November 17, 2017 -
As the biometrics industry continues to grow, Biometric Update is bringing a new focus to the stories around the stocks in the sector. Check in with this space each week for a rundown of the financial news and interesting ideas from the week that was.
Market prognosticators are talking this week about a new “tone” in stock markets. Last week an early rally gave way to a sharp sell-off mid-morning. The market weakness continued through the next five trading sessions. Indexes generally opened the trading day lower than the previous close, causing some wonder if a stronger sell-off lurks in the near future. Short-term interest rates are rising to levels closer to long-term rates. This so-called “flattening” of the yield curve is a good predictor of near-term recessions. Others note that the weakness comes as the Trump rally that started November 7th of last year ages past one year. Those who bought shares just before the election have now held the shares long enough for those positions to be considered long-term capital gains. And so the post-Trump stock bump may be drawing to a close. Some investors seem intent on locking in the 20% gains that have accrued over the past year. This is especially true considering it doesn’t seem as if a tax cut will be passed by Congress.
But while doubts gather around broad stock indexes, within the tech sector, good news continues to flood through the industry creating an optimism not unlike that of the late 1990s dot-com boom. Today of course investor interest is in the emerging Internet of Everything. Advances in artificial intelligence are coming together with the surprisingly rapid advances in automated vehicles. Deep-learning approaches to software are combining with advances in computer vision and improvements in sensing technologies like LiDAR. What’s forming is a new kind of embedded internet that is going to allow the modern economy to evolve to a whole new and fascinating level. If the 1980s and ‘90s it was all about creating ever-smaller circuits and more powerful computers, the next step in the digital revolution is to expand the network through the material of the real world. Which is happening at an impressive rate today.
The digital network is being more woven into our modern infrastructure in new and fascinating ways today. In Germany they calling it the fourth industrial revolution, or, “Industry 4.0,” a term that comes from a 2011 initiative spearheaded by businessmen, politicians, and academics in that country. The report defined this new economy as the result of an increasing integration of “cyber-physical systems,” or CPS, into factory processes. Now that computers and powerful chips are common, as networked technology is built right into the material of the world, a new way of working becomes possible. Companies today are building robot construction machines that can read a downloaded blueprint and then utilize sensors and GPS to move around a construction site, drilling precise holes where needed, or even brick a wall. This new AV-AI-IofT world is emerging faster than many thought. In the past few weeks news leaked that Google’s self-driving car unit, Waymo, is preparing to launch ‘a commercial ride-sharing service powered by self-driving vehicles with no human ‘safety’ drivers’, possibly by 2018. A common assumption in the AV sector has been that full Level Five AVs would not hit the road before 2020 or 2025 at the earliest. But the technology is improving faster than expected. Now it seems Level Five AVs could be in fleet service and on the road in a year. No wonder the bubbling optimism around tech stocks and the new IofT.
Taking the positive, utopian thinking to the next level was another recent announcement from Google. Many have been captivated by Amazon’s quest to identify the city that will be home to its second headquarters as the digital retailer gets set to expand its operations further. But another announcement about urban digitization seemed to get lost in the flood of articles about Amazon’s city quest. Also recently Google chairman Eric Schmidt travelled to Toronto to announce that city has been chosen to host a brand new neighborhood built from the ground up with digital tech built right into the concrete infrastructure. The deal between the city and the company involves Google subsidiary Sidewalk Labs LLC and a 12-acre section of Toronto’s eastern waterfront. Sidewalks will be designed from the ground up in a new digital-based urban community over 3 million square feet. Digital networking tech will be built right into the real physical infrastructure of the neighborhood. Adaptive traffic lights, “… will use computer vision and sensing technologies to detect pedestrians, cyclists, cars, and transit vehicles to facilitate safe, seamless movement through congested urban intersections.” There will be a small sub-road under the surface to allow small AVs to make deliveries throughout the neighborhood. This new waterfront Toronto neighborhood will be one of the most advanced urban IofT environments in the world. Biometrics will play a key role in this evolution. Current security systems are not working. A new security layer is needed for the new digital environment emerging. No wonder there is so much interest in biometrics today.
