Sagem S.A. Business Information, Profile, and History

History of Sagem S.A.

French high-tech company SAGEM S.A. has carved out a commanding position for itself among the world's top electronics companies, despite its relatively modest size. France's second largest maker of telecommunications equipment, and one of the world leaders, SAGEM produces GSM and WAP mobile telephone handsets, a market in which SAGEM's products account for more than one-half of total market sales, fax machines, networking systems, and digital set-top boxes for Internet, cable, and satellite transmissions. The communications division accounts for more than 56 percent of the company's fast-rising sales, which topped FFr 22 billion (EUR 4.3 billion) in 1999. SAGEM is also Europe's number two leading electronics group manufacturing for the defense and security industries. Within its special product categories, SAGEM has built up European and global leadership positions, such as inertial guidance systems, optronic systems, and helicopter flight controls. Through its SAGEM Morpho subsidiary, the company is the world leader in automatic fingerprint recognition systems, used by police forces and other agencies throughout the world. SAGEM also produces optics systems for the space and astronomy industries. The Defense division accounts for 22 percent of total company sales. SAGEM's third product segment is the automotive market, where the company specializes in automotive electronics systems, such as engine management, body electronics, injection and ignition systems and sensors, and cockpit electronics. The company's automotive division adds another 22 percent to the company's sales. SAGEM's global interest is reflected in the growing share of international sales in its overall sales. More than 46 percent of SAGEM's revenues were generated outside of France in 1999. Led by Chairman and CEO Pierre Faurre, the company has more than doubled its annual sales in ten years, and continued growth is forecasted, by as much as 30 percent, for the year 2000. Quoted on the Euronext Paris stock exchange, the company's shares remained, in large part, owned by its employees.

Turning to High Technology in the 1980s

Marcel Môme founded the Société pour l'Application Générale de l'Electricité et de la Mécanique (SAGEM) in Paris in 1924. Formed initially to produce tools and other equipment for French tire maker Michelin, Môme, who remained at the head of the company until 1962, soon turned to the defense industry. After the end of the Second World War, the company became still more closely involved in the country's defense and aeronautics industries. The company continued its defense focus through the leadership of its second president, Robert Labarre, who took over the lead of the company from Môme and remained in place until 1987.

Although SAGEM remained primarily a defense contractor, the company also branched out into the telecommunications sector, perfecting a line of telex machine products to become the world's number two manufacturer in the category. SAGEM's emphasis on research and development enabled it quickly to capture the world leadership in the next generation of screen-based telex machines, which appeared in the early 1980s. By then, however, a new type of communications product was appearing on the market, threatening SAGEM's position.

The arrival of the first facsimile machines, a technology developed in Japan, promised a new means of communication--and the end of the dominance of the costlier telex machine. The facsimile machine, though still mostly confined to businesses, promised to become a household appliance by the early 1990s. Caught by surprise, most of the European electronics community, including heavyweights such as Alcatel and Siemens, found itself outpaced by such Asian rivals as Matsushita, Samsung, and Canon.

Rather than attempt to enter the head-to-head competition for the facsimile market, yet eager to save the market position built up through its telex sales, SAGEM took an approach different from that of its larger European competitors. Instead of risking its own resources on developing the technology to produce its own facsimile machines, particularly given the high cost of developing first-generation technology, SAGEM entered a distribution agreement with Japan's Murata, in which the French company took over the marketing of two of Murata's low-end and mid-level facsimile machines in Europe. The agreement also called for SAGEM to adapt the fax machines to the various specifications of the European market--an area in which the company's long leadership of the telex machine market had given it ample experience.

By the mid-1980s, the competition to produce the first generation of fax machines had exhausted many of SAGEM's would-be competitors. SAGEM, which had used its Murata distribution deal as a stepping stone to developing and perfecting its own facsimile machine technology, now prepared to enter the fray. By then the company was also boasting new management, as Pierre Faurre, leading a management buyout of the company in 1985, prepared to take over the reins from Robert Labarre.

Faurre was to be credited with reshaping SAGEM into one of France's and Europe's leading high-technology specialists. Graduating at the top of his class at the elite French university Polytechnique, Faurre had earned a Ph.D. at Stanford University, before joining the prestigious Corps des Mines in 1967. At the same time, Faurre joined in establishing the French Research Institute of Computer Science and Automation (INRIA), while serving as a technical consultant for SAGEM. Faurre formally joined SAGEM in 1972, first as the company's general secretary, then as its general manager in 1983.

High-Technology Leader in the 1990s

Faurre had immediately grasped the importance of the new facsimile machines and the need for SAGEM to compete in this new arena--particularly as it threatened to render the telex all but obsolete. At the same time, the dethawed political climate, as the Soviet Union introduced new liberties--and prepared to collapse by decade's end--spelled the end of the era of huge defense budgets, placing SAGEM in the position of seeing the collapse of its primary market as well.

In 1987, after Faurre was named chairman and CEO of the company, SAGEM entered the battle for the fax machine manufacturing market. During the company's distribution agreement with Murata, its own research and development component--nearly one-third of its workforce--had not only allowed the company to catch up to its competitors, but to surpass them with cutting-edge innovations. As such, the first SAGEM fax machine was also the smallest to feature the A4 format size. SAGEM continued to post innovations in the category, adding screen menus to its fax machines in 1988. In 1989, the company helped to revolutionize the fax machine market when it introduced the first machine capable of printing on standard paper, instead of the expensive thermal paper used by earlier machines. The company also saw rising sales, topping the FFr 10 billion mark in 1990, with communications products taking a growing share against the company's defense sector revenues.

