Biometrics industry stocks this week
Not even a full month into the new year and already stock indexes have topped the predictions for full year returns generated by some of the biggest names on Wall Street. This past week the broad market indicator, the S&P 500, topped 2,850. That’s ahead of several targets for full-year returns from major investment banks like Morgan Stanley, Goldman Sachs and Deutsche Bank.
But even as market indexes achieve record highs stresses are building in the underlying economy.
This week Donald Trump announced new tariffs on imported washing machines and solar panels. This wasn’t a surprise. Trump made it a campaign promise to push back against the consensus among global elites that free trade is one sure method to generate higher living. And so the tariffs were expected. But the moves are worrying.
Increasing trade barriers has long been a no-no according to conventional thinking among economists. Mainstream thought is that the free flow of goods across global borders is the path to prosperity. But now Trump is overturning those assumptions, and that has some worried. The voice of mainstream business thinking in America, the Wall Street Journal, said about Trump’s belief in turning to tariffs that, “The scary part is really seems to believe this… The tariffs will hurt many more companies and people, and that’s before other countries retaliate.” LG has already raised the price of its washers in the wake of Trump’s announcement And so the predicted effect of tariffs–increasing the price of consumer goods–can already be seen to be settling in. Speaking to the gathered economic elites in Davos Switzerland this week Alibaba executive chairman Jack Ma, pleaded with governments not to follow Trump’s lead and use “trade as a weapon.” As the Chinese tech titan said, “… it is easy to launch a trade war but so difficult to stop the disaster of this war. I am scared. I am concerned. Don’t use trade as a weapon. It’s impossible to stop trade. The world needs trade.”
It sure is odd to see a corporate leader from a country that is still officially communist lecturing the American president about the importance of free trade. But then this is where we’re at in this weird winter of 2018. China continues its economic rise. Trump golfs and tweets. A recent headline in the Washington Post captures one of the deep trends playing out here in the era of Trump: “China’s inexorable rise is helped by Trump’s retreat.” This is an idea that finds confirmation in events in the biometrics sector this past week.
Example number one: Vivo, a rapidly-growing Chinese manufacturing of cheap smartphones, launched the world’s first handset to feature in-display fingerprint scanning. The X20 Plus UD is only available in China for now. But it utilizes a Clear ID FS9500 optical in-display fingerprint sensor produced by Synaptics Incorporated. This marks the first use of this leading edge technology, though, the announcement was expected.
In mid- December Synaptics announced it was beginning mass production of the sensor for a “top five OEM.” At the time a press release from the company noted that the sensors allow high-resolution scanning through full cover glass enabling “… sleek, button-free, bezel-free infinity displays.” Having the sensors in-display allows users to unlock the phone, “… while it’s sitting on the table, at any angle, or while in a car mount.” This is a clear advantage over handsets that have the sensor mounted on the back. And so no wonder then that when Synaptics showed off a pre-production phone at this year’s CES it ended up winning the Best in Show award. Kevin Barber, vice president and general manager, Mobile Division, Synaptics, was quoted as saying at the time, “We are honored to receive industry accolades at CES… As smartphones with infinity displays continue to evolve, Synaptics is charting the future for biometrics and smartphone industrial designs with our Clear ID technology.”
But what is also interesting in this story is the company producing the phone. Vivo is an upstart Chinese technology company that was founded in 2009. It may not be well-known in North America, but it’s making huge inroads in Asian markets. The company has expanded to 100 countries including India, Thailand, Malaysia, Indonesia, Vietnam, Myanmar, the Philippines, Russia, Sri Lanka, Taiwan and Hong Kong. It has joined the ranks of the top 10 smartphone makers, a mark it achieved in the first quarter of 2015. Since then it has showed up among in the list of the top five companies worldwide in terms of the number of devices shipped.
The company is owned by a parent organization, BKK Electronics, which also owns another global up-and-coming handset manufacturer, Oppo. BKK itself is owned by a Chinese billionaire Duan Yong Ping, sometimes referred to as the Warren Buffett of China. The company leapt to prominence by selling cheap phones in rural China through an astounding 200,000 retail locations (such is the scale of doing business in the world’s most populous country). Even Apple has begun to flag against the energy of the upstart. It is said Apple’s Chinese smartphone shipments fell by almost 24 percent last year while Vivo and its sister company Oppo increased shipments by 97 percent and 122 percent respectively.
It seems Duan is making his mark on the global handset market. His story is a fascinating one. He got his start manufacturing a Nintendo-style game console in Guangdong, China. But he has lived in the U.S., and not far from the Apple headquarters. Fairly reclusive, the financial news service Bloomberg has been the one media outlet to secure an interview with the mogul in the past ten years. Duan is said to be heavily invested in his competitor, Apple. According to the Bloomberg article the way Oppo and Vivo conquered the Chinese market was to offer new features at low prices. This basic strategy has even helped the company compete against another Chinese tech titan Xiaomi, which saw sales off by 36 percent thanks to Vivo and Oppo.
Xiaomi is described as a company about to “come of age” as it is expected to go public in 2018 in a massive IPO that rumours suggest could bring $200 billion into the company. But the company is already feeling the heat from the smaller competitor (Duan) following up right behind Xiaomi. A famous story about the tech entrepreneur is that Apple’s Tim Cook didn’t know who he was when they first met. But he’s been busy getting his name out there, partly by hobnobbing with the richest people in the west. His tag as The Buffett of China followed on a meeting with the Oracle of Omaha years ago when Duan spent USD $620,100 to grab a lunch with Warren. Duan also reportedly bought the mansion once owned by the dot-com era icon John Chambers, the former chairman of Cisco Systems. It’s clear, Duan wants in to the tech elite, and he’s doing a fabulous job of breaking in.