There were several bits of good news this week concerning publicly-traded companies in the sector. This past week major Wall Street investment bank, Morgan Stanley upgraded shares of Nuance Communications. Analyst Sanjit Singh had chatted up potential customers of Nuance, hospital executives. He also talked to management and came to the conclusion that Nuance’s, “… organic revenue growth would accelerate from a 1-percent drop in 2017 to positive 3-, 6 and 4-percent growth, respectively, in 2018, 2019 and 2020.” Such a shift would signal a real turnaround in the company’s business after taking a hit in a recent cyber attack. The company’s hospital transcription business took a hit in the June 27 malware attack. And that hurt the company in the near-term. But according to Singh there are a couple of catalysts coming together to create a turnaround at Nuance. Singh cites three factors, “… secular growth reaching sufficient scale, mature segments becoming less of a drag on growth and the unlikelihood of the recent malware attack having a long-lasting impact,” as factors about to drive an “acceleration” at the company. As Singh points out, “The adoption of Dragon Medical Cloud will likely accelerate due to the recent malware attack, which has driven customers away from legacy transcription services and toward software-based solutions.” Luckily Nuance has some next-gen products in the pipeline. According to Singh, “Nuance’s capabilities in conversation, artificial intelligence and natural language processing are solidifying its presence in the virtual assistant market, thereby supporting growth in its automotive and enterprise businesses… Major [market] share losses to competitors such as MModal and 3M are unlikely in the longer term,” according to the analyst. “In summary, we see [year over year] dollar contributions from Nuance’s growth portfolio … surpassing the [year over year] declines in the legacy healthcare transcription business.” That is, the next voice biometric tech is going to grow faster than the dwindling business around Dragon Medical license and its mobile handset business. According to Singh, “The sustained growth in net-new bookings over the past three years will translate into revenue in 2017, 2018 and beyond…” The damage from the cyber attack will fade over the year to come. Raymond James, a provider of financial advisory services to retail investors, upped their position in Nuance, increasing their stake in the company by 286% (according to recent SEC filings). Raymond James Financial Services Advisors now holds 218,137 shares with a value of $3.80 million. Shares in Nuance are now up 17% since November of last year. Morgan Stanley has an $18 price target on the stock. Shares are currently trading around $15.
Last week’s Biometric Update Stock Update mentioned a few new names we were covering. Another new name for the report is a company called Egis Technology Inc. The firm does chip design and offers capacitive fingerprint sensors. The company is a board member of the FIDO Alliance, a consortium formed in February of 2013 to, “… replace passwords with strong authentication.” The consortium has now published final drafts of its two specifications: Universal Authentication Framework (UAF) and Universal Second factor (U2F). And current implementations of FIDO specifications are coming to market, with Nok Nok Labs, Synaptics, Alibaba, PayPal, Samsung, Google, Yubico and Plug Up offering products built according to the standard. According to the company, “FIDO Ready products allow for biometrics and hardware tokens to replace… passwords and PINS.” To that end Egis recently showed off its the YuKey USB U2F dongle at a Shanghai tech conference. The device is about, “… the size of a wireless mouse receiver and requires no additional drivers or software… and can scan in wet and dry conditions.” The company also has a wearable a fingerprint “Smartband/Watch”, that can do secure fingerprint authentication as well as secure and convenient transactions while wirelessly syncing data. Analysts clearly like the company. The overall rating is Outperform. All analysts either rate the stock a ‘Buy’, ‘Outperform’ or ‘Hold’, with no ‘Sell’ ratings. The company’s shares began trading on the Emerging Market section of the Taiwanese stock market. In December of 2015 the shares graduated to the Gre Tai Securities Market. Luo Junzhou has served as chairman of the board and general manager since March 14, 2014. Luo is also chairman of Taifatech Inc. a Chongqing-based company on mainland China.