Gemalto CEO Predicts Fast Growth in TSM Business
The chief of smart card supplier and trusted service manager Gemalto is predicting a fast-growing market for TSM services and noted the services were already contributing to profit.
Gemalto CEO Olivier Piou, talking to financial analysts Thursday following the release of Gemalto’s fourth quarter and full-year 2011 results, said all major parties to NFC mobile-commerce rollouts are in the process of hiring TSMs.
“The size of the market is increasing tremendously,” said Piou, who added that Gemalto had earlier thought there would be only five to 10 TSM services operating globally. That view has changed radically.
“Almost every mobile operator will have one,” he said. “Almost every bank will have one. The major retailers will have one.”
The view is shared by key industry observers, who say issuers of secure elements, such as mobile operators for SIM cards and handset makers or mobile platform providers for their embedded chips are hiring TSMs. And so are service providers, such as banks and payment networks, which look to TSMs to manage the secure downloads and personalization of their applications.
Piou, who is keen to promote such profitable and R&D-heavy products and services as the vendor’s TSM, as well as expensive SIMs that support NFC or 4G LTE technology, indicated Gemalto has contracts for 45 LTE and NFC services. That compares with about 20 contracts Piou mentioned to financial analysts at the end of October.
He offered few details about the new contracts, however, or a breakdown between the NFC and LTE projects. It also wasn’t clear whether the NFC contracts include shipments of NFC SIM cards to operators or are only for TSM services.
But in its earnings release, Gemalto said mobile-contactless or NFC services, which would certainly include trusted service management, were beginning to contribute to profit. In response to a question from a financial analyst, Piou indicated that NFC and LTE projects accounted for roughly €30 million to €40 million of the €239 million (US$317.2 million) in operating profit Gemalto reported for 2011.
That operating profit increased by 15% from 2010, as part of a positive earnings report Gemalto released Thursday. Gemalto said it is also selling more contact and high-end dual-interface EMV cards, contributing to profits.
Gemalto, which is the largest supplier of SIM, banking and other smart cards worldwide, announced revenue topped €2 billion (US$2.65 billion) in 2011, an increase of 6% from 2010 at historical exchange rates. Net profit was €227.7 million, up 5.2% from the previous year. The favorable 2011 results sent Gemalto’s shares up by nearly 9% in trading in Paris Thursday.
Piou, in a bid to convince analysts and investors of the promising revenue and profit picture for NFC and contactless bank cards, estimated that TSMs could charge €2 to €3 for each mobile bank card they provision over-the-air.
And dual-interface EMV cards cost €4 to €10 apiece, Piou said, contending U.S. banks will issue these contact and contactless cards, instead of cheaper contact-only EMV cards, when they begin to roll out the more secure payment technology toward the end of 2013.
By comparison, contact-only EMV cards cost about €1 to €2 each and magnetic-stripe cards run 10 to 15 cents apiece, Piou said.
Some sources told NFC Times, however, that Piou’s price estimates are on the high side and added that the TSM business is at risk for commoditizing sooner rather than later.
They also point out that with so many TSMs trying to talk to one another, standardization of communication protocols will be vital.
TSMs Announce Contracts
Like rival smart card vendors Oberthur Technologies of France and Germany-based Giesecke & Devrient, Gemalto’s SIM business with telcos and its payment card and card personalization contracts with banks helped it win TSM deals.
All three vendors announced TSM contracts wins in the run-up to last week’s Mobile World Congress in Barcelona or during the event.
Gemalto and JPMorgan Chase bank announced Feb. 27 the vendor will supply Chase with issuance, personalization and lifecycle management of Chase credit and debit cards on NFC phones, including those rolled out in a mobile wallet from telco joint venture Isis. Gemalto is also serving as TSM for Isis.
The same day, Oberthur, along with Visa Inc., announced the vendor would serve as TSM for Visa’s mobile provisioning service. Visa affiliated banks without their own TSMs could use the service to download and personalize their mobile payment cards supporting Visa payWave over the air to NFC phones. MasterCard Worldwide has a similar provisioning service.
Arnaud de La Chapelle, general manager of convergence and solutions for Oberthur told NFC Times the service is for banks that say, “ ‘I want to be in game, (but) I don’t want to invest, (and) I trust Visa and Oberthur to deliver and operate the technology.’ ”
He said a major factor in the contract win was Oberthur’s large network of 30 to 35 banking card personalization centers worldwide, which would enable many of the banks to personalize their applications within their own countries. This might be a requirement under certain national banking regulations.
Bill Gajda, Visa’s head of mobile, said last week in Barcelona that the provisioning service will be a “bank-centric TSM,” which could enable, for example, Isis to deal with a number of smaller banks all at one time.
“So Isis doesn’t need to do a deal with 6,000 banks in the United States,” he said. “We have agreements with 6,000 banks in the United States that can do a deal with Visa, and we can supply aggregation to really make this thing take off.”
In addition, U.S.-based chip maker Intel has agreed to use the Visa provisioning service for its smartphones and tablets based on its Atom processor and reference design. Intel, while owning a dominant share of the PC chip market, is still trying to gain a foothold in the market for smartphones and tablets.
First Chip Maker to Hire TSM
Visa and Intel announced a separate partnership to make Intel-powered mobile devices payWave ready. But while Oberthur would provision the payWave application on Intel devices from the issuer’s end, Giesecke & Devrient would manage the secure element in the phones, at least if that secure element is an embedded chip.
G&D announced that Intel had hired it to manage embedded chips in mobile devices supporting Intel’s reference design. It’s believed to be the first time a chip maker has hired a TSM.
“It (secure chip) can be made available to anyone in the ecosystem,” Willem Bulthuis, G&D’s group senior vice president, global marketing and sales, mobile security, told NFC Times. “We manage on behalf of Intel the keys for the secure element.”
Intel will make the embedded secure element “available to whatever business partner makes sense,” he added.
Of course, Intel could end up turning over control of the keys to device makers or mobile operators, depending on the commercial deals it strikes for use of its chips. It was not clear which secure-element vendor Intel is working with for its mobile reference design. It does not have the expertise itself to design smart card-grade chips.
G&D also announced a TSM contract on the issuing side with Commonwealth Bank of Australia before the Mobile World Congress. And it has an earlier announced deal to serve as TSM for Telefónica group in Europe, including O2 in the United Kingdom.
Oberthur also announced a TSM contract with French bank Société Générale before the congress, adding to earlier contracts with another French bank, BNP Paribas, and French mobile operators SFR and Bouygues Telecom. It also is believed to have a TSM deal with U.S.-based Discover Financial Services.
Gemalto, too, has TSM contracts with at least two French banks along with telco Orange in France, Barclaycard in the United Kingdom and Japanese operator KDDI. And it is leading a consortium that won a bid from Singapore’s Infocomm Development Authority to run a national TSM service.
Seeking More NFC Business from Telcos
Though not yet announced, Gemalto also has won contracts with European mobile operator groups Deutsche Telekom and Vodafone. The latter contract is believed to apply only to Vodafone operators in the United Kingdom and Germany. For both Deutsche Telekom and Vodafone, Gemalto will serve as TSM on the secure element side, for SIMs the telcos issue for NFC phones.
Gemalto’s Piou, eager to drum up more business from telcos and increase revenue and profit margins, raised the specter of more so-called over-the-top players like Google launching NFC mobile wallets in competition with mobile operators.
“It’s still a very competitive market and they (telcos) have pressure,” Piou said Thursday to financial analysts. He said the same thing during a presentation last week at the Mobile World Congress. “If the operators don’t do something in between 12 and 18 months, somebody else will do it, or the bankers will do it.”