Gemplus/Axalto merge. Where we stand in the smart card arena, one year later ?

As many analysts ask me this question, I believe it is a good opportunity to give an update on the Gemplus/Axalto merge…

I attended the last smartcard event in Paris last week (Cartes2006) where I met many people from Gemalto.
Here under is my feeling on :
- Where Gemplus and Axalto stand right now ?
- Who is taking advantage of their merge ? (share holders, customers or employees)

Let's share the situation...

One year ago, the two leaders of the smart card business announced the merge of their company (Gemplus and Axalto to form Gemalto).

When the merge was announced, one of the reasons that were given was to reinforce the company in order to create shareholder value. Since the first announcement of the merger in December 2005, Axalto shareholders have lost 26% of their investment, and Gemplus shareholders have lost 42%.

Another published objective of Gemalto creation was to reduce the Average Selling Price (ASP) erosion. The results just published by Gemalto (for Q3 2006 shows 8% fall comparing with last year) demonstrating this objective has not been reached as well.

Besides, I see on every tender Gemalto itself continuing to decrease its prices for getting a chance to be shortlisted and to continue to sell products. In one word Gemalto is one of the main contributors to ASP decreasing.

Gemalto also announced that they will take this opportunity to save internal expenses. The objective is to save around 80 Million Euros in the next 2 year. Comparing to their 2 billion revenue this objective is bringing “NO VALUE”and could have been reached quite easily without any merge.

May be the merge might benefit to customers ?

Most of the customers in our smart cards industry have a multiple sources strategy. When the two leaders of the industry merged, many customers launched RFP to qualify new suppliers of cards, reinforcing their own market lost (mainly in Telecom area) and helping their competitors to gain new customers very easily (especially Asian manufacturers and also many local players),

Did the employees find an opportunity in Gemalto creation?

As in many merge between large companies, there are many difficulties in adjusting company cultures. But the major difficulty Gemalto is facing come from the fact these 2 companies are more similar than complementary.

Being in the same industry, they are sharing the same technologies, the same customers, and the same markets, Axalto and Gemplus get right now many employees in similar positions with same skills. They are discussing and fighting a lot internally to save their seats, to get the best positions and for building new organization charts. Actual situation left many of them (more than 800 or 1000) unhappy with the outcome.

Different company cultures have not been forgotten yet, employees always refer to "Gem" or "Alto" depending on which company they come from.

Since the merger, nothing runs well. Results have not been up to the level of expectations thus everyone anticipates future layoffs, the only remaining question is how many people will be fired and when?

If you want to understand what will happen in the coming months, Get connected …………