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TWST: Can we begin with a historical sketch and introduction to Gemplus (Nasdaq: GEMP)?

Mr. Michel: In a snapshot, Gemplus manufactures and markets smart card solutions for wireless services, financial transactions and security applications, and is today the largest company that is solely dedicated to smart card technology. Without getting too technical, the smart card itself can be described as a storage device in the form factor of a credit card, with a chip embedded in it that when coupled with a reader, has the processing power to host and manage data and identity credentials for security and authentication purposes. Gemplus is a relatively young company, created in 1988 primarily around the phone card. Smart cards were initially used in pay phones in France, where one of the main motives was to prevent pay phone fraud and people stealing money from inside the pay phones. Smart cards replaced coins for public pay phones and removed the fraud problem. The company grew out of this, moving into other business areas which required more security in general; such as banking, loyalty, identity, transportation and, of course, telecommunication with the SIM cards that go into the cell phone for user-authentication. When the GSM business picked up in the middle of the '90s, Gemplus was very well positioned to take advantage of this and increasing its investments. In fact, fairly quickly the company became number one in the global SIM card business. By the beginning of 2000, Gemplus was the number one producer of smart cards worldwide, and had strong leadership in the SIM card market with about 40-42% market share.

Gemplus also had a strong position in banking, where we were number four at that time capturing about 9% of the global market. There were a number of other emerging markets including transport, loyalty, retail and so forth, all in which we had good positions, but the size of the market was not significant enough to effectively measure and compare against the other players in the space. As the market grew Gemplus expanded its business and increased its worldwide presence, developing offices and facilities in all major markets around the globe.

Then came 2000, and the Internet bubble burst. Combining this with the turmoil experienced within the telecom industry, Gemplus experienced a slowdown of the business. For example, in 2000 we peaked at about 1.2 billion or €1 billion, but in 2001 revenue dropped to about 1 billion, and then to about 800 million in 2002; most of this due to the decline of the telecom business. As a result, Gemplus had to do a number of things, including restructuring, in order to adapt the organization of the company to the business objectives.

In 2000, we also decided to structure the company into two focused business units and three market segments: telecommunications, of course, where Gemplus was and is the leader and which still represents 65-70% of the company’s revenue; and financial and security services, which actually includes two market segments; banking, and security linked to identification, authentication, corporate and government security, plus some additional areas. The financial and security services business unit represents 30% of the Gemplus business. Since 1999, we have improved our position in financial services from number four to number three, and our market share has grown from 9% to 22% over the last three years. So we are experiencing good growth and a strong comeback in the market. It is also an especially attractive market going forward because of what we call EMV (Europay MasterCard Visa) migration from the magnetic stripe card to smart card technology in the banking domain.

In security, we have seen a movement towards e-business – technologies around B-to-B and B-to-C with complementary security features such as PKI (Public Key Infrastructure). But beyond that, we also started investing in identity authentication in general; smart card-based identity cards, passports, driving licenses, employee badges and so forth, which has become especially important post-September 11th, and given the geopolitical situation environment we are in. We see secure identification of citizens and employees as a strong growth area and have positioned ourselves accordingly.

So to sum up, Gemplus, through weathering the economic storm of the past two years, is now more focused to take advantage of new growth opportunities in financial and security services, which will represent a strong source of revenue moving forward; and the company is well positioned to benefit from stabilizing telecommunications market. Today Gemplus stands strong with over 5,700 employees in 37 countries throughout the world.