By Lee Gyu-sun
KONA@I is a maker of specialized embedded software, which provides smart card-related total solutions. Smart cards, which are used in electronic IDs and passports, credit cards, and universal subscriber identity modules (USIM) for mobile communications, are integral to security systems of today.
KONA@I holds rights to technologies related to these cards, including an integrated circuit (IC) chip operating system (OS). The company controls 60 percent of the credit card solutions market, which is regarded to have high entry barriers because of its technological specialty.
The global smart card market is expected to grow each year 14 percent on average between 2009 and 2014. In 2015, global smart card supply is projected to exceed 9 billion units.
In particular, the Chinese and U.S. markets are driving this expansion through full-scale migration to bank and credit cards featuring IC chips. Aided by the proliferation of sophisticated devices, the global smart card market will likely display rapid quantitative and qualitative growth.
KONA@I’s overseas revenues accounted for only 4 percent of its total revenues in 2006. Its contribution expanded to 25 percent in 2009 and 47 percent in 2011, and the proportion is projected to exceed 50 percent in 2012. Profitability is likely to improve in line with rising exports, as overseas revenues generate higher margins than domestic revenues.
As of 2010, the number of credit cards issued in China stood at 2.2 billion units, more than 20 times the domestic figure. Furthermore, last year, the Chinese government announced a three-phase project aimed at facilitating the widespread adoption of IC cards. Five major Chinese banks are slated to enter the first phase of this project in 2012.
In the first half, KONA@I, in cooperation with Chinese card makers, completed an initial run of 400,000 credit cards for supply to three of the five major Chinese banks. The company expects to win additional contracts going forward. We project that, if this project progresses smoothly, KONA@I will meet more than 30 percent of the banks’ total credit card solution needs.
In addition, the U.S. also announced a plan for migration to IC chips in the second half of 2011. As such, the company expects EMV migration, a global initiative rolled out by Visa, MasterCard and Europay for making credit card payments using IC cards, to pick up speed, bolstering its U.S. operations in order to gain greater control of the market. As part of this effort, the company has recently obtained American Express’ authentication.
In Korea, KONA@I currently supplies USIM chips to telecom giants KT and LG Uplus. In addition, KONA@I’s telecom unit has already achieved the unit’s 2012 revenue target, as the company signed supply contracts with four overseas telecom firms in the first quarter.
According to electronics market consultancy IMS Research, the number of smartphones with the near field communication (NFC) function will increase 139 percent on average each year 2011 and 2015.
The NFC function enables short-range wireless communication. Global handset makers, including Samsung Electronics, Apple, Nokia, and HTC, are projected to install NFC as a basic function in their new smartphone models.
KONA@I’s USIM chip sales are expected to expand in line with the growth of the domestic LTE market. Supply of value-added chips that enables the NFC function is likely to increase on handset replacement, boosting profitability.
The company has created the “trusted service management” (TSM) and secure server business units as its new growth engines.
The TSM unit helps customers receive reliable services by efficiently connecting financial and telecom services providers, thus promoting NFC-based mobile payment.
The firm has obtained payment qualifications from about 30 financial service providers ― each payment qualification requires different secure element, smart card chip element. The TSM business is expected to enhance user convenience amid NFC market growth. The company is endeavoring to build a TSM system that meets global standards, and appears to have made significant progress in the development of such a system.
In 2012, KONA@I is projected to post revenues of 155.2 billion won ― up 29.4 percent from a year ago ― and operating profit of 31.5 billion won ― up 35.2 percent from a year ago ― under a non-consolidated IFRS basis.
Sales of both finance- and telecom-related chips are expected to grow. In particular, sales of high-margin value-added chips, including NFC USIM, will likely expand, boosting profitability.
Furthermore, KONA@I is carrying out a debugging process innovation ― minimization of debugging costs ― by creating a business process reengineering (BPR) unit. Profitability is expected to improve further on a drop in the cost-to-revenue ratio.