No Surprise Here: Research Says Smart Card Growth Looks Strong

London, UK – 21st August, 2006 - With surging growth across various application sectors, the future of the steadily expanding smart card IC market looks promising. Short term growth will be observed in applications such as SIM and EMV, with e-passports revealing some unit penetration at the end of 2006. Growth pockets will also be visible in the form of other ID projects and contactless technologies.

“SIM cards, identification projects as well as payment will be at the fore front across all regions," says Frost & Sullivan Smart Cards Global Programme Manager Anoop Ubhey. "SIM cards remain a dominant force in the smart card market, and with the promise of mega SIM cards, the future looks bright."

As mobile operators look to boost their average revenue per user (ARPU), and data traffic set to grow considerably more than in the past, SIM usage is poised to soar. The increasing memory on the SIM card will allow users of mobile phones to store and download more applications (ring tones, movie/video clips and so on) onto their phone, thereby driving uptake.

“Demand for smart cards is also set to escalate due to demand from increasingly security conscious government and enterprises, especially after 9/11 (United States) and 7/7 (United Kingdom),” adds Mr. Ubhey. “Security related projects ranging from e-government projects, access control (physical and logical), to large scale national ID projects are all on the smart card spectrum.”

At the same time, the introduction of e-passports will fuel growth both over the short - as well as long-term. Compliance by 27 visa waiver countries with the United States’s requirements for e-passports will add impetus to market growth.

Despite the optimistic scenario, semiconductor manufacturers will still need to overcome several challenges, most seriously that of pricing, in order to remain competitive. Intense pricing pressure last year saw a dramatic decrease in prices, especially in the SIM market. Continued price declines will further push semiconductor manufacturers to the brink.

“Experiencing a 30 to 40 per cent decrease in average price last year saw the competitive landscape change drastically,” comments Mr. Ubhey. “Timing, as well as meeting customer requirements through product innovation and improved time to market, has become imperative for a company to remain competitive.”

The merger of the two largest customers for semiconductor manufacturers Gemplus and Axalto - Gemalto - could potentially create both opportunities as well as risks for market participants. While the merger will definitely lead to a change in relationships between semiconductor manufacturers and Gemalto, and between Gemalto and its customers, uncertainties remain over how such changes will eventually play out.

“The smart card IC market is now making it exceptionally difficult for any CEO or VP to implement a strategy, which lasts for more than 6-9 months,” observes Mr. Ubhey. “Constant monitoring of the market, its dynamics, competition as well as its customers is now more important than ever before.”