Schlumberger, the massive French oil services company now based in New York, has been a leader in the smart card business for 25 years. In September 2003, the company renamed its smart card division Axalto and established it as a wholly-owned subsidiary. The move heightened already-rampant rumors of the division’s pending sell-off. On March 24, 2003 the rumors were substantiated when Schlumberger filed documents for Axalto’s initial public offering (IPO).
While the date for the initial offering was specified only as “when market conditions permit,” it did not take long. The shares will be made available on the public markets on May 18, 2003.
Schlumberger is a world leader in technology and project management within the oil and gas industry. The company employs more than 50,000 people around the globe and has operating revenues exceeding US$11 billion. The company produced its first smart card in 1979 from within its Measurement and Systems Division. The smart card was initially viewed as a means to track the utilization of oil for its customers but its application potential quickly grew. In the decades that followed, Schlumberger became one of the world’s leading producers of smart cards and related systems.
In recent years, Schlumberger has continued the expansion of its focus to areas outside of oil services industry. Economic and market pressures, however, have called this practice into question and convinced corporate decision makers to reverse this trend. The company’s 2003 Annual Report (issued in March 2004) stated:
“The year 2003 marked a watershed for Schlumberger as we took the decision to focus on our core businesses in oilfield services. Our reasoning was simple. World energy needs for much of the next half-century will be met mostly by carbon-based fuels produced from an aging reserves base. Substantial investment will be needed to sustain today’s production as well as to meet tomorrow’s demand, and technology will be the key to a cleaner, more cost-effective response to this challenge. We therefore believe the future for Schlumberger is exceptionally bright.”
The divestiture of certain acquisitions in non oil-related industries was a first stage in this process. The company’s major information technology services capability acquired from Sema in 2002, was sold to Atos Origin early this year brining US$1.1 billion in proceeds. The spin out of Axalto is another key part of the process. Cites Clare Hirst, analyst with the Gartner Group, “an independent Axalto will benefit from a booming smart card market, and will enable Schlumberger to refocus on its core business.”
Axalto currently employs 4500 people in more than 100 countries. Last year, it was the number one producer of microprocessor chip cards, the number two producer of chip cards (when both microprocessor and lower-cost memory cards shipments are combined), and the number one producer of subscriber identity module (SIM) cards for mobile phone markets.
Company sales in 2003 exceeded US$767 million with a net profit of $25 million. Sales for the first-quarter of 2004 were extremely strong for Axalto and others in the chip card market, certainly a factor in Schlumberger’s decision to move forward with the IPO at this point.
Schlumberger will sell 70% of Axalto during the offering at initial price expected to be between US$18 and US$21. This places a valuation on the company between US$721 million and US$838 million.
With the offering scheduled to occur on May 18, the results will be known soon enough. Certainly all indications are that the IPO market is gaining strength but the public markets have not traditionally been kind to smart card and related companies. Time will tell.