>> MEMORY-HUNGRY GSM GOBBLES UP POWERFUL CHIPS
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Card Technology
Feature Story
July/August Edition
1999 was the year of the subscriber identity module card. SIM cards led the industry to record revenue during the year and promise to help chip makers to continue to burnish their bottom lines in 2000.
By Dan Balaban
Chips for smart cards got fatter in 1999 and so did the coffers of chip manufacturers, say industry observers, who point to ever-growing demand for memory-intensive cards for GSM cellular phones.
Manufacturers hauled in $806 million last year, up by 34% from $602 million in 1998, on shipments of more than 1.5 billion chips, according to the Dataquest unit of Stamford, Conn.-based GartnerGroup. The manufacturers made most their revenue on sales of chips with microprocessors, including chips for SIM cards, which identify subscribers in GSM phone networks. This income increased 44% to $648 million on shipments of 488 million microprocessor chips, says Andrew Phillips, UK-based senior analyst at Dataquest.
Chips with microprocessors, which can manipulate as well as store data, account for just over a quarter of total chip shipments. But they represent a much more lucrative market than the tens of millions of memory-only chips vendors also ship each year, mainly for prepaid phone cards. While the industry's top three semiconductor manufacturers, Munich-based Infineon Technologies AG; STMicroelectronics N.V. of St. Genis, France and Geneva; and Tokyo-based Hitachi Ltd., reaped most of the revenue from the growing sales, there was plenty of room for smaller players.
This included U.S.-based Atmel Corp. and NEC Corp. of Japan, which both saw demand for their chips jump in 1999, especially near the end of the year as silicon supplies became tight, says Dataquest's Phillips.
"Whereas in the past, the card vendors would say, 'I'm getting the product from Infineon or ST or Hitachi, and they (chips) work,' the position changed," he says. "'If I don't buy the silicon from you, Mr. Atmel and Mr. NEC, I can't buy the product.'"
The shortage has deepened since the first of the year and is not expected to abate until well into 2001. At the same time, GSM operators are clamoring for more and more memory on their SIM card chips, seeking to win subscribers by packing a broader array of services onto the cards.
European telecommunication companies have had the largest appetites for chip memory. As the number of GSM network start-ups increases, so does the number of applications on SIM cards, from mobile banking to electronic games. But with competition for customers heating up in Asia, demand is also growing there for SIM cards that can do more than identify subscribers when they make phone calls. Increasingly, the operators are asking for SIM cards with chips that carry 32 kilobytes of application memory, the largest on the market last year.
"I don't think the market can get enough 32K," says Ian Duthie, UK-based marketing manager for Atmel smart card ICs. "Moving into new markets like Asia, maybe they're now ready to pay the price of new SIM cards."
At $4 to $5 or more per card, including chips, plastic and software, operators seem ready to pay for these bulkier cards. More than a third of the microprocessor chips manufacturers ship this year will contain 32K of application memory or EEPROM (electrically erasable read-only memory), compared with 10% in 1999, Phillips says. Some card vendors say they may even sell SIMs with 64K of application memory, if the chips are available.
"The memory is doubling every year," says Lydia Aldejohann, head of product marketing for the telecommunications unit of Munich-based card manufacturer Giesecke & Devrient GmbH.
'Telephones Are For Talking'
The silicon shortage, however, makes it unlikely chip vendors will sell many 64K cards this year. The standard 8K card probably predominated last year, and will account for millions of cards this year, say observers. The reason is simple. Harried semiconductor manufacturers can churn out two to three times more smart card chips that carry 8K of application memory than chips with 32K, says Peter Uehlecke of STMicroelectronics.
He notes that more than half of GSM phone customers prepay their accounts and most do not want the range of new services operators are offering on 16K and 32K chips. "The majority of people in this world want to use the telephone to talk; they don't want to use it as a PC," he says.
Still, last year's results show chip makers with higher-memory chips in stock did well. Hitachi, which had been a minor supplier of SIM cards the past four to five years jumped to No. 3 in the Dataquest survey, up from fifth the year before. That is thanks in large part to the 16K chips it had on hand.
Hitachi also supplied chips for a smart card launched by Japanese retailer Mycal Corp., which began last year converting its 5 million credit cards from magnetic stripe to chip, as well as for other payment card projects. All told, Hitachi shipped 61 million microprocessor chips last year, up from 28 million the year before, according to Dataquest. The company's chip revenue doubled to $80 million.
Hitachi was "there at the right time with the right products," says Jean-François Chouteau, director of the smart card application center in Paris for Tokyo-based NEC. NEC itself shipped 5 million to 8 million microprocessor chips last year, after having entered the smart card industry only a couple of years ago.
Hitachi also is one of the manufacturers that card vendors come to see when they want 32K chips, say observers. Infineon also had some larger chips to sell.
Industry observers say the Munich-based manufacturer introduced the first 32K chips to the market last year, during which it surpassed rival STMicroelectronics in microprocessor chip shipments, according to Dataquest. Infineon declined to release figures for either 32K or 16K chip shipments.
The chip maker, which completed its spin-off from Siemens Semiconductors earlier this year, was also the preferred supplier to card maker Giesecke & Devrient GmbH of Munich, the largest shipper to German banks in 1999. The banks reissued most of their nearly 60 million debit and chip-based electronic purse cards during the year.
The card manufacturers say they can use every piece of silicon chip makers can produce. Some card vendors say they could find buyers for 30% more SIM cards if they could get the chips. Of course, the silicon shortage is striking many different markets for semiconductors, and chip card units have to compete with other divisions for supplies. Some in the smart card industry feel neglected by chip makers, which they say give priority to such markets as cellular phones and other consumer electronics.
"The problem, why we have this shortage in the first place, is that they (chip makers) just decided, they could make more money with devices, and we have to suffer," says Sigi E. Eichinger, president of the North American unit of Paderborn, Germany-based Orga Kartensysteme GmbH. <<
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