Why Apple wanted AuthenTec: Thwart Samsung, Android in BYOD

Summary:If Apple didn't buy AuthenTec, a cash strapped mobile security player, it's likely another rival would have. Apple's courtship of the enterprise via the bring your own device continues.

Apple is paying $365 million for AuthenTec, a roughly break-even security company projected to have about $77 million a year in revenue mostly from fingerprint sensors.

Why?

AuthenTec's business was quickly transforming to one focused on mobile security. And a big deal with Samsung to secure its Android devices could have been a material threat to Apple in a world where employees are dictating what devices are used in the workplace.

According to a regulatory filing via Techmeme, Apple will pay $8 a share for Authentec , which closed at $5.07 on Thursday. Shares shot north of $8 in early trading. That movement may indicate that investors think another bidder will emerge. 

 

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PC makers and Apple have been familiar with AuthenTec due to its fingerprint scanning technology, but the publicly-traded company largely flew under the radar. It had just a few firms following it on Wall Street.

However, AuthenTec’s moves in mobile security changed the equation a bit. To wit:

  • On June 7, AuthenTec said it was joining the ARM Connected Community, a large ecosystem of ARM-based companies.
  • On July 16, AuthenTec said that its VPN technology would be used in Samsung's smartphones and tablets.
  • On July 23, AuthenTec teamed with Alcatel-Lucent to secure Android and Apple devices at Portugal Telecom.
  • Toss in an addition to the Russell 3000 index and perhaps it was just a matter of time before more people noticed AuthenTec as an acquisition target.

Craig Hallum analyst Richard Shannon recently said in a research note that mobile security had the potential to be a big business for AuthenTec. Shannon said:

We see Samsung’s interest in mobile enterprise access as a microcosm for a secular trend in the mobile marketplace as customers look to access enterprise resources not just from company-supplied laptops, but from employee-owned phones/tablets. Over the next several quarters, we expect to see Samsung, along with other OEMs, carriers and other ecosystems participants, increasingly view the enterprise as a valuable market segment and one that needs improved security.

Shannon estimated that AuthenTec’s royalties from its VPN software was minimal, maybe a penny per unit, but would be critical to Samsung. Indeed, most of AuthenTec’s revenue derived from fingerprint sensors.

Enter Apple.

Apple on the surface doesn't care about the enterprise. Don't believe it. On Apple's most recent earnings conference call, executives touted enterprise wins  as they do almost every quarter. Here's a key statistic: The number of iPhones in the enterprise has doubled from a year ago. In many companies, Apple is replacing Research in Motion. In those same companies, Android is also replacing RIM's BlackBerries. Anything that can make Android harder to adopt in the enterprise helps Apple.

The other wrinkle here is that Apple's product cycles are longer than Samsung's. As a result, Apple has to bridge device sales until its latest greatest iPhone lands in the September-October time frame every year. That sales bridge is likely to be the enterprise.

Another reason Apple's AuthenTec purchase is notable is that CIOs are already somewhat wary about Android when it comes to security. Why? Android has too many flavors. A company has to secure different versions of Android. That's a pain. On the other hand, Apple has one iOS and it's consistent.

And finally, AuthenTec didn't have enough cash to be a real mobile security player. The company had $20 million in cash and equivalents on hand. Authentec couldn't bulk up and invest if it wanted to. As a result, some partner would have acquired Authentec. Apple beat Samsung to the punch.

Topics: Mobility, Android, Apple, CXO, Security

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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