Biometrics industry stocks this week
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 end of summer. Corporate North America is getting back to work. It will be interesting to see what happens on stock exchanges this fall as Wall Street traders return to their desks at the start of September. Markets typically trade on thin volumes through the late weeks of August. Everyone is out of the office. And then the action picks up again when everyone gets home. If the economy is not turning over — say, retail sales are sluggish — the fund managers check back in, find it’s all going hell, and sell. Or so goes one theory about the odd, spooky, long-term habit of market crashes to occur in September and October. Sadly, this year, there are all kinds of nasty reasons to worry this trend might end up adding another point of confirmation to the fall-failure thesis. Over the past week at least three investment banks have published reports discussing the fraility of current markets. One of the reports suggesting that there is mounting evidence, “… that global markets are in the last stage of their rallies before a downturn in the business cycle.” Strategists at Citigroup are worried the easing of the financial stimulus pumping up the economy since 2008 could stall the current economy. The Wall Street Journal reported last week that investors have pulled “$30 billion from the stock market.” Others point out that the P/E ratio—the ratio of a company’s stock price to its earnings—is worryingly high as well. The P/E ratio is a good way to get a sense of relative valuations of assets. The investment firm RIT Capital Partners recently released its latest financials. In the commentary accompanying the numbers the firm’s management said that, “Share prices have in many cases risen to unprecedented levels at a time when economic growth is by no means assured. The S&P is selling at 25 times trailing 12 months’ earnings, compared to a long-term average of 15, while the adjusted Shiller price earnings ratio, which averages profits over 10 years, is approximately 30 times… The period of monetary accommodation may well be coming to an end. Geopolitical problems remain widespread and are proving increasingly difficult to resolve. We therefore retain a moderate exposure to equity markets…” Some guys with real money are a bit worried. It seems. Don’t panic. There are other stories, other ways to understand this market. Others believe the weirdly low interest rates validate the current valuations. Interest rates are so radically low, bonds are less appealing as an asset class. Stock markets have risen the correlative amount. That is, as investors weigh whether to own a bond, with its dismal return, or a stock, the difference has worked out through current market values. Interest rates are historically low. Maybe stock prices can be historically high (based on P/E values).
Something to keep in mind: analysts this past week pointed out that the technology sector should hold up better than other parts of the American stock market if there are sell-offs. The technology sector is a global industry. It will benefit from the expansion of consumer spending in Asia. Whatever the case, it’s going to be an interesting fall season on the street.
One company that will benefit from the global technology boom is NEXT Biometrics Group ASA. The Norwegian firm announced quarterly earnings for the second quarter and first half of 2017 this past week. Revenue this quarter was USD $3.07 million, a bit off the $3.1 million recorded in the same period last year. But that’s fine. The firm’s new CEO Ritu Favre outlined how it is the company is getting ready to move into the new phase of its corporate evolution. As reported in this space a few weeks ago Favre joined the firm just this year. At 48 years of age she has been brought aboard to steer the company through the scaling up the production of its flexible sensor. During the company’s Q1 conference call former CEO Tore Etholm-Idsoe introduced Favre as the right person to establish NEXT as a leading supplier in the fingerprint industry. According to Etholm-Idsoe at the time, “There is a strong need for semiconductor experience in the next stages of the company´s development.” Favre wlll be a good fit. She has a masters degree in electrical engineering. She put in fifteen years at Motorola before moving on to Freescale Semiconductor. Her last job was at Synaptics, where she was senior vp and general manager of the biometric products division. So she has the experience. She knows what she’s doing. She’s stepping out to lead this promising tech venture into a new level of growth by tapping the next market. The engaging and bright CEO hosted her first conference call this past week.
The Q2 update gave analysts and shareholders a sense of what the company is doing. Favre sounded genuinely enthused to announce that the company is ready to scale up the manufacture of its new flexible sensor. “We reached an important milestone in the second quarter with mass-production capacity firmly established for both flexible and rigid fingerprint sensors. I’ve been talking about this since I got here. This is a cornerstone of our company. I’d say they spent the last ten years working on this. We now have the ability to mass produce a flexible sensor. It’s a milestone,” said Favre.
