Fingerprint Cards

Fundamental View

Fingerprint Cards (FPC) develops and sells biometric solutions as it is transitioning from selling just components like fingerprint sensors to being more of a provider of biometric systems. It has global reach and multiple geographical locations as the world’s number one fingerprint sensor supplier (55-60 % market share excl. Apple in 2016) and one of Europe’s largest fabless semiconductor companies. The fingerprint sensors are at the moment sold to distributors or module manufacturers that sells the fingerprint modules to primarily smartphone OEMs but growth from coming verticals will include e.g. PCs, tablets, automotive, smart cards and IoT. Besides selling the hardware FPC also provides various software solutions across the value chain. FPC attributes its success to proven volume capacity (shipping 1 million sensors a day at the end of 2016), low power consumption and cost effieient production costs.

Last updated: 2017-10-03 Source: Redeye

FPC's fingerprint sensor (FPS) recognizes fingerprints in the following way: First, an image of the fingerprint is captured. Second, in the enrollment process, unique features in the fingerprint image are found by algorithms and stored as a digital template. The enrolled user then authenticates himself/herself by placing the finger on the sensor whereafter a new image is captured and compared to the template. An algorithm determines if these two images matches each other and if so access is granted. FPC's fingerprint sensors (FPS) use active capacitive technology, meaning detecting small changes in electrical charge resulting from the varying distance between the finger and the capacitive plates on the sensor. Read more on the technology in our initiation of coverage report ( 

In addition to various capacitive technologies, fingerprints can be recognized by e.g. ultrasound, temperature measurement (active thermal technology) or light (optical sensors). Activa capacitive stands out positively when it comes to cost, low power consumption and small sizes. Ultrasound is more secure than capacitive technology but has cost disadvantages. Active thermal sensors especially suffer from being large and having high power consumption. Optical sensors are rather large, sensitive to contamination and prone to spoofing.

Besides fingerprints, there are numerous other biometrics technologies, litteraly from head to toe. The most common ones are iris, retina, eyeprint, voice, vein and face recognition. FPC has acquired Delta ID and hence it has bet on iris in its embracing of multimodality. Apple uses face recognition in its new iPhone X. 

Last updated: 2017-10-04 Source: Redeye

The biometrics market is growing due to increased awareness of security and a desire to move away from pincodes and passwords. FPC's extreme growth during 2015-2016 was related to Apple's acquisition of Authentec and the popularization of its Touch ID. However, Apple in september 2017 launched the iPhone X with face recognition instead of a fingerprint sensor, which poses a risk for FPC given Apple's major influence on the market. Another important challenge to fend of is commoditization and Chinese compeition as the general trend in China seems to be state-backed vertical integration. On the upside we especially see new verticals, first and foremost in smart cards due to the huge potential volumes but also e.g. automotive and IoT. 

The vast majority of FPC's sales are related to China and the smartphone segment. Here we believe Goodix is the toughest competitor (Goodix does not target smart cards). Synaptics is a longtime nemesis that has not had much traction outside of Samsung though. Qualcomm has a new disruptive approach in its ultrasonic sensor, albeit with (so far) rather limited success. Other new entrants in the smartphone space worth mentioning are especially Silead, Egistec, Cypress and Vkansee. In smart cards, FPC is especially competing with the Norwegians; IDEX and Next Biometrics.

For more information on the compeition and compeititive dynamics see our initiating coverage report 

Last updated: 2017-10-04 Source: Redeye

  • Major stock market distrust from missed targets, insider crime accusations etc.
  • Trust needs to be restored by beating consensus
  • Upside potential in base case but still a considerable downside risk

Major stock market distrust from missed targets, insider crime accusations etc.

We are not overly surprised by the negative trend for the share price given all the negative news such as profit warnings, insider crime accusations, fines from NASDAQ Stockholm Disciplinary Board due to shortcomings in the information disclosure and so on and so on. All these factors add up to a major distrust towards FPC, which should not go away anytime soon. As investors do not trust FPC they also tend to ignore e.g. the market leadership and the advantageous position with access to capacity as well as the strategic transition moving from selling semiconductor components to providing biometric solutions (e.g. own algorithm, Delta ID, SoC etc.). We also feel that the mistrust for FPC make investors neglect FPC’s solid position in the new verticals that will contribute to a fast total market growth. The coming new segments may be way delayed but it does not mean that FPC does not have the partnerships necessary etc.

Trust needs to be restored by beating consensus

All trust has vanished. Forget about the number of launched smartphone models, bid rumours, Samsung orders, stock repurchases, Delta ID or other value-adding acquisitions, etcetera. Figures above consensus expectations is what is required to break the downward spiral for the share price. We need one or more likely multiple, strong “one finger salute” reports that beat earnings consensus.

Upside potential in base case but still a considerable downside risk

There is upside potential in relation to our base case of SEK 24 per share relation but despite the major fall for the FPC shares we still see a considerable downside risk in our reasonably pessimistic scenario of SEK 10.

Bear points

In this subsection we acknowledge and rank the, according to us, most serious risks and counter arguments against our investment case, for serious investors to keep an eye on.

1. Vertical integration in China
A general trend in China seems to be state-backed vertical integration. We see a risk that the customers in China get access to national good enough products, which could cause ASP decline from price pressure, or worse, loss of market shares.

2. Face recognition
Apple has decided to scrap Touch ID in its latest flagship smartphone the iPhone X. If the other smartphone manufacturers to a large extent follow suit FPC needs to somehow find a way to provide face recognition (regardless if the iris technology from the acquisition of Delta ID is a lot better than face recognition).

Last updated: 2017-11-07 Source: Redeye