SchlumbergerSema, a business unit of Schlumberger
Limited, unveiled its annual smart card market trends review, which
notes that the economic slowdown of the last year significantly affected the
industry’s results. As usual, this forecast focuses on volumes and yearly
periods, and does not include financial, pricing, margin, monthly or
quarterly anticipations about the growth trends in this highly cyclical
industry, which is traditionally slower in the first part of the year.
For 2001, year-on-year growth rates for the entire smart card industry fell
from typical +20% levels to what for this market segment is effectively a
flat line at just +3%. The most visible effect is expected to be greater
emphasis on a wider range of applications that go well beyond previous
years’ strong focus on mobile communications.
Hidden inside the overall picture are some significant trends and successes.
They include maturity for multi-application cards, with anticipated
dominance for the JavaCard platform; the continuing rise of the
Asia-Pacific region; and unstoppable momentum for banking applications,
which have long cycle times that seem to be immune to macro-economic
fluctuations. Looking forward two years, SchlumbergerSema expects smart
card-enabled PKI (public key infrastructure) technology to play a growing
role in the deployment of many 2.5 and 3G networks, the roll-out of national
ID card programs, and the implementation of smart card-based network access
for enterprise IT systems.
“Success is now heavily reliant on the ability of the industry’s major
players to offer end-to-end solutions embracing systems design, integration
and deployment, a trend which underscores the vision behind last year’s
Schlumberger Limited acquisition of Sema,” said Jorgen Rasmussen, president,
Cards, SchlumbergerSema. “Smart cards provide a key enabling technology
across many different industries, catalyzing profitability and operational
efficiencies. Moving forward, business success for smart card players is
going to rely largely on their ability to provide a full spectrum of
solutions — from simple, single applications to the most complex card
life-cycle management programs.”
Telecommunications: SIMs are Down, but Far from Out
After an amazing run of double-and triple-digit growth years, the SIM
(subscriber identity module) smart card market experienced an unanticipated
drop in 2001. The main reasons were low levels of handset renewals due to
the perceived failure of WAP, the non-arrival of 2.5G technologies, near
saturation of handsets in some countries, and the fact that many operators
had overstocked on SIMs to meet growth predictions that did not occur. In
combination with the general lack of confidence following events on
September 11, the result was a decrease of the market of around 10%. This
learning experience led operators and industry suppliers to revise their
forecasts; and the regular replacement forecasting models of the PC industry
are no longer in vogue.
For the wireless smart card sector, the growth outlook is now a modest 12%
for 2002, moving upward to 20% in 2003. The key factor driving this growth
curve is the arrival of higher bandwidth mobile network infrastructure,
which is expected to mature and result in volume handset orders during 2003.
There are some particularly bright spots that indicate that SIM cards are
possibly growing faster than some handset manufacturers might predict. Two
factors stand out.
The first is the strong growth of SMS (short message service) traffic. In
an overall disappointing year, this was probably the biggest success story
for mobile operators, with SMS traffic accounting for up to 10% of revenue.
As the value-added services (VAS) that facilitate this business are heavily
based on SIM ToolKit (STK) applications, SMS provides a healthy impetus for
SIM card growth, which can only be boosted with the current migration to 64K
SIMs, which SchlumbergerSema started shipping in 2001. This trend heralds
cards that support large numbers of VASs. The roll-out of
SIMalliance-compatible browsers based on STK is now starting to impact
shipments, further improving prospects.
The second factor is the adoption of GSM/GPRS technology by TDMA operators,
and the introduction of SIM cards by key CDMA operators, like China
Unicom,which has required the use of RUIM (Removable User Identity Module)
cards in its networks. This shift is now evident in North America, Latin
America, Asia Pacific, and Africa. Among operators adopting GSM technology,
AT&T and Cingular in North America provide very high profile examples. Such
moves are contributing to the widespread adoption of SIM-based technologies
by a subscriber base that previously was locked out of SIM-based solutions.
With the lack of impact from Windows for Smart Cards in the mobile
communications segment, Java has been further reinforced as the de facto
standard worldwide. JavaCard compatibility has become an unstoppable force
for high-end SIM cards following the release of the 2.1 specification, which
provides interoperability for deploying VASs and upgrading them in the
field. In 2001, JavaCards accounted for 60% of high-end multi-application
card shipments to the wireless industry. This trend is expected to
consolidate and rapidly lead to complete domination in 2003.
SchlumbergerSema pioneered JavaCard technology in 1996, and has
traditionally dominated this segment of the smart card market. For the
foreseeable future, SchlumbergerSema expects its total JavaCard shipments to
increase dramatically in the high-end SIM segment.
