Smart Cards: Smart Card Giant Gemplus Posts 11% Rise in Revenue;

Gemplus, the big smart card manufacturer and industry bellwether, said its revenue in 1998 increased 11%.

The French company, which discloses results even though it is privately held, earned $27 million on $648 million in 1998 revenue. Investing heavily in research and development, Gemplus' bottom line was only $2 million a year earlier.

R&D spending rose 30% in 1998, to $50 million, and improved factory productivity boosted the gross margin by 2 percentage points, to 34%. Net debt was reduced to $28 million, from $114 million.

Company officials, though pleased to achieve double-digit revenue growth, said the Asian economic crisis took a toll. All regions showed growth, but Asia was reduced to next to nothing after five years of 70% compound annual rates.

Still, said chief executive officer Daniel Le Gal, "we are well poised to engage the expanding smart-card-related opportunities and strengthen our position as world leader."

"We have higher ambitions," Dominique Trempont, head of Gemplus Americas, said this week. "We make a lot of investments to grow, which will hopefully bode well for increased growth in the next two years."

Even amid the Asia slowdown, Gemplus made $30 million of capital and R&D investments in that region, including the opening of a plant in Singapore.

"We are still a private company," Mr. Trempont added. "We can afford the luxury of investing without getting hit by Wall Street."

Mr. Trempont, who is based in Redwood City, Calif., said the U.S. and Latin American markets were Gemplus' fastest-growing last year, "but they are not yet big enough to contribute to the overall growth rate."

He expressed confidence that U.S. growth will accelerate this year.

In terms of lines of business, he said, the market for mobile telephone subscriber identity modules, or SIM cards, continues to be robust, as are other "emerging markets" for contactless, multiple-application, and multiprocessor cards. Mature businesses-stored-value phone cards, banking and magnetic stripe cards-are relatively flat.

Among the 1998 accomplishments trumpeted in the earnings announcement were a development alliance with International Business Machines Corp. for cards based on Java technology, and Gemplus' support for the competing Smart Cards for Windows operating system of Microsoft Corp.

Mr. Trempont said the expansion of such alternatives will be positive in the long run, but that in the short-term it slows deployment "until these platforms are proven reliable."

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