Gemplus Reports Second Quarter 2004 Results

Gross margin increased by 1.3 percentage point compared with the first quarter 2004, to 32.3%, mainly driven by strong product mix improvement in all regions which fully offset selling price declines. Moreover, this was helped by productivity improvements, and software and services performance. Operating expenses, excluding restructuring and goodwill, rose 5.4% quarter-on-quarter to 59.5 million euros, mainly related to sales and marketing. Operating expenses represented 28.3% of sales during the quarter under review, compared to 28.6% for the previous quarter and 35.8% a year ago. Operating income was up 3.7 million euros quarter-on-quarter and up 22.4 million euros year-on-year, before restructuring and goodwill. Costs relating to the planned restructuring of operations in Germany, which was announced in May, are expected to be booked during the third quarter 2004. Net income for the second quarter increased by 0.8 million euros quarter-on-quarter, mainly driven by revenue growth and improved gross margin. Business Highlights Telecom The trend among leading European operators to increasingly rely on the SIM for operator and end-user centric services (such as phonebook and service provisioning) remains strong. In Europe, Gemplus has delivered high-end 128Kb USIM cards for deployment with `3, the UKs first video mobile network. Coupled with Gemplus OTA platform, GemConnect OTA, this shows both companies commitment to set the agenda for video mobile services. Gemplus GemConnect OTA has been successfully implemented to ensure `3 customers can access `3 services whenever they are in video mobile coverage. In the United States, Gemplus continues to deliver its products and services to the national operators that purchase SIM cards. It also provides SIM-based solutions and content messaging services to US operators, with demonstrable increases in ARPU. Gemplus operated these on behalf of their clients and also provided the content to make the Information on Demand services a success. In Asia, Gemplus 128Kb SIM cards allowed Globe Telecom in the Philippines to offer prepaid customers the higher value services of phonebook space for 750 numbers and 100 SMS, international roaming capability and access to `myGlobe and `myOrganizer services and content. Financial Services The EMV roll-out gained momentum beyond the UK, with Gemplus starting to ship volume quantities of cards in Scandinavia and in France. Gemplus also recently signed contracts for card deliveries in Portugal, Russia, the Czech Republic, Chile and Lithuania. In these countries and elsewhere, Gemplus leverages its global footprint to establish new business relationships and partnerships, using its experience throughout the world to design the best migration strategy for its customers. Identity and Security Gemplus Identity and Security solutions continues to add value at significant enterprise deployments such as Pfizer and Boeing. Gemplus technologies are supporting the emerging market of secure Identification Badge credentials in a logical and physical access environment.