Brother Markus, I'm glad you went out and bought yourself a "smart-card".
>>March 13, 2002
Right place. Right time.
Smart moves. Smart cards.
Those are major reasons why shares of Cubic, which languished for years between $20 and $30, have shot above $60, and the venerable company is now planning a 3-for-1 stock split.
William Boyle, the company's chief financial officer, says earnings will grow 20 percent this year. Cubic earned only 8 cents a share in 2000, then rebounded to $2.34 last year, and followed that with a strong first quarter of 2002.
Despite the stock's surge, few analysts follow it. Some stock watchers think Cubic's shares are zooming because its defense businesses – such as complex simulated training systems – are perfect for the current military environment.
But what may really be titillating Wall Street is the company's smart-card technology – and the fact that it has the Washington, D.C., transit fare systems business, utilizing smart cards.
A smart card is embedded with a microprocessor or memory chip. Unlike magnetic-stripe cards, smart cards carry massive amounts of information, not requiring access to remote databases.
For most uses, smart cards are bigger in Europe than they are in the United States.
Cubic's smart cards are used by the Washington Metropolitan Area Transit Authority. In recent months, Cubic has gotten smart-card transit contracts from Minneapolis, Chicago and Los Angeles.
There are negotiations with other cities, including New York and San Francisco. Cubic utterly dominates smart-card transit in the United States.
Washington in particular is concerned about security, and smart cards can provide it. In November, its transit agency became the first in the nation to use smart cards for employee identification and building access.
To enter and leave the building, employees simply touch their cards to Cubic readers at entry points. The system authenticates each employee's identity.
There is a similar system at one building for Department of Education employees.
Washington is a transit-oriented city, and Cubic's system there is sophisticated. For example, for those parking cars, "you wave a smart card and the gate opens," says Richard Johnson, chief operating officer of Cubic Transportation. "If you ride transit, parking is at a lower rate. But if you park and do not ride, you pay a higher rate."
The smart card keeps track of all that and many other things, too, such as the monthly subsidy that employers pay employees to use public transit.
Johnson expects that the Cubic transit smart card will be used for security at many other Washington locations. "We've made a number of proposals to a number of different federal agencies," he says. He expects similar business from other cities, too.
Cubic recently set up a new operation, Cubic Security, to do research on more applications for the smart card. "We are prototyping a door-access system using thumbprints," says research scientist David Carta. Cubic is also working on embedding facial profiles in cards. "It could be used for any high-security application," Carta says.
"We are partnering with companies that have established bases in biometrics, and we are adding value," Johnson says. "We are partnering with a major maker of driver's licenses. You will see Cubic partnering with other large, big-name corporations for use of smart cards not related to transit."
Now residents of Hong Kong are getting a smart card as an ID card. Some other countries are setting up national IDs. Cubic does not have national ID business abroad, and Johnson thinks there will be political resistance in the United States that will have to be overcome.
Meanwhile, he points to a study by consultant Frost & Sullivan predicting that transit smart cards will grow 47 percent a year for the next five years in North America. That's Cubic's territory, and even big players such as Sony and Philips are struggling.
"They're trying to crack the U.S. market, but have not been able to," Johnson says.
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