Chief Executive's review

When we announced our 2010-2013 Development Plan in November 2009 we set ourselves a very bold objective: €300m in profits in 2013, up more than 50% from an already record 2009. And we were convinced it was achievable, thanks to the sound platform for growth we’ve been laying since Gemalto’s creation in 2006.

The market developments and our performance in 2010 show that we got our strategy right, and that we’re capable of hitting our targets. We have significantly expanded our revenue, in particular in software and services, and once again grown our profit from operations. In addition, we have further increased our customers’ satisfaction and loyalty, and kept our employees motivated and happy.

Gemalto is a leading player in markets brimming with opportunities: mobile financial services, contactless payment, trusted service management, mobile money, strong authentication for cloud computing applications, eGovernment enrollment and issuance services, machine-to-machine technology, the internet-of-things and so on. In each area we’ve delivered significant progress, through a combination of in-house innovations, organic investments and judicious acquisitions.

An appetite for innovation

Significantly, we did well in very contrasting economies and regions. After a long pause, many of our developed markets progressively showed a revitalized appetite for innovation. For the quickly developing nations, which now account for about half of our business, this enthusiasm had never gone away.

Not only have they continued to grow in volume of products delivered over the past couple of years, they’re also eagerly willing to adopt our latest technologies – and they haven’t got any embedded infrastructure to hold them back. That’s why, for example, mobile money was pioneered with such success in Africa. Our global reach, our long-standing commitment to diversity – with over 90 nationalities working in Gemalto – and our strong, long-term presence in many of these markets clearly benefit us.

A developing digital security market

2010 saw significant developments in our digital security eco-system. For example, this year the mobile internet went really mass market, and we quickly detected the rapid acceleration in demand for mobile commerce. We know from experience that when markets go mobile, they get big, fast. Add our expertise in Near-Field Communication (NFC) solutions for proximity interactions and many opportunities come to life.

Another of the biggest shifts has been the escalating importance of cloud computing. We’ll soon be seeing plenty of private clouds for large corporations as well as specific offerings for smaller businesses and individuals. These will require new security and identity management solutions to make sure these high-value data are accessible online only to the right users – all of which is creating a significant potential market for us.

Added value is the key

As we described in the Development Plan, our strategy is about extending our role and the boundaries of digital security, and that’s what we’re doing. Our software and services increasingly touch people’s daily lives in convenient and positive ways, and we are constantly adding value to the diversifying range of secure devices through which they’re delivered to end-users: smart cards, passports, SIMs, modules, USB keys, microSDs and so on.

Our mobile communication business is a good example. The advanced fourth generation Long Term Evolution (LTE) system of mobile telephony uses UICC(*). It’s like having a full PC on a single chip, dedicated to security, privacy and convenience, with all the potential that offers. Yet the real value is in our software and services management that enables it to run a host of applications, only one of which is called “voice”.

Our Digital Life Management suite is likewise helping operators strengthen their customer relationships, while offering end-users more freedom and convenience. And we’re leading the way in the move to introduce new sources of revenue from mobile devices with our unique, interactive solutions for mobile marketing.

New opportunities in payment

In the financial services sector, the migration of old technology magnetic stripe bank cards to those with the more secure and intelligent EMV chip is moving ahead worldwide, and this continues to create considerable business opportunities.

In Asia, the People’s Bank of China issued specific instructions in 2010 with the aim of migrating the country to microprocessor-based payment cards compatible with EMV over the medium term.

At the same time, in the massive US market, Americans who go abroad are getting increasingly tired of having their old technology cards declined at retailers and ATMs in more and more countries. This is partly why the United Nations’ Credit Union moved to EMV chip cards in 2010; and with the US Federal Reserve now accountable by law for fraud management in payments systems, the argument for EMV and convenient contactless payment cards is increasingly being heard there.

Meanwhile, we’re also seeing an accelerating drive globally to have financial services derive more benefit from the online and mobile channels. Rapidly increasing use of smartphones, combined with the banks’ desire to offer customers convenience and security while improving their own efficiency, mean our electronic and mobile banking activity is reaching new record levels.

