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Smart-card developer sees busy 2001
ActivCard to double workforce as expands client base
By Thom Calandra, FT MarketWatch.com
Last Update: 6:00 AM ET Jan 31, 2001
PARIS (FTMW) - ActivCard, hoping to exploit an expanding market for digital identities, will make several acquisitions this year and increase its work force by 50 percent.
Chairman and CEO Jean-Gerard Galvez, speaking from Paris, said his California company intends to advance recent government contracts for ActivCard (ACTI: news, msgs) software, which powers smart cards.
"We are just at stage one and hope to take this to the next level; the government opportunity is enormous," said Galvez, who moved the company to Silicon Valley from Paris about four years ago.
Citicorp, Sun Microsystems, the Federal Reserve Bank and U.S. Department of Defense are using ActivCard technology or have plans to. The Pentagon's new high-tech identity badge for 4 million people will use ActivCard technology.
ActivCard's software is essentially a micro-computer embedded into a plastic card. Users can deploy smart cards to crack any device operating off a network -- like an ATM cash machine, a PC, even a garage door.
The company released its fourth-quarter report from Europe on Wednesday. ActivCard's fourth quarter sales doubled to $6.1 million. Analysts were looking for about $5.3 million of sales for the quarter.
The Fremont, Calif., company did $18.1 million of sales for the year, a level that Galvez hopes to grow considerably this year. ActivCard's Nasdaq-traded shares at $18 are an expensive 40 times last year's revenue. ActivCard also trades on Brussels-based Easdaq.
Galvez says ActivCard has "terrific momentum." But operating losses were almost $5 million for the quarter due to heavy marketing "and a lot of hiring." The company's net income, before accounting for an $18 million foreign-exchange loss, was about break-even.
Galvez says he intends to add about 100 employees to a force of 200 this year. ActivCard, thanks largely to a March initial public offering, has more than $300 million in cash.
Building the backbone
Smart cards are like electronic passports. One card can be used for entering a building, logging into a network, paying for stuff with a corporate credit card. Even remote Web access.
The market for smart cards is in the billions of dollars. But it's not a cakewalk. Much of the business comes from government agencies, banks and credit card companies. Those are tough customers.
The General Services Administration says it will spend $1.5 billion over the next 10 years on smart cards and smart-card stations.
"No one is building a client-server backbone to manage applications and services for smart cards post issuance," says the CEO. "What banks need is the ability to load credentials and service applications from the back-end and deal with the post-issuance issues, like changing signature keys, revoking an application for credit and so on."
In the case of government contracts, ActivCard works with large vendors such as Electronic Data Systems (EDS: news, msgs) as an original equipment manufacturer. "We don't manufacture any of the cards or the smart-card readers," Galvez says.
Competitors include another French company, Gemplus International (GEMP: news, msgs) , the world's largest maker of smart cards. Gemplus, founded in 1988, has nearly a third of the global market in SIM cards, which are used with mobile phones.
ActivCard is developing a Web based console that allows an administrator to manage a card independently of other applications. "An administrator can upgrade an application, revoke the keys when the guy leaves the Department of Defense, independent of the card itself," Galvez says.
SG Cowen, the investment bank, figures ActivCard is well positioned to gain more government business this year.
Another California company, SCM Microsystems (SCMM: news, msgs) , is close to seeing its smart card readers certified by Visa, the credit card company. Visa's smart card for e-commerce applications may reach 10 million people this year.
SCM provides ActivCard with smart-card readers. SCM, along with Sun Microsystems (SUNW: news, msgs) , was an early investor in ActivCard. Sun put $10 million into the company before the March IPO. "It was Sun that brought us to the Department of Defense," says Galvez.
Fidelity Investments, the giant mutual fund family, owns more than 5 percent of ActivCard's shares.
Galvez says the company is expanding across Europe and in Japan. BBS, a venture between IBM and Ernst & Young, is a backer of ActivCard's Japan subsidiary.