Biometrics stocks this week: Goodix, FPC, NEXT, IDEX, SMME
Chinese tech firm Goodix this week released its annual report. The company, also known as Shenzhen Huiding Technology Co., has emerged as a key competitor to Swedish firm Fingerprint Cards (FPC) in the fingerprint sensor market. FPC pioneered the sector, and it still offers the premium product in the space, but Goodix is giving the company a run for its money, a fact confirmed in year-end results.
It was only 2015 that FPC enjoyed a mighty 83% market share in terms of deliveries of fingerprint sensors to Chinese OEMs. But in the years since Goodix has come on strong. Contracting with a small Korean chip foundry (rather than the larger Taiwanese fabs) allowed Goodix to come to market with a product priced 20% to 30% lower than market leader FPC. That allowed Goodix’s sensor business to blossom. In 2016 revenue at Goodix jumped 175% in one year. That sent the stock price soaring (more than 200% in the year after the IPO). Goodix now claims it is the main supplier of sensors for Android phones. For the full year 2017 Goodix is reporting revenue of $586 million. That represents year-over-year growth of 19.6%, so the radical growth of 2016 has slowed somewhat. And that is something that analysts had expected. Nevertheless, according to the company’s annual report, fingerprint sensors now make up 79.8% of the company’s revenues. That focus has resulted in a net profit of USD $141 million and earnings per share came in at $ 0.31. That’s solid business.
Goodix announced last month that its optical in-display fingerprint sensor will be featured in a new Porsche-branded Huawei handset. So the company continues to land new projects. But the company also announced that it increased its spending last year on research and development to more than 90% over 2016 levels—that could be an indication that the company understands its growth in the fingerprint sensor market is over the big growth phase, that it is going to have to look at next generation products. It’s no surprise that both Goodix and FPC have announced of late they are working on face-ID products. Both companies are responding to the big market shifts that the Apple iPhone X kicked off. It’s worth noting that FPC has also shaken up management over the past few months. It will be interesting to see how these two competitors, locked in an epic corporate battle, negotiate the changing marketplace.
Goodix also announced this week that its GW32J1 fingerprint sensor has been deployed in Samsung’s new Galaxy J7 smartphone for the Indian market. According to a company statement, the “entry into (Samsung’s) supply-chain adds fuel to Goodix’s sustainable growth and is a milestone in the company’s overseas market expansion.” Note the use of the word ‘sustainable.’
Interestingly, some have suggested the Shanghai Intellectual Property Court could see an IP lawsuit between FPC and Goodix. And that might determine the course of the competition between these two. But for now, the battle continues. It is thought that FPC recently passed on a major investment from a Chinese firm, Watertek Group. The deal could have supplied cash to FPC to use in generating next-gen tech (as well as provide vital knowledge about the local Chinese market, the single largest end market for sensors). But FPC passed on the deal and seems set on going it alone. The battle for domination in the fingerprint sensor market continues apace.
Goodix shares, which trade in China, have traded lower than the peak of about CNY 129 in November of 2017. Shares in Goodix had recovered to CNY 106 in mid-April, but have plunged to about CNY 79 over the past few days. It can be argued that investors have exited the stock on worries the big growth burst of 2016-2017 predicated on the cheap fingerprint sensors is over, and that the company is now slugging it out in the ground war to develop next-gen face-ID products, where there is no clear winner yet.
Fingerprint Cards also reported earnings this past week. The company surprised analysts with a larger than expected first-quarter loss as it works to reorient its business. The firm reported an operating lost of SEK 175 million (USD $19.7 million). That’s far off a profit of SEK 71 million posted in the same period a year ago. Analysts were expecting a loss of just SEK 80 million this quarter according to a Reuters survey. But the company did indicate it expects markets to firm up in the quarter ahead. According to a release, “Market conditions are challenging, but we expect some stabilisation and sequential growth in Q2, a quarter which has historically been seasonally stronger than Q1.” Shares in FPC sold off on the news, declining almost 15% over the trading day of May 3rd.
An intriguing bit of news out of Sweden this week concerns an investment by Greenbridge Partners that sees the firm upping its stake in NEXT Biometrics about 20%. The story may sound innocuous—investment firms are constantly buying in and out of stocks—but what makes this particular buy so interesting is that the investment has a connection to Hexagon CEO Ola Rollén.
The Swedish native has spent the last two years fighting a court battle over an allegation of insider trading. In October of 2015 Rollén and Swedish investor Melker Schörling’s investment firm, Greenbridge, bought two million shares in NEXT. Rollén’s private investment company also bought shares at the time. In the days after those investments a couple of key deals, one involving the founder of NEXT, Ngoc Minh Dinh, another involving American PC manufacturer Dell, were announced. Stock in NEXT skyrocketed by 85.5%. The Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime brought insider trading charges against Rollén.
One of the allegations was that Greenbridge was to buy shares from Ngoc Minh Dinh. When the case went to court Rollén’s defense team argued that he was not aware of the insider information and that, even if he was, he was not guilty of the charges brought against him. The courts ruled in favor of Rollén in January of this year. Arguably, Greenbridge’s announcement that it had upped its stake in NEXT was a sort-of statement on the part of those who were accused in the case. Rollén has been described as “one of the top CEOs in the world” by Harvard Business Review. Is he ready to get back in the game now that his name has been cleared by the courts? Stay tuned.
In other news, the world’s largest credit card company continues to plunge into the biometric future. Just last month Mastercard announced it is retiring that time honored ritual of credit card ownership, signing for in-store purchases. Out with the old, in with the new it seems. This past week Mastercard unveiled a device that will allow remote biometric card enrollment. Customers will be able to register fingerprints onto a biometric payment card from home, without making a trip to the bank. Analysts consider this process an important one in terms of facilitating the widespread adoption of the biometrics-based cards that will replace signatures.
According to a press release the new device is a battery-powered sleeve that enables self-enrollment of a contactless card. The device will allow issuers of cards to benefit from improved fraud detection. Merchants will be able to offer biometric payments with existing MasterCard card terminals, an important advance for a company that processes an astounding 74 billion transactions each year. IDEX ASA is involved in the project. The first European trial of MasterCard’s biometric cards were completed in August, also using a sensor provided by IDEX. No wonder then that shares in IDEX were up almost 11% over the first part of this week, hitting USD $ 0.59 (on the over-the-counter market) before pulling back on Thursday.
A couple of other deals this week include a dealership agreement for biometric card sales to Argentina-based telecom and IT holding company Grupo Datco by SmartMetric. The deal involves the sales and marketing of building access and identity security cards in South America. “We are excited about our new relationship with a major company in the security integration industry in South America and are confident that sales will follow as they present our unique leading edge biometric card product throughout the South American region,” said SmartMetric’s President and CEO, Chaya Hendrick. Shares in SmartMetric also had a great day today, rising almost 9% to USD $ 0.60.
The biometric revolution continues!