Modernizing state services

In the public sector, our ePassport business also continued to prosper in 2010. Protecting air travel and securing borders – the principal drivers of early adoption – are only the start. Increasingly Governments deploying ePassport programs are becoming convinced that issuing digital credentials (eID) is more feasible and popular than they thought. They’ve realized that they can safely entrust this technically complex operation to an experienced company like Gemalto and thereby enjoy the benefits of reduced cost and strong voter support with low execution risks.

As a result, they’ve begun to call on us for new projects such as helping facilitate enrollment in their election processes, and to reduce inefficiency and fraud in the delivery of healthcare and social benefits. For their citizens, it’s satisfying to see that their state services are becoming more modern and convenient. People in early-adopter countries frequently say they’re proud their governments now exist in the same 24/7 digital world that they’ve become used to in their daily lives.

A culture of innovation

We couldn’t perform well in these rapidly evolving markets without a strong culture of innovation. It’s a cornerstone of our enterprise: last year our investment in R&D was again more than twice that of our physical equipment capex. And it’s borne fruit. Amongst many developments, 2010 saw us announcing “E-Go”, a technology which is poised to radically simplify digital interactions.

With E-Go, you’ll be able to authorize a transaction simply by touching a digital device. If you’ve got banking cards in your pocket and you decide to buy something, you’ll simply touch a payment terminal and E-Go will make it ask which account you want to debit. If you’re wearing your company ID pass and touch a computer mouse, you’ll be able to automatically log on with your own preferences and environment. And when you walk away, you’ll be automatically disconnected.

If you’ve got a SIM card, you’ll touch a phone and immediately make it yours, with your own number and all your data. And all this will be done anonymously, without leaving unnecessary remnants while still being genuine. It will be a couple of years before it goes mainstream – but it’ll be nothing short of a revolution when it happens.

Smart M&A

So we place a high value on innovation. Yet knowing well that we won’t invent everything ourselves, we constantly look around for smart ideas and great technologies that can complement our own. And where we’ve been able to do a friendly, mutually beneficial deal, we’ve been propelling our growth by making acquisitions.

At the start of the year we took a controlling stake in Netsize, with its under-utilized mobile commerce and mobile marketing platform. This makes Gemalto a key player in mobile application sales, and rounds out the services we provide to operators to bolster their subscriber revenues. Soon after, we acquired Valimo, the world leader in mobile PKI authentication, aiming at growing usage of legally-binding mobile digital signature.

In April we acquired Todos, making us the only truly global eBanking vendor with such a comprehensive range of authentication solutions for internet banking and eCommerce.

During the summer, Cinterion, the leading provider of Machine-to-Machine (M2M) communications, suddenly became available. Since we’d already got a well considered plan in place, ratified with our Board and explained in our Development Plan, we were able to seize the opportunity.

Finally, we acquired Trivnet, one of the top technology providers in mobile money and mobile financial services.

We started this campaign of acquisitions ahead of the field, so we concluded them on far more favourable terms than if we’d waited. Our Board was challenging and supportive in assessing our targets and our integration processes, and I thank them for their encouragement. In each case the deal has reinforced our position in a high-growth market where we’re already a recognized player. And now, in order to get the best from these technologies and business additions, we’re focused on integrating these new talents into our existing teams.

Satisfying our clients

In fact, when I look back on 2010, it’s what our people have achieved that excites me most. They’ve shown their capacity for customer service, quality and innovation, winning contracts and awards in so many different markets and regions. They’ve demonstrated their ability to accelerate the pace of growth and profit, yet they never forgot about caring for and satisfying our customers.

Every year we commission an independent survey of clients, representing around half our global revenues. For the third year in a row we’ve increased their satisfaction levels, and maintained our ranking among the very best companies in the world in this respect.

And since one key to customer satisfaction is happy, talented and motivated people, I was also pleased to see that our employee survey results were again very positive in 2010.

A host of opportunities

The companies that do best coming out of a downturn are usually those that have been willing and able to invest through it. Gemalto is one of those companies. We’ve worked hard at enriching our portfolio and serving our customers in the tough times they’ve been through.

We will dedicate 2011 to leveraging our new acquisitions, and further developing our portfolio of products, software and services. We strongly believe, as ever, that these efforts will bear fruit through to 2013 and beyond.

Our ambitions are bold – and our results in 2010 demonstrate our potential.

Olivier Piou
Chief Executive Officer