Overall, it is now estimated to be a $500million annual market that is growing by approximately 40 percent ayear. It also tends to be an extremely fragmented market, as smallcompanies develop different anti-counterfeiting and identificationtechnologies to tap into that growth.
The market includes passports, other nationalidentifications, drivers’ licenses, foreign worker cards, vehicleregistration and cargo identification. It also includes identificationsthat provide access to computer networks and e-commerce networks.
The market is being driven not only byconcerns about terrorist threats but also by concerns about identitytheft, which costs approximately $50 billion annually in North Americaalone.
Viisage Technology Inc., the Littleton,Mass.-based manufacturer of US passports and a leader in biometricidentification, is experiencing a sales boom stemming from organicgrowth and acquisitions. The company reported only $32.3 million ofrevenue, with a loss before earnings, taxes, depreciation andamortization of $1.5 million in 2002. Last year, the company moved intothe black, with a profit of $2.3 million on sales of $37.4 million.This year, the company anticipates that it will have $60 million to $63million in revenues, with profits of $11 million to $12 million. As aresult of a stock offering, it will also be able to pay off its debt.
In May, Viisage won a $10 million contract toprovide technology for the Department of Defense Common Access Card,the US government’s largest smart-card program. The cards allowDepartment of Defense (DoD) employees and contractors access to thedepartment’s secure computer networks. It already had a $65 million,five-year contract to become the sole source provider of US passports,a contract that it assumed as a result of its purchase of Trans DigitalTechnologies in February.
Viisage’s strength comes from its efforts toaddress both elements of the identification market, assuring theauthenticity of credentials and assuring that the credential is tied tothe person presenting it.
In addition, the company has a strongposition in biometrics. Viisage executives believe that facialrecognition is now what fingerprinting was 30 years ago, and they areseeking to position their company in the forefront of the growthmarket. Currently, face-recognition data relies heavily on specificposes for identification, but by moving to three-dimensional facerecognition that need may be eliminated and accuracy improved.
Viisage initially licensed facial-recognitiontechnology from the Massachusetts Institute of Technology, but then thecompany worked to improve the technology by developingthree-dimensional aspects. It purchased ZN Vision Technologies, aGerman company that has worked on developing the mathematical algorithmthat enables face recognition to duplicate the human vision process andthat would enable three-dimensional models based on two-dimensionaldata.
Drexler Technology Corp., a Mountain View,Calif.-based manufacturer of the US Green Card for permanent residents,also sees the potential for strong growth in the biometricidentification business. The company projects that its sales will growfrom $17 million in 2004 to $100 million in 2008 through a mixture ofacquisitions and organic growth.
Although sales in 2004 actually fell to $17million from $26.3 million a year earlier, according to the company,the decline reflects a temporary disruption caused by the creation ofthe Department of Homeland Security (DHS). Green Cards had to beredesigned to show that DHS, rather than the Immigration andNaturalization Service, was issuing them. In addition, the USgovernment had an inventory of the cards, so new orders fell.
Drexler is the only provider of opticalmemory cards, an extremely secure biometric identification card.Compared to smart cards, optical cards have higher storage capacity.They are also tamperproof and durable.
Besides its manufacture of the Green Card,Drexler provides automated manifest shipping cards for DoD secure cargoand permanent resident cards for Canada under the third year of afive-year contract.
Like Viisage, Drexler is finding a growingmarket for its products overseas. It produces national cards for Italyand Saudi Arabia, as well as secure vehicle registration cards in India.
Drexler executives now see a return to rapidgrowth thanks to a number of developments, including contracts toprovide European foreign work cards, a contract worth $72 million to$80 million; national identification cards for 66 million UK residents;and American drivers licenses incorporating low-cost securityimprovements. To facilitate future growth, the company has been makingsmall acquisitions and licensed a second source supplier in Slovenia toprovide cards for East Europe.
While small companies now dominate themarket, it is only a matter of time before an increasingly maturemarket inspires the interest of larger companies. Meanwhile, Viisageand Drexler have already made multiple acquisitions and could eithercontinue that trend or end up as acquisition targets themselves. HST
Philip Finnegan isdirector of corporate analysis at the Teal Group, a firm based inFairfax, Va., that provides strategic and market analysis to majorcorporations.