Inside Secure Announces Plans to Go Public

May 17 2011

France-based NFC chip supplier Inside Secure took its first official step toward an initial public offering, filing registration papers with French regulators for its planned listing on the NYSE Euronext exchange in Paris later this year.

Inside announced the registration with the Autorité des marchés financiers, AMF, this morning and issued a preliminary prospectus.

Company executives today in a press conference said Inside’s strategy is to address markets for NFC chips, including secure elements; EMV payment cards, especially dual-interface cards; and digital security, including access control, ID cards and machine-to-machine applications.

The IPO will give Inside greater leverage to make acquisitions when opportunities arise, along with increasing its visibility on world markets, Inside CEO Rémy de Tonnac told NFC Times.

“We want to grab those opportunities quickly, and it’s better to have $50 million in the bucket ready. It’s better to have paper that has value,” he said. “That’s the main theme, and the visibility.”

But Inside executives could not confirm reports that the company seeks to raise about €100 million (US$141.5 million) in the IPO. They also declined to predict when the IPO would launch, though were confident it would happen this year.

The IPO also will help Inside with working capital, especially research and development, to stay competitive with much larger rivals, especially chief rival NXP Semiconductors, in the NFC market.

NXP and Inside are the only two semiconductor suppliers now shipping NFC chips in volume to handset makers, though other large chip makers, such as STMicroelectronics, Samsung Semiconductor and Renesas Electronics, are gearing up, as are such wireless chipset makers as Broadcom.

RIM Contract Confirmed
In documents released today, Inside confirmed for the first time that it was shipping chips to Research in Motion for RIM’s BlackBerry NFC phones, as part of a backlog of $22 million in NFC chip orders as of the end of the first quarter of 2011.

The chip maker would only say that the RIM shipments include chips for the first two NFC phones RIM has announced, the BlackBerry Bold 9900 and 9930, but NFC Times has reported that Inside has orders of as many as 25 million NFC chips from RIM, though not all of those orders are finalized.

The shipments of the two Bold handsets come with Inside’s SecuRead NFC chips that are stacked with embedded secure elements supplied by Germany-based Infineon Technologies. Inside said it plans to supply its own secure elements in 2012 or 2013, using technology from Atmel Corp.'s smart card chip unit. Inside purchased the unit last fall.

Inside also revealed it has a design win from large China-based handset maker ZTE for volume shipments of chips that could begin by the end of 2011. These ZTE phones would not support Android. 

'Let's Count the Chips'
NXP also has announced it would be a supplier of NFC chips to ZTE for phone shipments beginning as early as the second quarter. Some analysts place ZTE in the top five handset makers worldwide by unit shipments.

Inside’s de Tonnac, however, questioned whether NXP would be supplying chips to ZTE sooner than Inside would and brushed aside any suggestion that Inside would become a second-source supplier to ZTE after NXP.

When asked by NFC Times, he also rejected statements made by NXP CEO Richard Clemmer during a conference call with financial analysts earlier this month, in which Clemmer said NXP owns the overwhelming majority of the NFC market–or as Clemmer put it, NXP has “Intel-like market shares” in the NFC business.

“My answer is, let’s count the chips at the end of the year,” de Tonnac said.

De Tonnac also declined to agree that NXP has a lock on the business supplying NFC chips to makers of smartphones supporting Google’s Android operating system, though Inside would have to be content as a second source, at least for the near future. Clemmer, in his conference call, said if rosy projections by Google for Android phone shipments come to pass, total NFC phone shipments–supporting all platforms–could approach 100 million units.

“We were extremely happy to hear CEO Richard Clemmer said that such is the case,” de Tonnac told NFC Times. “You know what is the policy is for LG, Samsung, HTC–at some point these players will introduce a second source, and we are well-postioned for that.”

Inside also said it was supplying chips for Sonim, a U.S.-based handset maker planning to introduce a ruggedized range of NFC phones, probably in the second half of 2011. And Inside provides NFC chips to smart card vendor Oberthur Technologies for Oberthur's SIM overlay chip and flexible antenna, which is a bridge technology to give non-NFC phones an NFC interface.

Sales Climbed; Losses Narrowed in 2010
Financial statements Inside released today showed the company brought in $78.1 million in 2010, including fourth-quarter revenue from Atmel Corp.’s smart card unit. Without the Atmel revenue, Inside would have generated $51.5 million in sales. That compares with sales of $35.9 million for Inside in 2009, a year in which it was hit hard by the financial crisis in the banking market, and $51.9 million in 2008.

Inside reported a net loss of $7.9 million in 2010, including the Atmel smart card unit, compared with a loss of $11.5 million in 2009 and loss of $12.7 million in 2008. The 2010 loss would have been greater without Atmel’s unit, which was profitable in 2010.

Inside closed on the Atmel unit acquisition last September, paying a base price of $32 million for the much larger smart card business of the U.S.-based semiconductor supplier. The Atmel smart card business had revenue of roughly $100 million in all of 2010.

For Inside, about 73% of 2010 revenue came from shipments of contactless chips for payment cards, mostly to U.S. banks issuing contactless credit and debit cards. Inside said its “secure payment” unit brought in $57 million, about 20% of that from the Atmel business. That compares with $31.7 million in sales for payment chips in 2009 for Inside alone and $48.7 million generated by the Inside payment unit in 2008.

Inside reported revenue of only $2.3 million in 2010 for its “mobile NFC,” unit, just under $1.4 million from Inside and the rest from the Atmel business. The Atmel share came from a relatively small number of SIM chips supporting the single-wire protocol, said one Inside executive. The mobile NFC unit revenue made up only 3.3% of Inside’s sales for the year, with NFC only beginning to gear up last year. The 2010 NFC revenue compares with $1.1 million in sales from Inside’s NFC unit in 2009 and just $263,000 in 2008.

Inside reported $18.7 million in sales from its “digital security” unit, which includes sales of chips for pay-TV and electronic ID cards and documents. Nearly 80% of the unit's sales came from the Atmel business.

The company noted that it cut its operating losses by nearly half in 2010, to $6.8 million. A breakdown by its three business units showed the mobile NFC unit accounted for all of the losses, with an operating deficit of $11.9 million in 2010. Inside has attributed that mainly to R&D spending. The secure payment unit showed an operating profit of a little more than $6 million, while digital security was $1.8 million in the black.

Inside's sales showed signs of increasing substantially this year. The company disclosed it had total revenue of $38.5 million in the first quarter of 2011. Inside projected an operating loss of $1.7 million for the quarter.

The company projects revenue of about $400 million by 2013.

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