euros ($87.8m) on revenue 66.5% higher at 1.3bn euros ($1.7bn).
On a pro forma basis, as though the two companies had been combined for the two years, revenue actually fell 1.5%. The biggest SIM card sector is responsible for it showed an 8.9% decline in sales to 1bn euros ($1.3bn), though deliveries were 33% higher. The problem was that SIM card prices fell by 31% due to strong demand for entry level and mid-range products for emerging countries.
Nor is there likely to be much change in 2007. In the first half demand will be driven by emerging countries. On the merger, it says cost synergies are materializing progressively in line with the its expectations, but they will not be sufficient to offset the adverse effect on the operating margin of the strong price decline.
Gemalto promises to proactively make necessary adjustments to its cost base and remains determined to reach its objective of an operating margin above 10% in 2009.
Smaller competitor Oberthur Card Systems SA also reported its full-year figures and it was always likely to benefit from the merger that led to Gemalto as customers like to have a second source. In the event, Oberthur saw net income fall 69% to 9.5m euros (12.5m) on revenue 4.6% higher at 524m euros ($693m).
Oberthur is less dependent on the SIM card sector, though it saw sales rise 11.5% to 181.4m euros ($239.9m). New CEO Philippe Geyres is conducting a fundamental review of the group but in a world of continuing price deflation, this looks like becoming a permanent process.