The new machine helped boost SAGEM to the ranks of the world's leading facsimile machine manufacturers--and enabled the company to capture the European leadership early in the 1990s. The company also extended its product range, which allowed it to end its distribution agreement with Murata. SAGEM's experience in the European market gave it a competitive edge against its Japanese competitors, who tended to introduce standard models that then had to be adapted to each of the various country-specific norms then in place throughout the continent. SAGEM was able instead to produce its models for each specific market, which placed the company's machines in high demand among such third parties as France Telecom, British Telecom, Telefax, Impronta, Alcatel, and Siemens. By the early 1990s, less than one-third of SAGEM's production actually bore the company's own name.

In 1991, SAGEM helped again to revolutionize the fax machine market when it launched the first machines destined not to corporations, but to individual consumers. The new generation of machines, sold in department stores, also became a significant part of a growing movement toward home offices, even before the appearance of widespread Internet access. The movement into the consumer market encouraged the company to strengthen its mass production facilities, as SAGEM began building a manufacturing network into such countries as Germany, Brazil, Spain, the United States, and the Czech Republic by the end of the decade.

By controlling almost the totality of its production--from the design to production of components--SAGEM had given itself a strong high-technology foundation. The company's excellence in communications technologies was to stand it in good stead as the years leading up to the new century quickly proved to be the inauguration of a new era in communication. The perfection of mobile telephony to the new digital television technologies and the debut of the so-called 'net-economy,' as well as the refinement of electronic automotive and other systems, all represented potential bonanzas for SAGEM. By the mid-1990s, SAGEM had developed a reputation as a highly successful high-tech niche player, with communications products ranging from its fax machines, credit card readers, and digital set-top boxes.

The company entered the automotive market in the mid-1990s. Adapting its technology to automotive control systems and other automotive components enabled the company quickly to place itself among the top ranks of European automobile electronics suppliers. The company also started an acquisition drive to expand its technology reach, buying up Souriau Diagnostique, a maker of engine controls, and Eyquem, which manufactured more than 75 million spark plugs per year. Meanwhile, the company made a foray into televisions, purchasing Kaïsui. In addition, SAGEM was making a mark in the race to provide digital set-top boxes and decoders for satellite television, especially in the United States, providing decoders for the Echostar system.

By the mid-1990s, SAGEM's revenues had climbed to more than FFr 15 billion. The company had easily weathered the extended economic crisis as well, posting steady increases in net profits, which neared FFr 550 million in 1995. The company's international sales also were taking an increasingly prominent place in SAGEM's balance sheet, reaching one-third of total sales. By then, too, the company's communications products had outpaced, in large part, its defense sector activity, which accounted for only 22 percent of its sales. SAGEM's automotive branch, launched in the mid-1990s, quickly grew to match the size of the company's defense division. Yet communications products continued to provide the fuel for the company's growth.

The company had placed itself, meanwhile, in prime position to reap the benefits of the coming explosion in the mobile telephone market. Although the mobile telephones at first were restricted for the most part to a corporate market, the definition of a European-wide GSM mobile telephony standard, the deregulation of Europe's telephone markets, and the introduction of competition as former national telephone monopolies were shattered, helped bring the mobile telephone to the mass market. Beginning in 1997, with the appearance of affordable mobile telephones and consumer-oriented subscription plans, sales of mobile telephones skyrocketed. SAGEM quickly became one of the world's leading manufacturers of GSM telephones, and the undisputed French leader, with some 50 percent of the market.

Even as SAGEM's fortunes soared with the mobile telephone booming, it also was reaping the rewards of strong investment in Internet and networking technologies, as the world's economies began a shift toward the Net-based economy. At the same time, SAGEM benefited as France and other countries stepped up their levels of defense spending, replacing aging equipment with new, cutting-edge systems. By 1999, the company sales leaped by more than 19 percent from the year before, topping FFr 22.3 billion. SAGEM also was eminently profitable, with net profits nearing the FFr 1 billion mark. In that year, the company helped boost its defense division with the acquisition of defense technology company SFIM, formerly held by French investment bank Paribas and nuclear powerhouse Framatome.

In the year 2000, SAGEM hoped to improve on its already strong performance, forecasting rises in revenues of as much as 30 percent. After turning around the money-losing SFIM operation, that subsidiary and others were consolidated as operating divisions of SAGEM. Much of the company's hopes lay in the adoption of the next-generation WAP (Wireless Access Protocol) telephones. The rollout of that technology, however, did not meet with the anticipated acceptance by mid-2000. Nonetheless, the convergence of the Internet with the mobile telephone seemed a near certainty as the new century got under way. SAGEM's position at the technology center promised strong growth for the future.

Principal Subsidiaries: Sagem CR; SAGEM Morpho Inc. (United States); Sagem Inc. (United States); SFIM Industries; AVIAC; CERME; REOSC; SCI Minerve.

Principal Competitors: Alcatel; Digital Biometrics Inc.; Nokia Corporation; Pace Micro Technology PLC; Robert Bosch GmbH; Siemens AG; Tyco International Ltd.

Chronology

• Key Dates:

• 1924: Marcel Môme founds the Société pour l'Application Générale de l'Electricité et de la Mécanique (SAGEM).
• 1940s:Company begins production of telex machines.
• 1962: Robert Labarre is named president and CEO.
• 1985: Pierre Faurre leads management buyout of company.
• 1987: Faurre is named president and CEO; launch of first company-made fax machine.
• 1990: Launch of new generation fax machine.
• 1995: Company enters automobile electronics market.
• 1999: SFIM Industries is acquired.
• 2000: SFIM and other subsidiaries are consolidated as SAGEM operating divisions.