November 24, 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.
The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite set new record highs this week. The advances have, as usual, been propelled by tech stocks. Investors continue to bet that companies like Apple and Google are providing the technologies that will allow the new economy based around IoT to emerge. No matter how high tech stocks rise investors seem convinced investing in the shares of companies providing the technology behind blockchain-based transactions, AI and automated vehicles will prove to be the equivalent of investing in GE or US Steel in previous economic cycles. It seems a smart bet. The digital tech created through the ’80 and 90s is now being built into physical infrastructure at a deeper level.
As the great digitization of the physical world goes on the biometrics sector has emerged as an important piece of this transformative economic evolution revolution. Home-based networks and automated vehicles will need to know who is who–biometric sensors will allow that. No wonder interest in the sector continues to rise.
An interesting story in the sector this past week comes from China. A massive insurance firm in the country, Ping An Insurance Group, announced a plan to spin off some of its technology units. Over the past couple years the company invested a massive 50 billion yuan (USD $7.54 billion) on research and development of artificial intelligence, blockchain tech and biometrics. According to the company these technologies will be deployed in five business “ecosystems”, financial services, healthcare, autos, real estate finance and ‘city life’ (urban environments). This seems a solid plan. These are the areas that are going to be transformed by the Fourth Industrial Revolution. According to Ping An these ecosystems will reach a market size of CNY 550 trillion (USD $83.6 trillion) by 2022. The automotive space is especially interesting. Here in North America the AV sector is blossoming at an unexpected, rapid rate. The big automakers are creating fleets of AVs that will work on a ride-share basis. These fleets will be deployed in urban centres as the car companies transition from being simply auto manufactures to “mobility providers.” A Frost & Sullivan research indicates that the U.S. car-sharing market has already hit USD $400 million in revenue. But it is just now that billions in venture fund capital is flooding into that sector. These AV fleets will be a huge market for biometric access control. Biometric authentication will be used to access and operate vehicles, adjust seat position and access the cloud-based entertainment that will entertain passengers while the car does the driving. As the study notes, “Mobility-as-a-Service cannot succeed without a sound security and identity strategy and integrated program. With connected components and motorists’ profile information available through cloud-based models, it will become vitally important that car companies detect security threats, and fraudulent identity attempts, utilizing such technologies as Biometrics-as-a-Service [will be key].” Apparently, Ping An sees the potential here and is targeting these new markets with its R&D investments in biometrics. No wonder the company’s shares recently closed at HK$86.2 (USD $11) in Hong Kong this past week, rising almost nine percent on the news. With 22,000 technology staff at the company (500 big-data scientists among them and 2,000 global patents) the company seems set to be a player in the biometrics sector.
-Another bit of news with a Chinese angle this week involved Sweden’s Fingerprint Cards (FPC). The company reportedly received a letter from a Beijing company called Watertek. The letter was delivered to FPC Chairman Jan Wareby and CEO Christian Fredrikson, discussed the possibility of a bid for FPC by Watertek. A Swedish newspaper reported the delivery and content of the letter. Shares in FPC skyrocketed, jumping almost 40% Thursday morning. Such an acquisition would seem to make sense. FPC manufacturers fingerprint sensors for all the major Chinese smartphone makers (Huawei, Xiaomi and Lenovo, among others). FPC management eventually issued a statement saying they were not interested in such a deal. The offer was too low. And shares in FPC fell back in the wake of that announcement. But the interest in FPC and the buoyancy of the shares indicates the simmer interest in this sector right now. Shares in FPC are still trading almost ten percent higher since. Perhaps the inquiry from China was spurred by a recent bit of news. FPC again took the top spot in the the Sweden Technology Fast 50 (as ranked by accountancy, Deloitte). FPC is the first company to ever take first place for two consecutive years. In 2016 the company ranked one in Deloitte’s ranking for the entire European market area. As a source from Deloitte was quoted as saying in a Swedish media report, “Fingerprint Cards technology is quite right in time.” No kidding. It seems a solid bet that more bids will appear in the future. That shares in FPC continue to trade higher since the Watertek letter suggests some investors assume that company will come back with a higher offer, or that news of the bid will draw an offer from another company. Interesting times at FPC.
