2004: Brighter Days Ahead?

Smart cards are gaining momentum in banking, government ID, transit and in the well-established mobile phone sector. What are the key projects and decision points to look for in the coming year?

If the smart card industry was plagued by stormy skies in the recent past, 2004 could bring with it some much-anticipated sunshine. Smart card vendors, still licking their wounds after a couple of tough years, are now gearing up to compete for important telecom, ID and contactless smart card contracts. And card orders are growing as major smart card projects around the world gain momentum.

As a result, the fortunes of several major smart card vendors are beginning to turn around. Most vendors struggled to weather a down market by cutting jobs and restructuring their operations. This leaves them healthier and more viable businesses, which Datamonitor analyst Tim Gower calls "a good sign."

France-based smart card supplier Oberthur Card Systems reported that third quarter sales increased by 4.2% to 107.6 million euros (US$125 million) from the same period last year. France-based Axalto, formerly Schlumberger Smart Cards & Terminals, posted third-quarter revenue of $202 million and pretax operating income of $22 million in the third quarter, compared with $162 million and $8 million in the second quarter. Gemplus International broke even on third-quarter 2003 operations, the first time the France-based vendor has avoided a quarterly operating loss in two and a half years. And privately-held Giesecke & Devrient remains profitable, officials at the Germany-based company say.

Orders for subscriber identity module (SIM) cards, which account for the lion's share of smart card revenue, are rebounding, and wireless service providers seem ready to embrace the higher-end cards that can deliver new applications and data services to their subscribers. SIM card prices are also stabilizing, after years of rapid decline.

And while there's good reason for optimism, most smart card industry experts also advise caution. "We're past the days when smart card vendors are overly optimistic about (certain) markets," says John O'Malley, vice president of telecommunications, North America, for Germany-based Giesecke & Devrient.

EMV payment cards will make considerable headway in Europe and some other regions in 2004. But in the United States that move to chip-based credit and debit cards conforming to the Europay-MasterCard-Visa standard is still a long way off.

However, government initiatives to roll out secure ID and travel documents represent a massive potential market, although it may be some time before those projects lead to volume shipments of cards and equipment. And while contactless smart cards are enjoying success in transit, access control, and some low-value payment programs, experts are unsure whether tests of contactless credit and debit cards will result in rollouts.

But banking and ID projects still rank far behind the wireless telecommunications industry as the main market for smart cards. China's mobile phone market has been booming, sucking up more than a third of the world's shipments of SIM cards. There is also growth in new markets, notably the Americas, where more operators are adopting GSM (global system for mobile telecommunications) technology, says Paul Beverly, president, Americas, at Axalto. GSM technology depends on SIM cards to authenticate subscribers to the network.

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