Biometric Authentication: Headed for Wide Adoption

Transcription

1 Equity Research March 2016 Biometric Authentication: Headed for Wide Adoption Rob Stone Jim Medvedeff Please see pages 19 to 21 of this report for important disclosures.

2 Total Biometric TAM Should Top 1.5B Units by 2019, a 50%+ CAGR Fingerprint - Enabled Mobile Devices (MM units) notebook tablet low-end smartphone high/mid tier smartphone E 2016E 2017E 2018E 2019E Over 300 biometric-enabled mobile devices shipped in 2015 (excludes Apple) Fingerprint TAM to reach at least 900MM units by 2019, could exceed 1.3B Other biometrics (facial and iris recognition) should reach 600MM units Attach rates could reach 96% of high and mid-tier smartphones, 31% at the low end, 29% of PC notebooks, 24% of tablets The smart card market could reach 400MM units, second only to smartphones Source: Cowen and Company, Synaptics presentation, IDC, Gartner 2

3 Key Drivers of Biometric Adoption Multi-Factor Authentication i.e., Microsoft Surface Pro4: Fingerprint and facial Growth of Current Uses: Mobile Payments Corporate Authentication Perimeter/Access Control Healthcare Automotive: An Important New Market For Chinese Smartphones: E 36% CAGR with rising attach rate Enablers: Software, Hardware, Standards: Windows 10 Intel Authenticate FIDO Alliance PCs & Peripherals: New Machines: replace passwords for corporate sign-in on new machines Installed Base: potential to penetrate 300MM+ mice and keyboards Source: Cowen and Company, Synaptics presentation 3

4 iphone Fingerprint Sensors Enabling Secure Mobile Payments Apple Pay China Launch Highly Successful Activated 3MM cards the first two days after launch (2/18/16) Roll out included 19 banks representing 80% of domestic credit/debit cards Also supported by 16 Chinese retail chains Apple Pay Partnering with Exxon-Mobil Speedpass Rolling out to 6,000+ U.S. gas stations Utilizes GPS to identify location, camera to identify specific pump Hands free technology mainly uses face recognition for security, but additional apps being explored Source: Cowen and Company, PYMNTS.com., China Merchant Bank 4

5 Secure Mobile Payments Proliferating Beyond Apple Devices Samsung Pay A Key Player in U.S., Korea Has 5MM users in 70 U.S. and Korean banks $500MM of transactions in the first 6 months New contract with Wells Fargo lifts payment processing business to 70% of the U.S. credit/debt card industry Android Pay Making Inroads in U.S. Market Adding 1.5MM customers per month Over 2MM locations now accept it Expansion plans include more countries, retailers Hands free technology mainly uses face recognition for security, but additional apps being explored Source: Cowen and Company, Samsung, PYMNTS.com., Internet Retailer 5

6 China Mobile Penetration High; Banks, Card Companies Expanding Uses Alipay the largest payment processor in China Chinese mobile payments > $370B in Q3:15 Processed 80%+ of Chinese online transactions in 2015, 65% were on mobile devices Singles Day Global Shopping Festival processed $14B of transactions from 115MM users in one day Fingerprint Cards AB Consensus Revenue Forecast 7,889 kr 2,901 kr 234 kr 9,091 kr 10,496 kr E 2017E 2018E Fingerprint Cards AB Product Examples Bank and Card Company Examples MasterCard and Syniverse testing use of GPS to verify mobile device location as extra security layer for card transactions JPMorgan Chase includes Apple TouchID in mobile banking app Wells Fargo implementing biometric identification for corporate clients using eye scanning technology Source: Cowen and Company, Thomson 6

