Schlumberger Ltd. spent close to $6 billion across three technology acquisitions last week, proof the oil services giant is serious about moving into the technology sector, with special emphasis on wireless services and smart cards.
But while some in the wireless and smart-card industry see Schlumberger’s moves as an affirmation of the telecommunication market’s profitability, Schlumberger investors and Wall Street analysts considered the moves too risky.
The company’s stock fell $15 per share during trading last week, from about $80 to $65 per share, and a variety of analysts expressed their distaste for the company’s moves. ING Barings downgraded Schlumberger from Strong Buy to Hold.
However, the company’s chairman and chief executive officer, Euan Baird, said Schlumberger’s actions are in line with the company’s three-year-old plan to improve its technology offerings and that it would eventually help its oil field business by-for example-allowing it to gather and analyze information from wells and deliver it to workers’ desktops.
Schlumberger, with revenues close to $10 billion last year, has businesses stretching across the oil and gas, utility and semiconductor testing industries. Its Test & Transactions segment, with 8,000 employees and revenues of $1.4 billion last year, provides consulting, integration and products for smart-card-based transactions, Internet protocol network security and wireless services.
Schlumberger’s biggest move last week-an attempt to improve its Test & Transactions business-was its $5.2 billion bid for Sema plc, a 20,199-employee company focused on systems integration and consulting, software products and outsourcing. The addition of Sema would boost Schlumberger’s ability to integrate smart cards into existing technology systems, as well as broadening the services it could offer oil and other utility companies.
Schlumberger’s bid, which has not yet been finalized, seems to have beat out other potential Sema suitors, including Logica plc and Siemens. It is also contingent on Sema’s two biggest shareholders, France Telecom and BNP Paribas.
Sema recently has had some troubles meetings its financial forecasts following its $4.9 billion acquisition of LHS Group, a telecommunications software company. Schlumberger’s bid exceeds by far the price at which Sema has been trading recently, but Schlumberger executives see Sema as an important step in creating an end-to-end technology offering.
“We have concluded that we need to continue to add strong IT technology, systems integration and consulting competencies on a global scale to both accelerate the growth in our core vertical markets and to establish ourselves as a leading information solutions provider in those core vertical markets,” Baird said.
Schlumberger’s Sema bid eclipsed the news last week, but Schlumberger also made some other significant investments, acquiring Bull CP8 for about $325 million and PCS Innovations Inc. for an undisclosed amount.
Bull CP8 provides secured microprocessor-based cards and associated applications systems for the banking, mobile communications and network security industries.
Stephan le Gentil, vice president of wireless services for Schlumberger’s network solutions segment, said the Bull acquisition marked Schlumberger’s commitment to the smart card market.
“It’s really an acquisition to reinforce the smart card offerings,” le Gentil said.
Bull’s technology will help Schlumberger improve the security of its smart card products, allowing it to move more quickly into the hot smart card market for financial and banking institutions, le Gentil said.
Schlumberger’s third acquisition last week, PCS Innovations, is more directly related to the wireless industry, le Gentil said. PCS Innovations provides platforms, tools and services for the wireless Internet.
The acquisition gives Schlumberger access to PCSI’s mobileMAGIC technology, which is billed as a secure gateway that allows various mobile devices to communicate using multiple applications, regardless of the protocol or standard. Schlumberger plans to use the technology to improve its current product offerings and create new ones, both inside and out of the company’s oil interests, le Gentil said.
“For sure we are looking into other types of services,” he said.
Most of Schlumberger’s technology business is centered on its smart card offerings. Mobile-phone operators, primarily GSM operators, use smart cards to allow subscribers to connect to their networks. According to figures from Card Technology, Gemplus-followed closely by Schlumberger-dominates the smart card market.
Some in the industry thought Schlumberger was setting up its smart card business in order to sell it, said James Ridgeway, vice president of sales and marketing for SmartCardsCentral.com. The Sema bid changes that perception.
“It’s basically strengthening their position,” Ridgeway said of the bid. “This is a major sign that smart cards are a viable business.”
Schlumberger made its opinion of the smart card industry crystal clear in a report released just this month. In it, Schlumberger predicts double-digit growth over 20 percent in the market continuing through this year, with mobile-commerce and the virtually untapped U.S. market driving the growth.
According to Schlumberger, smart cards-and especially subscriber identity module cards-will likely be exported to non-GSM areas, including TDMA and CDMA networks. And, in the years to come, Schlumberger said it sees growing demand for smart and SIM cards coming from the buildout of third-generation networks.
“2001 could be a breakthrough year in the U.S. market for smart cards,” said Olivier Piou, president of Schlumberger Smart Cards, in the report.
Ridgeway said Sema would help Schlumberger take advantage of the smart card industry.
“It’s good for Schlumberger across the board,” he said. “They’re bringing in a well-established company. It’s bringing in an existing customer base and volume of sales.”
Ridgeway said he sees Schlumberger’s moves as a way to stay on top of the smart card market.
“They’re (Schlumberger and Gemplus) making the acquisitions that will keep them in the top tier,” he said.
