This post is the result of a joint collaboration by C.E.S.I., Se7en (blogger at http://www.avanza.se) and Martini (blogger at http://www.redeye.se). The original author Martini has published a very similar article on http://www.redeye.se (swedish language). The original author Martini has also granted the following permissions: English translation of original manuscript (performed by Se7en), Editing and Publication at http://www.cuttingedgescienceinvest.com (performed by C.E.S.I). Further information can be provided by cuttingedgescienceinvest@outlook.com

Initial Teasers

Recently Huawei Ascend Mate 7 was presented at the IFA in Berlin and these two quotes summarize just about everything:

The fingerprint scanner is the star of the show here, working wonderfully well” – Techradar.com

“I love it, I really love this functionality!” – Richard Yu – CEO, Huawei

https://www.youtube.com/watch?v=cnbEYPCs1Lw (Start watching at 45 min to check out the FPC One Touch feature in Mate 7)

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.”

http://www.techradar.com/reviews/phones/mobile-phones/huawei-ascend-mate-7-1263333/review/3#articleContent

http://technewsireland.com/2014/09/06/huawei-smartens-up-with the-mate-7-at-ifa/

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.

http://www.mobil.se/nyheter/f-inner-impression-huawei-ascend-mate-7#.VAwUV_l_uSp

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.”

http://www.huawei.eu/our-company

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.

TAM – Total Addressable Market

$ 1.4 billion in 2014 = about 9 billion SEK

$ 2.8 billion in 2015 = about 18 billion SEK

$ 4.8 billion in 2016 = approx 31 billion SEK

1 USD = 6.35 SEK (current rate is 7.09 SEK)

http://www.fingerprints.com/corporate/wp-content/uploads/sites/2/2013/09/PJF-fireside-speech-11-March-2014.pdf

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. ”

Collaborations

“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.”

https://www.bullstreet.se/2014/01/varldens-giganter-lanserar-en-gemensam-plattform-e-handel-borjan-av-2014/

Alibaba = Huawei Ascend Mate 7 = Fingerprint Cards

“Alibaba, founded by billionaire and one-time Forbes cover story subject Jack Ma teamed up with Chinese telecoms outfit Huawei to integrate this new biometric technology into its Alipay Wallet app.

It’ll be available for use with Huawei’s Mate 7 smartphone, due to be launched this week.”

http://www.forbes.com/sites/clareoconnor/2014/09/02/alibabas-latest-e-commerce-coup-secure-mobile-payment-by-fingerprint/

Outlook

Apple e-commerce

Apple has focused on reducing the fees associated with credit card payments. Apple has an agreement with VISA, MasterCard and American Express. On September 9 2014, Apple launched its new flagship, of course fitted their new payment system.

“The first thing Apple has done is convince these four FIS to Consider transactions from Apple’s upcoming payments venture – said to launch with its forthcoming iPhone 6 introduction – as “card present” transactions, which carry a lower discount rate than “card-Not-present” transactions, because of lower fraud risk.”

http://bankinnovation.net/2014/09/apple-said-to-negotiate-deep-payments-discounts-from-big-banks/

Statement from the CEO of FPC after the launch of Huawei Mate 7

“Huawei, the world’s third-largest smartphone manufacturer, today launched its new flagship model Huawei Mate 7 with an integrated touch sensor from Fingerprint Cards. It is seen as an important breakthrough for Fingerprint Cards” and the company’s CEO continues and says that “interest from the other major manufacturers now will increase significantly.”

Huawei becomes the first Android manufacturer to launch a smartphone with touch sensor. Among the giants, Samsung has previously chosen line sensors from Synaptics, Fingerprint Cards american competitor.

http://finwire.se/component/news/FWM0002569/huaweis-lansering-okar-intresset-exponentiellt-for-fingerprint-cards-sensorer—vd

The market offers the same undeniable information – pin codes will be replaced with your fingerprint. The technical and the legal platforms are ready thanks to FIDO Alliance (Fixed Identity Online). Apple, Samsung and Huawei have now shown that fingerprint sensors are a standard component to be reckoned with in all smartphones.

C.E.S.I. summary

Today´s excellent share price discount is due the latest media news i. e. the CEO´s suspected illegal insider trading. According to C.E.S.I., these suspects should have only minor influence of the company´s fundamenta in a medium and long term perspective.

http://www.globalpost.com/dispatch/news/thomson-reuters/140911/fingerprint-cards-ceo-denies-insider-trading-chairman

C.E.S.I. believes in the following Warren Buffet quote:

“We don’t do due diligence or go out kicking tires. It doesn’t matter. What matters is understanding the competitive dynamics of a business. We can’t be taken by a guy with a sales pitch… What really counts is the presence of a competitive advantage. You want a business with a big castle and a moat around it, and you want that moat to widen over time. Coke and Kodak both had marvelous moats 20 or 25 years ago. Kodak’s has narrowed, while Coke has been building its moat. We want an economic castle. The best thing that happens to us is when a great company gets into temporary trouble… We want to buy them when they’re on the operating table.”

http://www.businessinsider.com/warren-buffetts-investing-quotes-2014-8?op=1#ixzz3Dqd6hD5F

Best regards C.E.S.I., Se7en and Martini

The author, Cutting Edge Science Invest, is a Fingerprint Cards share holder. The author does not intend to sell any shares within a near future (= weeks)

Cutting Edge Science Invest can not guarantee, or take into  accountability, the content of truth and accuracy of the information in this article/post.Thus, Cutting Edge Science Invest requires that a possible reader gather complimentary information if any type of investment in the company described above is considered.

Cutting Edge Science Invest provides personally biased information and at best also “general information and opinions”.

The article/post does not contain professional investment advice. 

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