Considered geographically, consumption of SIM cards for mobile
communications applications in the Asia Pacific region matched the European
market in 2001, and is expected to outstrip other markets in the foreseeable
future. This is due to the large markets expanding and opening up in Asia
— particularly China, Indonesia, and India. Significantly, the Asia Pacific
region is starting to become a technology leader as well.
In North America, sales of its Simera Java-enabled SIM smart card are
expected to surpass ten million units sold in early 2002.
“As innovative mobile applications such as m-banking, m-commerce, and
location-based services continue to be adopted by operators in North
America, the SchlumbergerSema Simera Java-based SIM card is providing the
right foundation to fuel needed growth in these data-based services,” stated
Paul Beverly, vice president of cards and eTransactions, North America. “As
the wireless market in North America continues to mature, SIM cards and
SIM-based solutions will continue to enable wireless operators to meet
consumer demand for content, security, and convenience in real-time data
“Smart cards are now a worldwide phenomenon in mobile communications,”
commented Xavier Chanay, vice president, Mobile Communications products,
SchlumbergerSema. “The rapidly increasing capacity of cards, plus their
major role in supporting revenue-generating, value-added services make them
the ideal device for supporting the key business objectives of leading-edge
mobile communications companies.”
Turning to other smart card applications in the telecommunications sector,
the first trend of note is early signs of decline in the biggest single chip
card market: phone cards. Based on simple memory-only chips, this sector
accounts for well over half of the industry’s total card shipments — more than a
billion units in 2001. However, it only reflects a small portion of the
industry’s revenue, as phone cards have become a commodity product. The
phone card market, which has in recent years grown by around 10% per annum,
is now being affected by the increasing penetration of mobile phones. Other
factors impacting it include the growing ability to pay for calls via
multi-application cards, such as an e-purse or debit application on a
financial card. The phone card market now looks set for gradual
single-digit declines for the foreseeable future.
Banking – a Solid Business Case for Growth
The financial market represents the next largest application sector for
smart cards, and it is proving to be relatively immune to economic
fluctuations, largely because of the long cycle times associated with
projects. This market grew by 21% in the last year, a strong performance
driven by the country-wide projects that are replacing existing magnetic
stripe bank cards with smart cards — such as the UK’s conversion to smart
cards in 2001.
The EMV (Europay MasterCard Visa) specification continues to dominate the
industry, with Brazil, Korea and Japan emerging as the newest smart card
financial markets, and the UK entering a maturity phase. The case for smart
cards in the banking industry was originally built on controlling fraud.
Today, applications are increasingly focused on winning and retaining
customers by offering innovative multi-application cards with multiple
services, such as credit, debit, e-purse and cash dispensing facilities; new
functions such as loyalty, secure remote access to accounts; and even
non-banking applications like healthcare.
Technologically, a number of platforms – notably JavaCard and Multos — are
still competing for leadership in open standards, but none is expected to
become dominant in the near future. One prediction from SchlumbergerSema is
that the banking sector is likely to be the first volume adopter of the
company’s USB-compatible e-gate smart cards, which enable high security,
smart card-based services to be easily used over networks for authentication
“The provision of end-to-end solutions for multi-application cards is now
key for financial institutions re-engineering their customer relationships
and deploying multi-channel access to reduce time-to-market for these new
services and cut total cost-of-ownership,” said Philippe Cambriel, vice
president, e-Transactions Cards, SchlumbergerSema.
Public Sector ID Cards Offer Growing Prospects
Although the government-driven card application sector involves large
volumes, and is the next largest consumer of microprocessor-based smart
cards after mobile communications and banking, it is still in its formative
years. This makes it extremely sensitive to individual projects, and
near-term growth forecast partially relies on an extension of existing
projects, such as the massive French health card project, which moved from
its roll-out to maintenance phase. From 2004 onward, however, overall
market prospects start to become immense.
Several countries are currently tendering for national ID cards, with some
projects expected to reach their roll-out stage during the next two years.
Numerous other countries are currently starting to consider options in this
area, partly as a result of heightened security concerns stemming from the
events on September 11. This is particularly true in North America, where
both government and businesses are exploring new ways to protect the
security of their IT networks and buildings without compromising the privacy
of individuals. In the US, the Department of Defense is rolling out Java
multi-application cards for physical identification and building/network
Technologically and organizationally, this sector is one of the most
challenging for the smart card industry. From a technological standpoint,
the cards must support a sophisticated PKI to achieve the highest level of
protection against counterfeiting. This necessitates powerful on-card
cryptographic processing capabilities. The physical structure of the card
is also crucial — it must exceed normal durability standards, as well as
support graphical and printing techniques that provide equal or higher
security than bank notes.
