Gemalto CEO Promises Growth After Profit Warning Fears

  • Shares have plunged since company’s Oct. 28 forecast revision
  • CEO sees acceleration in 4Q; longer-term growth across markets

Security software-maker Gemalto NV Chief Executive Officer Philippe Vallee says sales growth will accelerate as soon as this quarter and business prospects are good for the longer-term, calling on investors to move past a profit warning that has sent shares down 15 percent in just over a week.

Vallee, who took over the company’s top job on Sept. 1, said in an interview he’s planning changes to his management team, and the presentation of a strategic long-term plan within a year.

“We expect an acceleration in the fourth quarter,” Vallee said in Paris. “We see growth for our markets beyond 2017 -- strong growth for some -- and we aim to grow at least as fast.”

Former CEO Olivier Piou spent much of his tenure refocusing Gemalto away from its historical business making chips for bank cards and mobile phones. Gemalto now makes authentication technology to identify, encrypt and more broadly secure electronic transactions, biometric passports or cars, when they need a software update for instance. While he boosted sales and income, he left Vallee with a 2017 profit from operations target the company deemed out of reach at the end of the third quarter

Gemalto on Oct. 28 cut the forecast to 500 million euros ($553 million) to 520 million euros, from 660 million euros previously. It cited the combined effect of some contract delays and the need to keep spending on items including its distribution network. Analysts predict earnings before interest and taxes will be 484 million euros next year on average; a month ago, they were still expecting 518 million euros, within a range as high as 609 million euros.

“We could’ve edged closer to analysts’s consensus if we’d sacrificed investments, but we can’t under-invest only to boost short-term profitability,” Vallee said. “Growth prospects are very good in our markets beyond 2017,” and Gemalto needs to prepare for that, he said. The company’s recent wins include contracts to secure connected objects for Alibaba Group Holding Ltd, cars for PSA Group, as well as mobile payments in Japan through Apple Inc.’s Apple Pay.

In the final quarter of this year, Vallee forecast government, enterprise and machine-to-machine units will grow faster than in the third quarter. The banking segment will keep to the same trend as in the third quarter, and the SIM card business will shrink at a rate of 10 percent to 15 percent, he said.

Vallee, whose plan is to grow Gemalto organically by developing new product features and expanding into new geographies, is open to making acquisitions and said he’d be comfortable boosting debt temporarily to do deals. The company was outbid in September for Safran SA’s biometrics arm, which sold for 2.4 billion euros.

“We hadn’t based our 2017 targets on that acquisition, and not doing it won’t dent our business in any way,” Vallee said. “We’ve got an M&A radar to keep track of potentially interesting targets. Depending on how markets evolve, we can step on the gas and reach for an acquisition.”

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