Vendors Vie For The 'Value Add'.(smart card vendors look for ways to add value to the card and position themselves for the future)

With the smart card itself becoming a commodity, the mantra of major smart card vendors becomes "adding value" to the card. They are not only competing with each other, but with chip makers and software specialists. Our annual survey looks at how card vendors are positioning themselves for the future.

Last year, declining prices, weaker-than-expected demand and a faltering economy hurt the smart card industry's key market for subscriber identity module (SIM) cards for mobile phones. Meanwhile, demand for Europay-MasterCard-Visa (EMV) payment cards did not materialize as quickly as many analysts expected, especially outside Europe. And while the emerging market for chip-based ID cards and travel documents presents an undeniable opportunity, many major government projects are still only in the planning stages.

"The market has continued to remain depressed," says Tim Gower, analyst at London-based Datamonitor. Overall, microprocessor card shipments, the industry's bread and butter, grew by 17% last year, while shipments of lower-priced memory cards fell by 6%, according to Eurosmart, a vendor association. Such major vendors as Gemplus, Oberthur and Orga posted significantly lower revenues in 2002 than the previous year. Several vendors also slashed jobs and reorganized in an effort to boost profits.

Some vendors know that in addition to reigning in costs, they must move up the value chain if they are to survive. Card manufacturers are working to beef up their software and services offerings, even as they're being squeezed by some chip makers anxious to do the same. And while industry experts have predicted consolidation in the smart card market for years, no one has yet stepped up with the cash needed to make a market-shaking acquisition. Some vendors may choose to pursue partnerships or outsourcing contracts instead.

Despite these tough times, some analysts see room for optimism. Demand for 64K SIM cards is picking up, which should help buoy the beleaguered telecom sector. The looming 2005 deadline for EMV compliance in Europe could trigger increased demand in the financial services industry. And emerging interest in machine-readable travel documents and IDs may point toward a huge potential market for the future of the smart card industry.

For now, however, many smart card vendors' fortunes still rise and fall with the mobile telecommunications market. Eurosmart estimates that shipments of SIM cards-which are inserted into GSM (global system for mobile communications) phones-managed …