Gamble of the week: world leader in electronic security
Mar 12, 2010
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With the exponential growth of e-commerce and mobile banking set to continue, new technologies are rapidly being introduced worldwide to counter terrorism, illegal immigration, organised crime and ID theft. One example is the deployment of biometrics – the unique identification of individuals using voice, iris, DNA, hand and facial recognition patterns.
This is where AuthenTec fits in. The group operates in the sweet-spot of electronic finger-print ID and is the world leader in the field, having supplied more than 50 million sensors to the PC, wireless device and access control markets.
The big advantage of its patented applications is that they use low-power radio signals to read the living layer beneath the skin's surface, which reveals our true fingerprint. As such, their products are less affected than rivals' by common hand disorders – such as dry, calloused, dirty or oily skin. All of these conditions can hinder a device's ability to capture accurate images.
AuthenTec (Nasdaq: AUTH)
What's more, the company's newest generation of smart sensors offers users secure, one-touch access to their favourite websites, online social networks and digital identity.
No wonder many electronics firms are taking note, with original equipment manufacturers such as Fujitsu, Lenovo, ASUS, DoCoMo and AT&T already incorporating the technology in their latest gadgets. That said, hefty upfront investment means these flagship design wins haven't yet moved the firm into the black – 2009 underlying earnings per share came in at a loss of 31 cents on turnover of $34.1m.
Things should, however, change pretty quickly in light of continued strong demand from smartphones and netbooks. I estimate that AuthenTec will break even in 2011 and could go on to deliver revenues and earnings per share of $100m and 50 cents respectively by 2013. Better still, there are no worries over the balance sheet, since it has net cash of $52.4m (worth $1.80 a share) and $93m of tax losses carried forward.
But nothing is risk-free. The chief concerns are those associated with the cut-throat nature of the electronics industry. Tough competition, price deflation and technological obsolescence are major hurdles. All the same, founder and chief executive Scott Moody is confident. He believes 2011 could be "a very significant year for us in mobile" and that there is still massive opportunity in PCs. I see the shares tripling over the next three years, and perhaps going further if the firm is snapped up by a large original equipment manufacturer such as Dell, Apple, or even General Electric.
Recommendation: SPECULATIVE BUY at $2.35
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments
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