That Synaptics partnered with the scrappy up-and-comer paid off this week. It was just December 6th that shares were trading around $35. They jumped to over $49 a share as CES got underway and are still trading around $45 a share on heavy volume. The company says it is getting ready to ship 70 million sensor units in the year ahead, and you can bet Vivo will be buying a good chunk of those.
Another story in the fingerprint scanner space this week involves Zwipe, yet another Scandinavian biometric player. Based in Oslo Norway the company is emerging as a key player in the contactless payment card space. Like Vivo, Zwipe was founded in 2009. Although it’s headquartered in Norway it prides itself on a diverse workforce, which includes 11 different nationalities spread across four different time zones. The company won a fintech award for innovation in payments presented in London England in 2016 for its fingerprint activated payment card. The device has a unique energy harvesting technology that gathers the energy it needs from a payment terminal using NFC (near field communication) technology. It was recently announced that the Zwipe tech is being rolled out in the market through a card being offered by Gemalto and the Bank of Cyprus. In the wake of that good news the company has just announced that it has raised an additional USD $1.2 million in funding that will be added to USD $4.3 million raised earlier this year. The funding comes in the form of a private placement of new shares to existing and new investors. The company’s stock is not publicly traded. But the size of the equity capital raise was, according to a press release, “… increased after the extraordinary general meeting held 7 December 2017 to meet demand for shares from existing shareholders.”
As it is, shares of Zwipe are entirely owned by a group of institutional and private investors, as well as employees and board members. According to the press release, after the latest transaction, key employees, including the CEO and founder and board members, hold 37.2% of the outstanding shares. That’s impressive. Clearly the insiders think the company has a fantastic future. The latest equity capital round brings the total raised in equity, debt, and grants since inception to USD $25.6 million.
It’s worth knowing who some of the shareholders are. According to the company’s website Zwipe has key partnership agreements with Japanese firm, Hitachi High-Technologies, and a Chinese firm, Kuang-Chi. One of Zwipe’s board members is Weizi Huang, the COO of KuangChi Science Limited. She is described as co-founder of the firm. Another board member is Dr. Liu Ruopeng, a person described as a “… distinguished scientist and innovator and one of the five founders of Kuang-Chi.” Kuang-Chi is another extremely interesting Chinese company.
The outfit was started in 2010 by five scientists that studied at elite levels in the west. The parent organization and its affiliates operate in aerospace, communications, smart cities and materials science. It’s an entrepreneurial start-up. That is, it’s not a state-owned firm as many business are in China. What’s really interesting is that it was the first company that Xi Jinping, the current General Secretary of the Communist Party of China, visited as party leader. Party leaders don’t do anything that doesn’t have some sort of symbolism. That the current leader of China chose Kuang-Chi as his first visit on his ascension to the head of the communist party is a clear indication that Xi wants to see Kuang-Chi succeed.
Since then the company has taken part in the government’s so-called Go Out Policy, which sees Chinese companies encouraged to work globally and make investments around the world. Kuang-Chi is also taking part in the One Belt One Road Program that sees China engaging with countries along the “Silk Road Economic Belt”, a massive trade and infrastructure program that saw China build a railway that goes from Asia to the UK along the old routes used by spice traders in the middle ages. The route is a key part of China’s globalization strategy. Kuang-Chi is named after a famous Chinese scientist from the Ming Dynasty said to have made important contributions to math, agriculture and astronomy. His name means “to enlighten.” The company chose that name as a symbol of the organization’s, “… commitment to advancing the frontier of science and bridging western and eastern knowledge.” Which is impressive stuff. It seems the company could hardly be more well-connected to the rising power that is China. Ruopeng Liu is sometimes referred to as the Chinese Elon Musk. That is, at a time when Trump is sitting around tweeting back at anyone who dares tweak his ego, the Chinese Warren Buffett and the Chinese Elon Musk are hustling to bring the next generation of biometric technology to market. May you live in interesting times.
In other news, Fingerprint Cards (FPC} just let markets know that it is predicting that fourth quarter 2017 earnings will be lower expected, with revenues coming 62% lower than the same quarter last year. FPC estimates a quarterly loss of about USD $5.15 million. According to the company revenues were, “… impacted by a weak market development and a continued negative price development in capacitive sensors.” The company also said the Chinese smartphone market has weakened further during the latest quarter and predicts that the company’s revenues will remain weak during the first quarter of 2018. “Besides capacitive sensors in smartphones, Fingerprints continues to develop new innovative products and strengthen the company’s established position in smart cards and multimodal solutions for fingerprint and iris recognition and in next generation biometric security solutions,” according to a press release. The company also announced a cost reduction program that will see 185 positions cut (about 45% of the workforce). Most of the downsizing will be among consultants, but some employees will be cut. Official year-end results for 2017 will be released on February 2nd as planned. Shares in Fingerprint Cards took a tumble today, falling 18% to USD $1.73.
Precise Biometrics has appointed a new CEO, Stefan K Persson. He assumes the position August 1, 2018. This week the company announced he purchased 310,041 shares in Precise Biometrics as a show of good faith in the organization he is about to join. Persson comes from the audio group Bang Olufsen. “I am very pleased to be part of Precise Biometrics future journey and drive the company to the next level,” said Persson in a press release. “Biometrics is an extremely interesting area and there are many opportunities for us to be part of the growth in this business. I’m looking forward to start with the team as soon as possible.” Persson has strong experience developing consumer facing tech products. Prior to Bang & Olufsen, he had a long career at Sony Ericsson as head of accessories. It’s interesting to note that while he was at Sony Ericsson he was the head of development in China.