Could AuthenTec (AUTH) own the slit in the new iPhone 5 rumored to be coming out in October? The web and blogosphere have been abuzz about the new iPhone 5 and the appearance of a slit in it. Recently filed patent documents detail a biometric sensor and casing-leaked photographs clearly show a slit in the casing.
Everyone that is long AuthenTec either on their own due diligence or through reading my past two articles ("AuthenTec: Security for the Smart Phone" and "An AuthenTec Conference Call") know that the prospect of landing an 800lb gorilla [Apple (AAPL) and/or Samsung (SSNLF.PK)] would mean making multiple times your money at any price under $5 per share. Today, I have the potential evidence that Apple's new iPhone 5 could have a slit in the front next to the home button. That slit is for a biometric field with fingerprint capabilities. Now if these documents and photos are true then I would put AuthenTec as a strong candidate to be that sensor as I believe that they own the best of breed technology in the space.
Apple is not going to the trouble of adding a biometric sensor just so that you don't have to use a four digit password. They are adding a biometric sensor so that the iPhone can become a safe and secure payment device. Patents detail a Point of Purchase application to complete sales transactions. Key to the system is a biometric sensor that verifies the identity of the customer and then releases their payment information. Here's how it works, once a customer completes a purchase he runs his finger over the biometric sensor on his iPhone. By doing this he will verify his identity and also release the payment information he has on file to the merchant. The merchant will be safe in knowing that the customer is who he says he is.
Why do I believe that AuthenTec is a strong candidate to supply the biometric sensor? AuthenTec recently unveiled a new biometric sensor for use in smartphones for mobile commerce. Additionally, AuthenTec has experience in this space as it is currently in contract to supply a Tier One handset OEM (outside of Japan and the U.S.) with a biometric sensor in an enterprise smart phone. AuthenTec is a leader of biometric sensors in Japan with its relationships with Fujitsu (FGELF.PK) and NEC and their NFC based smart phone sensors. AuthenTec seems poised to be the first player to bring biometric sensors to smartphones in the U.S.
The chart doesn't lie. In my last two articles, I told you that the chart would look fantastic with a close above the spread triple top at $4.15 with large volume of 2 to 3 million shares. I'm proud to tell you that on May 29th, AuthenTec traded 2.3 million shares with a close of $4.21. This was a technical trader's perfect scenario. The stock has backed and filled the past few days testing and holding the $4 level on light volume. In the face of tough European macro headlines, AUTH investors keep accumulating the shares for one reason or another. I also told you that funds would start their vigorous channel checks after the last conference call because the design wins and contract wins were plentiful. A fund uncovering a major handset win could see tens of millions in profits. IMO, the hunt intensified post conference call on May 3, 2012. The volume could be telling us they discovered something powerful. The stock traded over 10.7 million shares in the month of May, the highest monthly trading volume since 2008. Apple? Samsung? I don't know, but I'm patiently anticipating some headline news that confirms the big increase in volume and price.
An apple a day keeps the doctor away, I guess that holds true in the investment world too as Apple suppliers are hit with great financial health. Here's some stocks that have become direct or indirect suppliers of Apple products: Cirrus Logic (CRUS), TriQuint Semiconductor (TQNT), ZAGG (ZAGG), Nuance Communications (NUAN), Cypress Semiconductor (CY), Broadcom (BRCM) and OmniVision Technologies (OVTI). Anyone that has played these names for the Apple effect, should review these documents and post if they see any similarities to their experience. Let's share in this potential huge win for AuthenTec.
An Apple win for AuthenTec would double quarterly sales overnight on a 10 million unit per quarter count and easily triple sales in 2-3 quarters out as the sensor's average selling price is approximately $2 per my guess work. Apple sold approximately 35 million iPhones last quarter. A new iPhone could generate 10-20 million phones per quarter in the first 2 quarters. A win of this magnitude would conservatively put AUTH revenues at $175 million for 2013 and earnings per share (EPS) of $0.75 - $0.80 (my current estimate:$0.35 - $0.40) on increased shares outstanding and increased operating expenses. That number would be up from $0.30 (with an apple win in Q3 and Q4) in 2012 (my current estimate $0.16). The shares would explode to a 15 - 25 times multiple to EPS on this type of growth expansion and AuthenTec's business would expand to many other handset OEMs too.
Time will tell if AuthenTec took a bite out of the Apple, but we all know one thing an Apple is good for both your physical and financial health.
Disclosure: I am long AUTH.