4 Dec 2013
I had a large institutional investor forward me this article.. it is 60 days old.. but still I spit out my coffee laughing, so be careful.
http://nfctimes.com/news/gemalto-offers-details-mcx-deal-vendor-will-earn-fees-transactions
Gemalto CEO’s assertion that he will make “hundreds of millions” from MCX is a big pile of… um… “optimism”. Given he is a public company, I can’t imagine how he could possibly give forward looking statements that are so completely and utterly unfounded. Perhaps communication by public companies in Amsterdam is a little more relaxed (a trip to the “coffee shop” with Bob Dylan. I better watch out, or I may be treated like Bob was yesterday see CNN – Bob D Inciting hatred).
Let’s do a little math.
MCX will likely process payments in a decoubled debit model with a net payment cost of $0.05 (plus 10-20bps for fraud). If Gemalto were able to get 10% of $0.05 ($0.005/tran) it would take 20 BILLION transactions to generate $100M in revenue, at $40 per average transaction that would be 800 BILLION in sales. For perspective, total US retail sales are $2.4T (not including restaurants, auto, services, gas). Wow…. Quite Gemalto has quite an “aspirational” view on MCX adoption. I wonder if Gemalto’s CEO knows that the US operates in a competitive free market??
The only possible way to (re) interpret quote is that MCX will make 100M TRANSACTIONS. This means that Gemalto’s revenue from MCX would be $500,000 (at the VERY top end) in Year 5. I hope the institutional investors priced this “cloud” revenue…
I’ve yet to meet any vendor that has not left in tears after working with WalMart. These guys are supply chain Pros.. and no one makes hundreds of millions.. and if you were.. you sure wouldn’t go tell the press about it before your product went live. Gemalto’s innovation is a pretty QR code.. they are complete idiots if they think that they are the only option for presenting a payment “token” to a POS (see Gemalto QR codes for detail).
I own no Gemalto stock, but if I did.. it would be a short position. Their bread an butter businesses are handset SIMs and Credit Card Chips. My view of the world is that dedicated hardware is moving toward software. For instance the SIM card.. most have seen Apples plan to virtualize the SIM (see blog). Gemalto’s hopes for NFC are also dashed by things like Host Card Emulation (HCE) and the 12 Party supply chain. See this picture on the right? The 12 parties… ? Well they ALL need to make money.. and I can tell you with great certainty that the NFC suppliers in this market don’t have 2 dimes to rub together on NFC.. everyone is taking a bath. Gemalto represents 2 boxes of the 12 (UICC and TSM).. Twice the risk.. non of the cash. Investors look at it this way.. do you really want to bet on Gemalto over both GOOGLE and APPLE? FUBAR!
What is left for Gemalto? EMV Cards.. They will see a bump in demand over next few years due to US reissuance.. but Gemalto is a commodity supplier here. I see nothing in their future that will help them evolve toward a software model.. MCX revenue projections are complete bull&*^*&^
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“We will make hundreds of millions from MCX” – what does MCX gain from all that?..