Gemalto Third-Quarter Sales Rise 2.6% on Identity-Card Demand

Gemalto NV, the world's largest maker of smart cards, said third-quarter sales rose 2.6 percent on demand for identity cards such as electronic passports, and as price declines for mobile-phone cards eased off.

Revenue rose to 401 million euros ($588 million) from 391 million euros a year earlier, the Meudon, France-based company said in an e-mailed statement today. The company said second-half operating profit will benefit from cost cuts.

Chief Executive Officer Olivier Piou said Sept. 13 Gemalto would probably return to growth in the third quarter after first-half sales fell 10 percent. The company was created last year after Axalto Holding NV and Gemplus International SA combined to cut costs as competition from China hurt prices.

``The group is benefiting from a slowdown in the fall of prices in chip cards and an improvement in its product mix,'' analysts Francois Gobron and Eric Ravary at CM-CIC Securities said in a note to investors. ``Its global activity growth should nonetheless suffer from its exposure to the dollar.''

At unchanged exchange rates, quarterly sales would have risen 6 percent, Gemalto said. The company got about 26 percent of its sales from North and South America. The dollar has fallen 13 percent against the euro in the past 12 months.

Gemalto shares slipped as much as 1.40 euros, or 6.8 percent, to 19.35 euros and traded at 20.42 euros as of 2:13 p.m. in Paris.

Third-quarter sales in the company's security division, whose products include identification tokens, health cards and the U.S. electronic passport, rose 13 percent to 43.4 million euros, making the unit Gemalto's fastest-growing in the period.

Mobile Communications

Revenue from the mobile-communications unit rose 1.6 percent to 230.4 million euros. The division, which produces subscriber identity module cards, or SIM cards, used to verify access and store phone numbers, is Gemalto's largest by sales.

Year-on-year selling prices for the mobile business slipped 4 percent at constant exchange rates, compared with a 32-percent price slump in the third quarter of 2006.

``The sales prices for SIM cards are heading the right way,'' said Alexandre Barazza, an analyst at Gilbert Dupont, in a note to investors. ``That confirms that the fundamentals of the card market have improved and that the company is more selective in its contracts.''

Second-half operating profit will benefit from ``the usual favorable seasonal pattern'' as well as increased sales from digital-security cards and cost benefits from the merger that created the company, Gemalto said.

``Gemalto continues to anticipate sustained demand in all of its key markets,'' the card maker said. ``It will continue to proactively make the necessary adjustments to its cost base and remains determined to reach its stated objective of an operating margin above 10 percent in 2009.''

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

To contact the editor responsible for this story: Lars Klemming at lklemming@bloomberg.net.

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