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News Release from: Frost and Sullivan
Edited by the Electronicstalk Editorial
Team on 12 August 2003
3G roll-out to boost high-end smart card
demand
2002 was a difficult year for smart card vendors with fierce competition in the low-end SIM market dampening revenue growth.
2002 was a difficult year for smart card vendors with fierce competition in the low-end SIM market dampening revenue growth Forecasts for 2003 are more optimistic with the advent of 3G likely to create brisk demand for high-end 32 and 64K SIM cards
This article was originally published on Electronicstalk on 28 Jul 2006 at 8.00am (UK)
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At the same time, financial and identification applications are offering opportunities for smart card market expansion.
Slow growth in the new subscriber base in Europe, over-capacity of low-end 8 and 16K cards and the cancellation of orders by Chinese telecomms operators created tremendous price pressures in the global SIM card market in 2002.
As manufacturers resorted to aggressive price-cutting strategies to gain market share, revenues and profit margins declined.
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Prices are expected to continue falling in 2003, albeit not as steeply as in 2002 when prices of SIM cards declined by a dramatic 25-30%.
Manufacturers are expected to offset price declines through improved product mixes.
The focus here is expected to be on Java cards as well as on high-end 32 and 64K SIM cards with higher prices and larger memory.
As telecomms operators seek to provide value-added services to retain customers, demand for high-end SIM cards like 32, 64 and even 128K are poised to rise.
The rollout of 3G is likely to generate a market for these high-end smart card ICs capable of driving more applications.
In Western Europe, a renewal market is likely to be created with higher-end cards steadily replacing lower-end cards.
"There is high growth potential due to the adoption of GSM technology and the increasing number of new subscribers in Northern and Eastern Europe, many countries in the Asia Pacific region, North America, and Latin America", reveals a new study by Frost and Sullivan, the international market consultancy.
Increased penetration of mobile telephony in countries such as India as well as in Africa and Eastern Europe provides opportunities for growth.
The SIM is critical to realising secure mobile transactions over GSM networks.
Simultaneously, EMV (Europay/MasterCard/Visa)-compliant migration from magnetic stripe cards to smart cards within the financial sector is expected to provide greater opportunity to use these cards for mobile commerce.
EMV migration has been delayed in Europe and parts of Latin America.
However, high fraud rates together with incentives from Visa and MasterCard are expected to accelerate compliance with EMV standards.
Both Visa and MasterCard have initiated several low-cost smart card programmes that offer a range of smart cards from single application payment cards to sophisticated multi-application Java-based cards of various memory sizes.
GlobalPlatform multi-application cards are also being provided at economical prices.
These programmes have constructed a sound business case for financial organisations to start issuing smart banking cards.
Post 9/11, the number of government-sponsored ID projects has spiralled.
Governments worldwide are assessing smart card-based solutions for accurate and secure identification.
From health cards in Taiwan, driver's licences in India, and military ID cards in the USA to national ID cards in several Middle Eastern countries, government projects are increasingly using chip-based ID applications.
Particular interest is being evinced in the complementary use of smart cards and biometrics for secure identification.
Contactless smart cards are being identified as among the best ways to store biometric data on travel documents such as passports, visas and identity cards.
Several pilot schemes using contactless technology for transit applications are already underway.
Contactless national ID projects and payment applications too are gaining momentum.
Both Visa and MasterCard are backing the use of contactless technology as a faster and more convenient way to conduct payment transactions, a sign that bodes well for the smart card market.
In 2002, a total of 1,906.4 million smart cards were shipped globally, of which memory smart card unit shipments accounted for about 55.7% of the sales with microcontroller cards making up the remainder.
Frost and Sullivan forecasts a reversal of fortunes by 2006 with microcontroller smart card units capturing 55.5% share of the total 2541.3 million smart card shipments.
With a 43.1% share, EMEA accounted for the majority of smart card unit shipments in 2002.
The region led in both memory and microcontroller unit shipments, followed by Asia Pacific and then the Americas.
Competition was fierce across all regional markets with price wars affecting every market player.
Despite painful restructuring and falling unit shipments over 2001-2002, traditional giants such as Gemplus, Schlumberger and Oberthur Card Systems (OCS) continued to hold sway over global unit shipment market shares.
Multinationals such as Giesecke and Devrient and smaller companies such as Orga turned in strong performances.
The major competitive development was the emergence of local players especially in the Asian region such as Ming Wah, Eastcompeace, Tianjin and AMS.
This trend is likely to put a further squeeze on short-term profits while intensifying competition.
As players move to capitalise on emerging opportunities, Frost and Sullivan smart card analyst, Shalini Chowdhary concludes: "Selecting and developing strategic partnerships and alliances prior to entering a new market segment will be critical for smart card vendors.
Specifically, vendors need to make the right partnerships to take advantage of the enormous potential of the ID and security market segments".
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