Gemalto NV (GTO), the inventor of smart- card chips, may double its business that lets consumers use mobile phones and bank cards to beam payments without a touch, Chief Executive Officer Olivier Piou said.
Gemalto has capacity to add 50 contracts to design smart cards with near-field communications technology, a way devices can communicate at short ranges, Piou said in an interview in Paris. The Amsterdam-based company ended the first quarter with 50 such projects for companies including JPMorgan Chase & Co. (JPM:US)
Banks, phone network operators and credit companies have started to introduce payment devices that people can hover over a cash register instead of swiping. Near-field communications may rejuvenate the smart card industry, as the prices of chips have been declining in recent years because the mainstream technology is based on a standard that’s 20 years old.
“We realized the market was exploding way beyond what we had expected,” said Piou, who has been CEO for six years. “We’re headed for a market with potentially thousands of clients.”
NFC chips, which can also let consumers receive coupons electronically, are worth as much as 10 times more than the standard SIM cards that contain mobile-phone data, Piou said.
One in five new smartphones will be NFC-enabled by 2014, which amounts to about 300 million units, Juniper Research estimates. Operators will introduce the service in 20 countries before the end of the year, mostly in western Europe and North America, according to Juniper.
Gemalto had 20 NFC projects in the third quarter and 45 by year-end, as carriers plan further expansion. Competitors include smart-card maker Giesecke & Devrient GmbH, chipmaker NXP Semiconductor NV (NXPI:US), and Google Inc. (GOOG:US), which has mobile-wallet software for NFC-enabled phones.
Gemalto’s focus on NFC started bearing fruit in the second half of last year, Piou said. The company’s share price has followed. Gemalto shares have jumped more than 60 percent since July. The stock rose as much as 2.6 percent today, and traded 1.6 percent higher at 53.40 euros at 11:25 a.m. in Paris.
Carriers are starting to warm up to NFC after a slow start. France’s largest phone company France Telecom SA (FTE) forecast in March it would sell 3 million NFC mobiles in Europe this year and 10 million in 2013, compared to 500,000 units last year. In the U.S., AT&T Inc (T:US), Verizon Communications Inc (VZ:US) and T-Mobile USA Inc. have teamed up through a joint venture dubbed ISIS, which is also a Gemalto client.
“For years, carriers tried to squash prices because they couldn’t figure out how to generate revenue from a SIM card,” Piou said. “With NFC, they’re rediscovering it can be a valuable tool, and they’re willing to pay more for it.”
Consumers will buy 1.5 billion mobile phones worldwide this year and about 3.9 billion were sold over the past three years, according to consultants at Montpellier, France-based Idate Digiworld. Each phone needs a SIM card to function.
Gemalto sold a “few million” units of NFC chips last year. The company introduced a card this year tested by Mastercard Inc. (MA:US), Visa Inc. (V:US) and American Express Co. (AXP:US) The card works like a skeleton key, storing and protecting a user’s credentials for phoning, banking or taking public transportation in one place.
Banks are also interested. Credit Agricole, France’s third- biggest lender by market value, in January signed up to use Gemalto’s Optelio contactless banking card in France. The card can be used with a payment system where users wave or tap it in front of a contactless reader at the point of sale for purchases under 20 euros ($25.60).
‘Really Big Guys’
“We’re picky when it comes to accepting contracts,” Piou said. “We can afford that luxury. We’ve focused on the biggest clients and said yes only to the really big guys.”
JPMorgan said in February that Gemalto would manage the credit and debit card data of its customers for contactless payments.
Gemalto, which employs more than 10,000 people and holds 6,000 patents, has forecast 300 million euros in operating profit in 2013, compared with 238.6 million euros in 2011 excluding assets the company is holding for sale.
Analysts estimate 2012 sales will gain 8 percent to 2.17 billion euros and net income will rise 28 percent to 205 million euros, based on estimates compiled by Bloomberg.
The company gets about half its sales from its mobile unit, which makes cards for mobile phones and sells software and services to network operators. The company also provides digital security services to banks, governments and transit systems.
Sales of the mobile phone division grew 12 percent in the first quarter to 235.2 million euros. The unit’s sales had dropped 2.4 percent in 2011.
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