SchlumbergerSema possible IPO of Smart Card Division
Gemplus References
>> Schlumberger: Where Shall We Go and What Shall We Do?
Anoop Ubhey
Smart Card Industry Analyst
Frost & Sullivan
Friday, 25 April 2003
frost.com
If I had asked this question over a year ago about SchlumbergerSema many people would have laughed at me, but asking this question today, many would not be able to give me an answer. It is no secret that SchlumbergerSema have also suffered the onslaught of falling prices in the smart card arena. Back in December last year it was announced that the Board of Directors had approved an updated strategy for its SchlumbergerSema business segment. SchlumbergerSema will focus on IT consulting, systems integration together with network and infrastructure solutions, primarily in global energy while continuing to develop specific regional market sectors. The volume products' activities, which include smart cards, point of sales terminals, payphones, eCity terminals, electricity meters', payment systems and telecom software products will be managed separately.
Now, when this was announced there were more rumours in the market about the commitment behind this move, was SchlumbergerSema's smart card business up for sale, what was going to happen? The division was surrounded by many questions as to where it was heading.
Now, just last week the head of the smart card division announced that the corporation is heading for an initial public offering (IPO) of the unit. To be honest, in my opinion this is not 'new' news as just simply looking back at the so-called 'new' strategy stated in December it was indirectly saying the same thing.
Sell the Division, Float or Partner - Which One?
Selling the division, finding a partner to share the costs, floating, or even running the division separately is still the aim. I guess reducing their debt is the number one priority, the question is how will they go about doing this. So, does this mean the smart card division of SchlumbergerSema is up for sale? Silicon vendors - are you looking and taking note. However, rumour has it that another smart card manufacturer is quite keen on what is happening at SchlumbergerSema - now would this be to partner or a straight buy out - we will have to wait and see.
Now an IPO theoretically could boost investor confidence in a flailing smart card industry. Looking at Gemplus with all their internal problems, they are a public company and it can be argued that a lot of the lack of confidence is a direct result of what has taken place at Gemplus over the past 12-18 months.
IPO - It Depends on the Market Later This Year
A lot of this depends on the smart card market and growth later this year and the conditions available for SchlumbergerSema. SchlumbergerSema released their expectations for 2003 and they seem to be quite realistic which some of their assumptions. Just looking at MCUs, they can see an 11 percent increase to more than 800 million units. While many of its competition would say SchlumbergerSema are quite bullish with their estimates, I agree that significant gains will be made in the banking and national ID sectors in the coming year. I believe there will also be growth in the 'high-end' SIM market. Prices have been slashed over recent years and this has led to the disastrous financial results for many smart card manufacturers. Vendors who have relied heavily on SIM cards suffered more. With banking and national ID projects taking off there is more hope for vendors this year.
The fact that SchlumbergerSema are looking to float shows their attitude towards the smart card market and their belief that the market will continue to strive forward as it has done in the past. However, I would warn SchlumbergerSema not to be over optimistic on the smart card market for the immediate future. I am not sure if the market will pick up enough for them to float in the next 4-6 months. Moving into 2004 the picture will be different. I am fairly sure that will be the case.
Why?
In a release earlier this month SchlumbergerSema expect the total market for smart cards to reach 1.87 billion units (similar to Frost & Sullivan's figure from last year where we forecast the market to be 1.88 billion units - this will be updated in the next 2-3 months). SchlumbergerSema feel the growth will be driven mainly by fast growth in the market for corporate identity card systems.
The whole question of floating the smart card division, why? That is an easy question with an easy answer. The IPO is part of Schlumberger's plan to reduce net debt from $6 billion ($5.6 billion) to $4 billion by the end of 2003. An IPO seems like the most likely outcome to date.
I believe Schlumberger has received limited interest from potential buyers for the smart card business. This is the case to date, though this might well change in the coming months.
Hence the Company has hired Societe Generale to prepare an IPO in the second half of this year, subject to market conditions. It has not decided on a new name for the company nor whether the float will be in the US, France or in both markets. Financial analysts currently rate Schlumberger at about 1.2 times its annual sales of $700 million.
The Market and the Consequences
I will not lie to you and say that the negative media attention that was driven by the financial and internal problems at Gemplus did not impact the smart card market. After all Gemplus is a major player in the market, so troubles at such a vendor will make investors think twice. So, yes, the smart card market has suffered due to troubles at Gemplus. Gemplus is also trying to turn things around. Can we now say that because of these troubles Schlumberger are having trouble, finding it difficult? I will leave you all with your own thoughts.
Personally it is quite absurd how the leading two vendors in a market can vary so drastically on issues. Maybe with Schlumberger floating, things will become clearer. The smart card market has been paralysed by the downturn in the SIM card market, this was followed with all the troubles at Gemplus flaring up and now this.
As I said before, Gemplus is trying to resolve their issues by moving in the right direction. They are focusing on partnerships for their future success. They realise they can not do everything and will not promise customers that they can. Schlumberger's saving grace, their acquisition of CP8 (Bull) a few years ago was one of the best moves the industry has seen. CP8 really allowed Schlumberger to leverage themselves into the banking market and this is clearly seen today with their market domination of the market. Also taking into account the potential EMV peak in the next 12-18 months in terms of growth it would seem Schlumberger are ideally positioned to take full advantage of this. Also, Schlumberger won the contract to supply the US defence department with a card-based identity and procurement system.
It must be remembered that a lot of other things are going on in terms of shifting power in the value chain. Vendors need to monitor every partnership, acquisition and question why this vendor done this and not this while concentrating on their own business. Where does the company want to be in the next 12-18 months, a winner or a loser lost on the way. <<
- Eric - |
