AuthenTec CEO Speaks About His Company

On October 15, The Wall Street Transcript interviewed Scott Moody, Co-Founder, Chairman and CEO of AuthenTec, Inc. (AUTH). Key excerpts follow:

TWST: What is AuthenTec?

Mr. Moody: We are a fabless, mixed-signal semiconductor company, providing fingerprint sensors to high-volume markets. Our intial target markets include the PC and the cell phone markets. Our fingerprint sensors - which are the smallest on the market and we provide at the lowest total cost of ownership to our OEM customers - are used to enhance both security (protecting your assets) and privacy (protecting your information) in a highly convenient fashion. We were founded in 1998, having spun off the technology from Harris Semiconductor (now Intersil) where I was the VP of a $200 million division. I co-founded the company with a gentleman named Dale Setlak, who is our Chief Technology Officer. In fact, he is the brain behind the original technologies that we spun off. In June of this year, we completed a successful initial public offering and are now a public company offered on the NASDAQ Stock Exchange under the stock symbol AUTH.

TWST: What is the overall marketplace today and what are its dynamics with respect to fingerprint identification and uses?

Mr. Moody: As you can imagine, the PC and the cell phone markets that we target are very large markets. We believe these markets represent a market opportunity of over 1 billion units a year. Moreover, we believe that we have opportunity in other markets such as access control, whether it's for a big enterprise, your front door lock or a home security system, automotive, consumer products and a number of others. Over time, we believe our annual opportunity approaches probably 1.5 billion to 2 billion units a year. We were founded almost nine years ago and we have really seen a very steep ramp in the adoption of our fingerprint products over the last few years. Highlighting that fact, just in August we announced our 20 millionth fingerprint sensor shipment. It took us about eight years to hit 10 million and yet only one more year to hit 20 million. You can see that we are ramping very quickly, and as exciting as that ramp is, that 20 million represents more than all of our competitors combined. When you compare that to a market opportunity that approaches 1.5 billion units a year, you can see that we have tremendous growth potential in front of us.

TWST: What's the agenda at this point? What are your priorities for the next 12 months? What would make that time frame a success?

Mr. Moody: I think what you'll see is a continual ramp in our volume as we are integrated into more and more PCs and cell phones. In the PC market, which has been driven primarily by laptops so far, we estimate that we probably have just over 50% market share, but that is increasing. Although this is not necessarily a market share game - it's more about the overall market growth - we are gaining share in the PC market. We estimate that between 15% and 20% of laptops shipped this year will include a fingerprint sensor. We are also beginning to see volumes ramp in the desktop PC market as well. I expect you will see a number of desktops that include a fingerprint sensor next year, usually integrated directly into the keyboard. In the cell phone market, our success to a large extent has been in Asia so far. Our customers in Japan include Fujitsu, NTT DoCoMo, Hitachi, KDDI and JRC, whereas our customers in Korea include Samsung, LG and Pantech. Recently, HTC in Taiwan announced a series of smart phones with our fingerprint sensors. As I noted, that market has been driven primarily in Asia to date, initially around personal security - protecting the information that you have in that phone, your contact list, the e-mails, pictures, etc. However, over the last couple of years, demand has been driven by mobile commerce (m-commerce) as your phone is literally used as your credit card. We see the value propositions of both personal security and m-commerce moving to Europe and the US in the not too distant future. Between the PC and cell phone markets, we have some pretty significant opportunity in front of us.

TWST: What's the financial picture, the snapshot, balance sheet and P&L? What items are strong? What items are you focused on for improvement?

Mr. Moody: Of course, I would like to think that they are all strong and yet, at the same time, we want to improve all of them. If you look at our guidance that we provided for Q3, we forecast our revenue at between $13.2 million and $13.5 million. At the mid-range of that revenue guidance, that's over a 60% increase from the same quarter last year. I mentioned earlier that we have continued to achieve significant increases in gross margin. As we mentioned in our second quarter earnings conference call, one can expect to see improvement this quarter. We also provided earnings per share guidance that we would approach breakeven this quarter. I think most analysts have us at breakeven for the quarter, which if we do achieve, will be two or three quarters ahead of what was being projected while we were on the IPO road show. So we're looking forward to continued revenue growth, gross margin improvement and achieving breakeven much earlier than had been forecast.