Gemalto First Half 2006 Results

Gemalto, a leader in digital security, today announced its results for the first year


The average SIM card selling price for the second quarter 2006 was down1% at current exchange rates, compared with the first quarter 2006.

Compared with the strong performance of the first half 2005, gross margindecreased, reflecting the intensified competitive environment since thebeginning of the year.

At constant exchange rates, revenue was up 14%. After adjusting for theacquisition of Setec and currency fluctuations, revenue was up 9%.

Microprocessor card shipments for the first half 2006 were up 37% to 109million units, driven by on-going EMV[9] deployment, particularly in Turkey ,Latin America, North Asia and Southern Europe .

Average selling prices decreased reflecting price pressure in certainmarkets, as well as a change in the regional mix and a greater share ofmodules in the total volume sold.

At constant exchange rates, revenue was up 73%, driven by strong sales ofmicroprocessor card solutions for e-passports, healthcare and transportationmanagement, as well as by increased IP licensing activity. After adjustingfor the acquisition of Setec and currency fluctuations, revenue was up 44%.

Microprocessor cards shipments for the first half 2006 were up 58% to 22million units, fuelled by initial deployments of large scale e-passportsprograms in France and Portugal and by strong Transportation activity.

During the first half 2006, the Group won several meaningful and highlyvisible contracts for e-passport projects in France , the Czech Republic , Portugal and Slovenia , and healthcare management in France and Mexico .

Gross margin was up 8.2 percentage points compared with a strong firsthalf 2005, reflecting high revenue derived from patent licensing contracts:these are fully offsetting lower margin in the ID business as the rollout ofe-passports in Europe is still in its early stages.

Memory cards for Public Telephony now contribute for less than 4% ofGroup revenue.

The activity in this segment reflects a transition period in advance ofthe introduction of a new range of products later this year.

Outlook

Market conditions have been difficult since the beginning of this year,and the Company expects it will remain challenging, particularly in light ofthe uncertainties in the global economic environment. With synergies from thecombination materializing progressively, in line with plans, and thesignificant resources required this year to converge product roadmaps andprocesses, Gemalto expects operating performance in the second half 2006 tobe similar to that of the first half.

The deployment of the electronic passport and ID projects won in recentmonths will produce their full effect in 2007.

The Group has taken cost reduction measures beyond the initiallyidentified synergies, and continues to review the adequacy of its currentconfiguration in light of these circumstances. On August 31, 2006 , Gemaltoannounced consolidation of its two production centres in Owing Mills andMontgomeryville in the United States into the latter's facility, which bettermeets the future needs of its business strategy and customers.

Given its technology and market leadership, Gemalto is uniquelypositioned to address the increasing need for security in the digital world.The Company is confident in its ability to play a leading role in the digitalsecurity industry as it expands on a global scale and to realize itsobjective for 2009 of a low teens operating margin.