Smart-card vendors in for a squeeze

Despite double-digit growth, an increase in competition will squeeze profit margins over the next five years for established smart-card companies, says a recent study from market research firm Frost and Sullivan Inc., Mountain View.

Excitement in the early 1990s over smart-card technology caused analysts to speculate that the industry would reach anywhere from 3 billion to 6 billion units by the year 2000. This enthusiasm caused smart-card companies to invest heavily in the market, says the study. Between 1992 and 1997, the number of competitors grew by 250%, the smart-card production equipment market exploded from about $2 million to $1.36 billion as these vendors tooled up for production, and sales and marketing forces tripled and quadrupled as smart-card companies prepared to sell them worldwide, according to the study.

However, there may not be as many people willing to buy smart cards as wanting to sell them. Frost and Sullivan's current forecast calls for less than 2 billion units by 2000. Why no more? Bank card associations such as Visa and Master Card and their member banks have failed to install compatible card terminals, and various smart-card products (such as smart-card readers for PCs) have been delayed, the study warns. What's more, what cards do sell will have slim margins, as new competition and the falling cost of chips are pushing prices down, notes the study.

A copy of the study can be purchased from Frost and Sullivan for $3,450. Contact Kathleen Cooney. Phone: (650) 237-4385. Email: kcooney@frost.com. Web site: www.frost.com.

--Gina Fraone