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June 6, 1997updated 05 Sep 2016 12:53pm

SMART CARD MISSIONARY GEMPLUS NOW JUST WANTS TO DO BUSINESS

By CBR Staff Writer

By Marsha Johnston

If smart card technology were a religion, Marc Lassus would be its Billy Graham. Since he was first introduced to the microprocessor-equipped cards in the early 80s as general manager for France’s Thomson Semiconductors, Lassus has pursued their proliferation with a fervor reserved for true believers. Refusing to accept the conclusions of a 1987 market study that said smart cards had no future, Lassus quit his job and, with four other Thomson believers, founded Gemplus International in May, 1988. All of us contributed a savoir-faire, but we never doubted that Marc, with his energy, international experience and media savvy, was the natural leader of the team, says fellow co-founder Jean- Pierre Gloton, now vice president for Gemplus Electronics, the company’s technology division. The founders made the right choice. Within a year, chief executive Lassus had established sales operations in the US and Asia and by 1992, the company realized 52% of its sales outside France. Since that year, Gemplus’ revenues have jumped at least 50% annually, to $440m in 1996, transforming it from a southern France start-up that relied heavily on France Telecom’s pre-paid phone card business into the world’s largest manufacturer of smart card products. With manufacturing and/or direct sales sites in 25 countries, Gemplus produced nearly 300 million smart cards last year, over twice the 120 million that its arch-rival, 70-year-old oilfield and measurement systems conglomerate Schlumberger Ltd says it produces yearly. Although definitive market share figures are non-existent, experts agree that the two companies account for 70% of the $1bn world market and 90% of the North American market.

Strongly positioned

As the smart card market gathers momentum in the US, Lassus appears strongly positioned to enlarge his following beyond that of Schlumberger’s Electronic Transactions group. Already, in the mobile telecommunications arena, which both companies acknowledge comprises the majority of US smart card sales today, Gemplus is the primary supplier for six Personal Communications Services operators; Schlumberger supplies three. For the future, analysts agree that internet security, whether for electronic payments or protected access to corporate networks, will be the market- driving application in the US. Furthermore, says David Weisman, director of money and technology strategies for Forrester Research, Hewlett-Packard Co’s recent acquisition of terminal maker VeriFone Inc marks a big jump in that direction in part because of Hewlett-Packard’s stated intent to integrate smart card readers into its personal computers. Gemplus supplies the smart cards for Hewlett-Packard’s ImagineCard system for secure internet/intranet access and transactions. To assure his supply line to the faithful, Lassus purchased the magnetic-stripe card manufacturing and personalization business of US-based DataCard Corp last September, and quickly began installing smart card production at those facilities. Lassus’ evangelistic energy attracted the attention of the London office of Stamford, Connecticut-based GE Capital, the investment arm of General Electric Co. In late April, GE Capital purchased a significant equity interest in Gemplus for an undisclosed sum. We believe they are the leader in the industry, whether you’re measuring by sheer numbers or by innovation, says Dave Nissen, president and chief executive of GE Capital Global Consumer Finance. Gareth Herschel, research associate at Gartner Group concurs: I think of Schlumberger as the 800-pound gorilla, but Gemplus is a lot more focused on and creative about how smart cards can be used. For any application you might conceive, Gemplus will offer you a smart card solution. Schlumberger tends to be less aggressive about deploying new uses for the technology. One of the latest examples of that innovation is electronic tags, which use contactless smart card technology and are aimed at replacing bar codes. Gemplus, having started the project a couple of years ago, is currently testing their use on bottles of medical gas for French gas manufacturer Air Liquide. There are today between 5-6 billion smart cards – either chip or mag-stripe – in use. The same number of bar codes is consumed everyday. To get even a small portion of that market would obviously be enormous, says Gloton. Furthermore, says a Gemplus spokesman, the technology has the potential to be tracked by satellite, which would go a long way to assisting legal authorities to fight terrorist trafficking in dangerous substances. Marc Lassus is a visionary person, says Brigitte Baumann, Gemplus’ president of North America, who was hired in June 1995, from American Express Europe, where she was head of the small business corporate card marketing and marketing/product development for large corporate accounts. He said several years ago that contactless technology would be crucial, and started us working on it, which was necessary because it’s a completely different manufacturing process. While its new technologies are gathering momentum, says Gartner’s Herschel, the GE Capital deal gives Gemplus money to further elevate its visibility in the US, but not necessarily more credibility than it already has. GE gives Gemplus the same kind of resources that Schlumberger has, so it has leveled the playing field somewhat, but Gemplus doesn’t need [GE Capital] to sell into the US market, because they are pretty much on everyone’s short list anyway, he said. Still, the competition is stiffening for the company. Schlumberger is hot on Gemplus’ heels in terms of production capacity, with a gap of just 50-100 million cards between the two companies.

A jump on Gemplus

Schlumberger has also gotten a jump on Gemplus by being the first to announce last year an implementation of the so-called Java Cards, which are smart cards bearing a subset of the Java language. They are aimed at replacing the existing proprietary card operating languages with a cross-industry standard, which would ultimately enable people to download different card applications onto their card. In theory, for example, a user could change the card from an American Express credit card to a Visa credit card. Gemplus’ marketing manager for Internet applications Christophe Chancel says Gemplus has a Java- compatible card, but that it is focusing more on the more mature second version of the Java Card software, which is due in September. Major new competition has also appeared in the contactless smart card sector, with Motorola Inc creating a new unit, the Smartcard Systems Business in March to begin marketing systems by the end of the year, mostly to the transport industry. Armed with his expanded manufacturing capacity purchased from Minneapolis-based DataCard Corp last September and allied with GE Capital, Lassus has much less to fear from either Schlumberger or Motorola than he might have had a year ago. While acknowledging the competitive threat, Lassus says that this also provides good news. It means that the missionary work for smart cards in the US is now at an end. People are now starting to believe and the churches have almost been built. We even have some cathedrals, with all of the big American companies coming on board, he says, in his lilting southern French accent. But I am tired of being a missionary; I just want to do business.

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