A second factor is the public sector’s growing demand for end-to-end
support. As SchlumbergerSema predicted in past years, this drive for
complete solutions is a fundamental factor behind recent consolidation and
change in the smart card industry – with the Schlumberger acquisition of
Sema emerging as the highest profile example of this trend. Industry
survivors in this sector must offer end-to-end solutions that include
mini-smart card personalization factories, distributed network systems and
interfaces with back-office national computer systems.
Transport Applications are Moving Smoothly
The transportation sector has progressed to an interesting phase. The
established productivity and business benefits of contactless card
technologies for ticketing and tolling are now spreading out from
high-profile mass transit applications in major cities to numerous
smaller-scale projects in mid-sized cities and towns.
Four major RF (radio frequency) contactless technologies are competing for
business. Smart cards still have to overcome the cost barrier associated
with chips being more expensive than magnetic stripes, especially as it
relates to low-value tickets. A key factor in determining which
technologies and suppliers attain dominance is that smart cards enable
transit operators — which are usually government-sponsored in some form –
to increase profit by offering additional on-card applications to their
Although the complementary applications that will drive this emerging market
are still to be determined, they will almost certainly demand cards which
combine contactless and contact interfaces – such as the ones used in
Southampton, UK; Curitiba, Brazil; and the RATP program in Paris, France —
together with the associated multi-application operating systems, terminals
and systems integration support.
Smart Cards for Pay-TV Applications Ensure Security in the Digital Age
The pay TV market for smart cards is already substantial. Although it is
likely to grow only sporadically in the short term, it is potentially a star
in the smart card industry’s future as cable and satellite set-top box card
systems come up for renewal every two to three years.
Because they are simple to use, low cost and easily replaceable, smart cards
are now fundamental to security management for the pay TV industry. The
transition to all-digital delivery for terrestrial/national TV channels, the
emergent business models for digital rights management for high-value
content providers in areas such as sports and films, and operators’ desire
to leverage customer bases by marketing set-top boxes for Internet access
indicate enormous growth prospects for the smart card industry in 2005 and
IT Security Emerges as Newest Major Application
For the first time in the annual SchlumbergerSema smart card review, IT
security applications are covered as a separate application segment.
Although still involving small numbers, smart card-enabled IT security is
experiencing explosive growth. Smart cards are providing a user friendly
and convenient tool for implementing enterprise-wide security for physical
access to premises, as well as logical access to computers and
private/public networks. Over the last year in particular, numerous
industry-leading enterprises have started to equip their IT systems with
smart card-based PKI applications, inspiring many more companies to adapt
this easy-to-use, secure option.
Market growth in this segment is enabled by the support for smart cards
built into the Windows operating system, which reflects the demand for
systems integration support from smart card vendors for applications such as
client sign-on and back-office integration with PKI resources. Global
around-the-clock support is another factor, especially for the current
initial wave of users, which are typically multinational corporations.
SchlumbergerSema expects the IT security sector to more than double each
year for the foreseeable future, and the technology is expected to start
penetrating mid-sized and smaller organizations over the next couple of
years. For corporate users, the new USB-compatible SchlumbergerSema e-gate
technology – which eliminates the need for a reader — is a key factor in
Winners Will Deliver End-to-End Customized Solutions
The fast-growing markets and application sectors for smart cards generally
involve microprocessor-based technology and multi-application capabilities.
SchlumbergerSema predicts that by 2003, 50% of smart card shipments are
expected to support multiple applications. Moreover, the open JavaCard
standard for multi-application cards — building on its unchallenged
leadership in mobile communications — is expected to attain industry-wide
domination in the same timeframe.
The establishment of smart cards as the portable client device of choice for
automating consumer services and managing customer relationships is a
further indisputable trend, which has already led to the emergence of a new
breed of systems house.
“With very large rewards for card-adopting organizations, the challenge is
now one of design, integration and service,” stated Rasmussen. “The
successful card players of the next few years will be companies that can
provide optimal customized solutions, from the card itself through full
system integration to operational services.”
SchlumbergerSema is a leading information technology services company
providing consulting, systems integration, managed services and products to
the telecommunications, energy and utilities, finance, transport and public
sector markets. With more than 30,000 employees serving customers in 65
countries, SchlumbergerSema is one of two business segments of Schlumberger
Limited, a global technology services company. For more information about
SchlumbergerSema, visit http://www.slb.com.