Why Apple wanted AuthenTec: Thwart Samsung, Android in BYOD

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.

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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

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15 comments
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  • OMG

    Oh, my gosh... $365 million? Do you think Apple will be able to make payroll this month?
    dsf3g
    • lol

      Thats a rounding error..
      Johnpford
      • But this hardly has anything to do with Samsung

        This is not the first Apple's purchase of core technology that is licensed to Samsung. Sometime ago Apple bought company that develops unique methods of flash RAM management, that is used by many flash RAM manufacturers, including Samsung. And nothing happened to Samsung's license, it was not revoked or anything.
        DDERSSS
  • Apple is clearly terrified of Samsung

    Kudos Samsung.
    toddbottom3
    • No, clearly Apple is making strategic acquisitions

      to maintain their IP portfolio, which is a business decision that many firms do, especially when they have large caches of cash just lying about. If you own a business, and have a large reserve of cash, you are going to want to do something with that cash to grow the business, or reduce costs.

      If Apple wants to start implementing bio-security in their hardware, this is a synergistic acquisition, allowing Apple to gain access to Authentec's IP and Engineers. The acquisition is cheaper than trying to develop a solution in-house.

      Samsung will likely still be able to license the IP.
      Snooki_smoosh_smoosh
    • I guess that makes Google desperate losers ....

      After all, they purchased a company that wasn't making money (working on the red for over 6 years) for more than 4 time is real value just to get 18 patents that will become obsolete in a few years.
      wackoae
  • Apple bought this to Thwart Samsung? Haha...

    I dont' think it's going to work. Samsung is on a Freight Train Right Now PWING APPLE'S FUTURE!

    This quarter when Apple had it's largest drop in iPhone sales to date, it's obvious it was Samsung single handedly taking it away from them. Samsung will reportedly sell over 50 Million Smartphones in the same 2nd quarter Apple sold only 27 Million..... doubling their sales. That's without counting GSIII sales that are just now beginning to come in. They will reportedly sell as many as 30 GSIII's this next quarter stomping the iPhone 4s single model sales record for all time and most likely topping the sales of all three models they have on market this quarter on top of that!

    Samsung says quite frankly that they could easily code and design around Apple's Patents, but it's a matter of principal. Because they'd be changing things they've been using before the iPhone even came out. They had a design patent on F700 applied for a month before iPhone even came out that shows the basic same minimalist design that we now find Apple copied from Sony! ......lamely using drawings over actual artwork cutting out the 'S' and partially cuttin out the 'O' to spell JONY (for the megalomanic alter ego of Steve Jobs)!!!
    KronJohn
    • Not being able to edit now... is ridiculous!

      That was 30 million Samsung GSIII this Quarter alone and they are obviously on target having announced before the month's end 10 Million GSIII's sold! let's see Apple sell 10 Million iPhone 4s's alone in a month? ;-P ....Apple uses massive Orwellian Doublethink to confuse and confound their true religious believers into thinking one iPhone model accounts for all their sales. Yet that's like saying 10 years of Volkswagen Bug sales should be considered and counted as what they've sold of one model, instead of breaking up the years for it's (Apple's) "seen one, seen them all" designs!!!
      KronJohn
      • Reading between the lines

        Apple is the #1 company to scrutinize now and the coming years, to copy and use ideas to not let Apple take customers without a fight.
        Apple is very difficult to compete with which is making a lot of people in the industry worry about their future.

        Am I close? :D
        Mikael_z
      • Yeah ... Samsung did this and that ....

        Samsung's numbers include everything AND the kitchen sink in the numbers. Even earnings from the super-ships they build. They don't release numbers by divisions ...

        And even with their own numbers, they made $4B in revenue, while Apple made $9B. So how is Samsung taking it away from them?
        wackoae
        • Humpty Dumpty

          Humpty dumpty sat on the wall, humpty dumpty had a great fall.

          Apple report units shipped to regional distributors, not sales from retailers. Networks and manufacturers using the Android operating system are contractually obligated to obtain sales figures from retailers. A lot of Apple sales come from their iPods and iTune profits. Let's not forget that Apple only became a profitable company because of iPods, and NOTHING ELSE.

          But if you want to report company sales, Samsung make what Apple have taken it's entire life to save up, in 2 years. Apple gross around 105 billion a year. Samsung gross over 245 billion a year.

          Having as much cash as Apple does in the bank proves that it doesn't have real business strategies. They knew they couldn't get away with stealing any more, and I'm not talking about this which phone is better or an iOS vs Android. Apple have been lying from the get go. Apples foundation is based on lies. All I'm going to say is 64bit.

          Think before you write.
          forgotmynick
  • fingerprint scanning is unreliable

    we integrated authentec fingerprint scanners ( TPW 4000 enterprise model ) into our epos system at great expense, then discovered some people had not a single digit that these things could scan. fairly useless technology in my opinion.
    armchairnavigator
  • All these buyouts dilute the concept of competition...

    The fingerprint rig company should just license its gear, sit back, and rake in the dough instead of these buyout sledgehammer anti-business tactics.

    Still, some companies try these gizmos and then dump them due to driver conflicts, conflicts with drive encryption programs, or other concerns...
    HypnoToad72
  • Smart move

    And plain good business.
    NoAxToGrind
  • Awesome!!

    I think the S in next years 5S will stand for Security. And that will be the first iPhone with a fingerprint reader :D

    That's the security ALL iPhones need!! It will be a very useful anti-theft technique! Especially in restoring the iPhone, there could be a requirement to scan your finger prior to iTunes accepting the restoring process, simply that will break the theif's heart and make the iDevice useless to them :D might even make them return it to a lost and found (2% possible :p)
    MrElectrifyer