Background – Why is Fingerprint Cards a promising company and a good investment?
It’s all about supply and demand. It’s as natural as the earth’s most populated country, China with 1.35 billion people. In Sweden 9.45 million people are living, which compared to China accounts for only 0.7% of potential smartphone market measured by number of inhabitants.
The Chinese market of about 1 billion mobile subscriptions is hard to grasp, and it is now three times as large as that in the United States. Just a year ago, the Chinese and American smartphone market were equal. FPC has been active in the Chinese banking sector for 17 years. Now, FPC has established itself in the massively expanding smartphone market in China.
China Mobile with over 700 million mobile subscriptions builds out its 4G network, also known as TD-LTE, with over 500,000 base stations in over 340 cities. The goal is to finalize its new infrastructure during the current year. Smartphone sales have exceeded expectations in the 16 cities that have 4G services, such as Beijing and Shanghai. 41% of China Mobile’s customers are now switching out their old cell phone to a smartphone, and of those, 79% android.
On March 13th the News Agency Finwire summaries this expansion as “The number of active smartphones and tablets close to doubled in China over 2013 total was more than 700 million devices active at the end of 2013, up from 380 million in the first quarter of that year. It appears from a new report from Umeng.”
Introduction of Huawei Mate 7 amazes the world
After the introduction of the very first Android smartphone featuring a fingerprint touch sensor on IFA in Berlin 2014, the tech blogs literally exploded with positive comments, see below for a handful of quotes:
“The fingerprint scanner is the star of the show here, working wonderfully well”
“It works EVERY SINGLE TIME”
“Reliable and screen turns on quickly”
“It’s a legitimately impressive sensor”
“Its really cool technology”
“The fingerprint scanner on the back of the Mate 7 is nothing short of perfect.”
The fingerprint reader, developed in cooperation with Swedish FPC, works very fast and good and in addition, Huawei has associated a lot of interesting features to it. You can unlock your phone instantly by putting your finger on the fingerprint reader and need not first pressing another button on the phone. Additionally, you can register impressions from more than one finger, and linking them to your user account on your phone. Different fingerprints can then be used to lock and unlock certain features depending on which finger you use. A perfect feature if you for instance lend your phone to someone you do not want to be able to snoop through your private messages or images.
150,000 employees – the world’s third largest smartphone manufacturer
Huawei: “Consumer Business: Serving more than 500 operators around the world, Huawei’s Consumer Business offers a suite of user-friendly mobile phones, mobile broadband devices and home devices. It aims to become one of the leading global mobile phone brands by 2015. The business group recorded a sales revenue of $9.4 bn in 2013, which represents an impressive year-on-year growth.”
Huawei’s strategy is to reduce the number of smartphones to 5 models from the previous 20 models. They have also embraced the FPC way to add a plus for the expected forecast sales. In this case, they estimated the number of smartphones sold in 2014 at 80 million plus. They also anticipate increased market share of around 7% per year. Today they have 7% of the global market, i.e. they are aiming to sell 100% more smartphones in 2015! The goal is to own 25% of the market within 2-3 years.
Global Market Outlook
FPC published the below market outlook in March for smartphones and tablets over the next coming years. In this forecast, FPC has not included smart cards, debit cards, and other product of the total available market.
Average price per sensor is 4 USD: swipe sensor 1.5-3 USD/pc, touch sensor 5-7 USD/pc.
FPC aims to supply 60% of the touch sensor market in 2014. In 2015, the goal is 50% of the touch sensor market. FPC’s swipe sensor dominated the market with 95.4% of all smartphones launched in 2013. It is also expected to achieve an EBITDA of about 20% for 2014. If FPC meet their forecasts, the stock is very cheap at the moment. How does it look if we for example reduce its market share to 30%? See the calculation examples below:
2014: 9 billion x 30% market share x earnings, EBITDA 20% / 55 million. PE shares x 25 = 245 SEK / share
2015: 18 billion x 30% market share x earnings, EBITDA 30% / 60 million. PE shares x 20 = 540 SEK / share
2016: 31 billion x 30% market share x earnings, EBITDA 30% / 65 million. PE shares x 20 = 858 SEK / share
Worth noting is that the FPC has a negative PE’s as of today at -39.9, and the market has been waiting for patent examinations through FIDO alliance, which may lead to a delay of the above calculation forecast.
However, this very promising quote was delivered from the CEO at the FPC’s Annual General Meeting in Gothenburg:
“Those big customers we handle ourselves… The tens of millions of sensors will be delivered this year, and next year up to several hundred million sensors. “
“Every member of the FIDO alliance must have agreed on the patents. Everybody is reviewing the specifications, to be sure, and believe me, I’m sure there are a lot of patent lawers that are looking at this. There is a review before it is published. We are very hopeful because there are no surprises, everyone has been involved in this work, so once that review period is over, then we expect that the first version of the specifications will be released. Version One specification will be introduced during the first two months in 2014.”