-Also enjoying some positive coverage this week was San Jose-based manufacturer Synaptics. The sensor maker was featured in an investment report distributed by brokerage KeyBanc. The analyst who prepared the report, John Vinh, said that the company’s “in-display fingerprint sensor” is closer to “mass production” than he’d previously thought. As a result, there is “slightly more favorable risk/reward” for the shares of the company. Vinh went on to say that he likes the fact that Synaptics is testing a product with a “Tier 1 Chinese OEM.” Synaptics competes head-to-head with Chinese firm, Goodix, which develops biometric fingerprint sensors for a client list that includes Huawei, vivo, Xiaomi, ZTE, Nokia, Dell, HP, LG, ASUS, Acer, Toshiba and Panasonic. But according to Vinh, “We believe Synaptics has significantly improved performance in its in-display fingerprint sensor and is currently undergoing final qualification at a tier-1 Chinese OEM. We believe the company’s in-display fingerprint sensor still falls short of achieving performance parity with capacitive sensing, but has approached levels ‘good enough’ to warrant final customer evaluations and potential mass production.” Vinh goes on to say that he thinks Synaptics has made “meaningful progress” in working through challenges around low temperatures and direct sunlight. “There appears to be only one other competitor who is sampling, which is Goodix, but we believe Synaptics holds an advantage in terms of performance and time to market,” said Vinh. It was no surprise then that shares in Synaptics packed on an extra 5% in value over the week, rising to almost $40 a share.
-Third quarter earnings season wrapped up this week. Listening in the various conference calls around the release of earnings is a great way to get some insight into on-the-ground developments in the biometrics sector.
-One company reporting this past week was ImageWare, which released its numbers at a time the severity and seriousness of data hacks is rising to desperate levels. It is now abundantly clear that the existing internet security infrastructure is nowhere near good enough to support the Industrial Revolution 4.0. The National Security Agency had been infiltrated by a hack. The cyber weapons developed to spy on other countries have been stolen and used against the premier U.S. security organization. Reports note that a 15-month investigation into the theft, “… has not produced a clear source of the leak.” As well, ride-sharing company Uber announced it failed to report a major data breach (this was no surprise from a company that has had some serious governance issues). Also recently a report from Verizon Communications, notes that “hacks involving extortion” were up 50 per cent last year. Thank goodness that companies such as ImageWare are working to provide a new level of security. In a conference call held to discuss earnings the company’s CEO, Jim Miller, emphasized how it is biometric tech is coming into vogue as a result of the recent hacks. Kicking off the call, Miller reported that in the third quarter of 2017 total revenues at ImageWare were up 28% to $1.1 million. That increase was driven by higher licensing revenue. Nevertheless, the net loss in the third quarter of 2017 was $2.4 million, or a negative $0.03 per share. This is unchanged compared to the same period in 2016. But according to Miller trends at the company are positive. At the end of September the company had cash and cash equivalents totaling $9.9 million on hand. This is compared to $1.6 million in the same period last year. The company carries $6 million in debt, which is more than the $2.5 million carried at December 31, 2016. But the debt is a result of recent financings that are helping the company to grow. “During the third quarter, we secured an $11 million financing to bolster our balance sheet and accelerate our sales and marketing efforts. We believe our ability to close this financing on relatively favourable terms is a reflection of the strong progress we’ve made to commercialize our leading identity management solutions,” said Miller. He went on to emphasize the important work the company has been doing with a major client, Fujitsu. ImageWare is training support teams at the Japanese tech giant so that implementation of ImageWare’s products will be smooth. Rolling out these support teams is key says Miller. “As we look to commercialize our products alongside our partners, particularly the larger ones, it’s become very clear that channel management is [an important step]… This brings me to my point… one you’ve heard us make many, many times… The process we take with each partner is unique to that specific partner. Each partner has their own set of objectives, market forces and processes that need to be navigated internally prior to going to market… Your helpdesk must be fully operational; there must be support infrastructure in place. This means having a dedicated ImageWare expert on the ground and amongst our partners everyday inside their headquarters, answering questions about our technology and supporting their rollout,” said Miller. He wound up the call by describing the nature of the industry and highlighted the growing importance of biometrics. “Together with all our partners, we’re blazing a new trail. The path to commercialization of a revolutionary technology like biometrics is not a straight line and requires small tweaks and sometimes larger strategic pivots, often in short time frames. But make no mistake, the end goal and opportunity remains the same. Meaningful progress is being made, and we expect to shortly see all of these efforts translate to revenue-producing deals… Over the past several months, we’ve seen the largest compromise of personal financial data in history. Most of our country was hacked, and others around the world have suffered a similar fate. Now the question is, with all that information out there in the hands of folks with criminal intent, what’s the best, indeed the only, way to ensure that when that data pops up in bad hands, and it will, that it’s really being presented by legitimate legal user? The answer, of course, is crystal clear, biometrics.” Well said. And certainly true considering recent breaches.