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SEPTEMBER 8, 2003
Sagem: From Sagging to Soaring Its nifty camera-phones are just part of the turnaround story When Grégoire Olivier stepped into the top job at French electronics maker Sagem in April, 2001, the company was heading off a cliff. Tapped to replace longtime CEO Pierre Faurre, who had died two months earlier at the age of 59, Olivier arrived from an executive position at Alcatel just as the tech crash hit home. By the end of 2001, Sagem's sales had fallen nearly a third from a year earlier, to $3.3 billion, and the company dropped from a $166 million profit in 2000 to a $15 million loss. Investors were not amused: Having already plunged more than two-thirds from its March, 2000, peak by the time Faurre died, Sagem's stock sank 46% more before the end of 2001. It was a bumpy takeoff for Olivier. Just 40 when he became chief executive of one of France's biggest and most curious technology companies, he had to win the confidence of dispirited employees and doubting analysts. To say he has done so is an understatement: Sagem today is sizzling. First-half revenues climbed 15%, to $1.6 billion, thanks to soaring sales of mobile phones and fax machines, while cost-cutting pushed profits up 74%, to $54 million. Relieved investors have bid up the company's shares 26% this year, ahead of the 22% gain registered by the Standard & Poor's Europe 350 information technology index. "Management has newfound credibility," says Société Générale analyst Vincent Rech, who pegs revenues next year at more than $3.6 billion. The star of the show is Sagem's communications business -- especially mobile handsets, where it has suddenly become the world's fastest-growing brand. Although a minor player, with 1.3% global market share, Sagem is seeing solid gains in Europe. Its biggest hit is a simple camera-phone called the myX-6 that costs about $100 less than rivals and was one of the top-selling models last quarter for Vodafone Group PLC's live! service. "It's a staggering success story," says Ben Wood, mobile analyst for researcher Gartner Inc. in Egham, Britain. The myX-6 typifies Olivier's mobile strategy: Wooing operators with cheap, simple alternatives to feature-laden models from Nokia Corp. and Sony Ericsson (SNE ). "We want to be the easyJet of mobile phones," he says. Such pragmatism is Olivier's hallmark. The sprawling enterprise he inherited from Faurre proudly defies virtually every tenet of what the French call "Anglo-Saxon" management. It has resisted specialization, playing in dozens of markets, from telecom to missile guidance systems to utility meters. Rather than outsourcing, it owns and operates most of its factories, largely in France. And every one of its 12,000 employees owns stock in the company through its profit-sharing plan, giving them majority control -- and prompting Olivier to quip that Sagem is a "communist" corporation. Indeed, he argues that such contrariness is the root of Sagem's success, reducing exposure to weak markets, giving it control over cost structure, and breeding fierce worker loyalty. "Sagem is a company like no other," he says. The approach is paying off. In communications, Olivier isn't just chasing wireless. Sagem is also a leading seller of digital set-top boxes, cordless phones, faxes -- even power cables. Next year, he plans to bring out a simple color printer for digital-photo enthusiasts. Some analysts worry that Sagem is tackling too much, but Olivier says his businesses cross-pollinate. One-third of the company's employees work in research and development, and "there's coherence in our portfolio," he says. There's also steady support from Sagem's defense business, which kicks in 34% of revenues by selling everything from avionics devices to submarine periscopes. Although defense sales are flat overall, Sagem is seeing a boom in its security unit, which makes smart cards, fingerprint ID systems, and even tamper-proof terminals for the French lottery. UBS analyst Araceli Giraldez likes Sagem's defense businesses for their "good cash-flow generation" and estimated 8% operating margins. That's not to say Olivier doesn't have work to do. Revenues and profits still lag behind their 2000 peak and won't likely catch up until after 2005. Sagem needs more global expansion to reduce its dependence on France, which still provides 40% of sales. And analysts say it is weak in branding and design aesthetics. Motivating Sagem's troops to lick these problems may not be Olivier's toughest job, though: He and his wife also manage a brood of seven children. Compared with that, keeping Sagem on a growth path must be a picnic.  By Andy Reinhardt in Paris
BW MALL
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