The next step is to scale the whole thing up, get the product out to the masses. “Getting to the point where we can launch these sensors into products. To get to sale and volume on these is a critical for this company. We’ve completed the investments necessary. We’ve got the semi conductor-like equipment in place to make the flexible sensors. The heavy investment has been made. Now we can produce these chips,” she says.
Favre went onto explain the company has laid out a plan to be able to ramp up prodcution in manageable units, at whatever rate the company needs. “We’ll do it incrementally,” says Favre. “We’ll be able to ramp up over time at whatever rate we need.” That should begin to happen through the end of this year and into the first half of the next. “I’ve been to the plant in Korea. It’s amazing… I’ve been in semi-conductors for 30 years. To get an ASIC out and shipped is a really amazing thing. Come back in March when we have it next year and the year after.”
Over a more immediate term, Favre says her number one priority for the company is to position it in the smartcard space. In 2016 NEXT demonstrated the world’s first flexible fingerprint sensor that meets all ISO standard requirements for smartcard markets. This is key. Meeting that spec is, basically, mandatory for high-volume government and financial industry clients. Shipments commenced to the first customers, three volume orders for delivery from second half 2017. This is a market that is just beginning to blossom into a large and important one. Says Favre on the call, “NEXT is the only company that is providing the ISO standard compliant solution… if you say flexible there are ISO standards the card needs to withstand… So our flexible sensor for that particular size is one of the only solutions in the world that can provide what the ISO standards require.”
NEXT is currently forging a relationship with a family-run company operating casinos that has (obvious) interests in smartcards. “They’ve been doing a lot of work in secure payments. They’ve already started to play in the this space,” says Favre. “They already deployed a system. But they want to expand biometrics in privately owned casinsos. It’s a large extensive family business.”
The company’s next-gen tech is the key. According to Favre the market will tend toward a more complex electronics board design. “I spent my entire career doing electronic board design. I’m familiar with this,” she says.
She also thinks the market for the next advance in this technology is not yet being recognized.
“When you talk to the smartcard folks about this… They look at me with glazed eyes. They’ve never talked about this… I would say there is little understanding in this market regarding the complexity of these new cards. We want to take that away. We need to take that out, make it a piece that’s delivered, is planerized and ready to go,” says Favre.
The challenge now is to get the height of the chip down to something acceptable to the mass market. “If you look at it, there is a height to it. Bumps …are not something people will be quick to adopt. The only reason I’m saying this, we’re spending time on board design and planerization process. We’re working all the pieces together to deliver these cards. Now that we have a mass-produceable, flexible sensor we really have the incentive to push on this,” says Favre. “Our own estimates — our in-house generated numbers — are that this is a market that is going to grow to 100 million units by 2020. That’s a hyper-growth market.”
The future is bright. This is an excting time for NEXT. The new CEO is bringing new energy to the business. To top things off, NEXT is also able to announce that it participated in a major field test organized by the Indian govenment agency responsible for the Aadhaar card.
The Aadhaar project, of course, is the world’s largest single biometrics project. NEXT went through an authentication test involving 6,000 subjects. It was carried out in harsh environmental conditions — this is a technology that will have to work in a remarkable number of different and challenging places. NEXT passed the test. It was a tough one. “They were very harsh conditions,” says Favre. The Indian government is working to authenticate every single person in the country. The Indian government has just run into a setback to that plan. The Indian Supreme Court ruled that citizens have a fundamental right to privacy, “posing a risk for Prime Minister Narendra Modi’s biometric payment scheme,” according to one report. It went on, “The highest court in the country voted unanimously Thursday that privacy is an ‘intrinsic’ part of Article 21 of the Indian constitution, which governs the life and liberties of Indian citizens… The verdict, overturns a 55-year-old ruling stating that privacy was not a human right…” The report goes on to charactertize the the ruling as, “… a victory for human rights but it deals a major blow to Modi’s wide-reaching biometric ID program.” According to the story, “A smaller bench of judges will now look at the specific implications of the ruling on Modi’s Aadhaar scheme.”
Whatever the case. NEXT Biometrics has some momentum. The new CEO has some exciting projects to navigate the company through. Can they catch that next-gen market? We’re about to find out, and it’s brilliant and exciting.