7 Mobile Payments Facts and Figures Factoids and Forecasts Credit card fraud cost $16.3B globally in 2014; $7.9B in the U.S. 36MM users, $27B in transactions expected in the U.S. in 2016 Mobile payment users: 1.1B in 2020 Mobile payment biometric transactions: 16B in 2020 Standards and Legislative Developments FIDO Alliance UAF Standard Password-less Experience FIDO Alliance U2F Standard Second Factor Experience IEE Biometric Open Protocol Dec U.S. House Energy & Commerce Committee preliminary review of mobile payments security Synaptics under-glass prototypes Source: Cowen and Company, PYMNTS.com., Nilson, Juniper Research, Goode Intelligence 7

8 Cowen IT Survey Shows Rapid Corporate Adoption of Biometric Authentication Technology months 9% Within 12 months 51% > 24 months 2% No plans 4% n=116 Deploying now 34% 96% are planning to deploy Semi-annual survey of North American organizations 124 total responses, primarily by C-level and senior executives, across a variety of industries, company sizes Data collected in December 2015 and January

9 Biometric Authentication Deployment: Broad and Accelerating 51% Jan (n=116) May 2015 (n=95) 41% 34% 28% 14% 9% 2% 7% 4% 10% Deploying nowwithin 12 months12-24 months > 24 months No plans 85% are deploying now or within 12 months (January 2016 survey), up from 69% in prior survey (May 2015) 11% plan to deploy beyond 12 months, down from 21% in prior survey Just 4% have no deployment plans, vs. 10% in prior survey 9

10 Windows 10 Implementation Plans Have Accelerated 65% 51% 35% 49% None/Probabl y Not 35% Corporate- Wide 18% Significant 23% Yes Jan (n=116) None/Probably Not May 2015 (n=95) Modest 23% n=116 In deployment now by 65% of survey respondents vs. 51% in prior survey Corporate-wide or significant rollouts planned by 41% of respondents, 23% plan modest deployments Being evaluated by 26%, just 9% have no plans to study or deploy 10

11 Windows 10 Key, But Not the Only Driver Extent of Planned 2016 Windows 10 Deployment Significant/ Modest None/ Weighted Corporate-Wide Rollout Probably Not Average Biometrics Now or within 12 months 92% 85% 78% 85% Deployment Beyond 12 months 6% 15% 12% 10% Timing No plans to deploy 2% 0% 10% 4% n= % of significant or corporate-wide Windows 10 rollouts to be accompanied by biometrics deployment Just 2% of significant or corporate-wide rollouts have no accompanying biometrics implementation plan 78% of firms with no plans to deploy Windows 10, are nonetheless implementing biometrics 11

12 Broader, Deeper Participation across Industries and Sectors Number of Responses Perc ent of Responses >24 No Within Beyond No Now months months months plans Total 1 year 1 year plans Financ ial Servic es % 13% 3% Industrial % 15% 3% Consumer % 5% 10% Healthc are % 8% 0% Telec om % 0% 8% Total % 10% 4% Financial Services = Banking, Insurance, Capital Markets; Industrial = Manufacturing, Energy, Natural Resources, Transportation; Consumer = Retail, Hospitality, Media/Entertainment; Healthcare = Pharmaceuticals, Payers, Providers Every sector showed at least 83% participation now or within a year, vs. 60% in prior survey At the industry level, 100% of Pharmaceutical companies are deploying now or within a year The lowest industry implementation plan for the next 12 months is 78% for Capital Markets 12

13 Accelerating Deployment Plans By Small Firms and Large Ones Alike Biometric s Deployment Timing n= < 12 months > 12 No 2015E Revenue Jan-16 May-15 Jan-16 May-15 months plans $51M-250M % 50% 10% 3% $251M-500M % 71% 13% 0% $501M % 68% 7% 14% Weighted Average % 68% 10% 4% Prior Survey 91 NA 68% NA 22% 10% 87% of smaller firms plan to deploy within 12 months, vs. 50% in the prior survey 87% of mid-size firms plan to deploy within 12 months, vs. 71% 79% of very large firms plan to deploy within 12 months, vs. 68% 13

14 Fingerprint Leads, Facial and Iris Recognition Gaining Traction 71% 79% 69% Jan (n=111) May 2015 (n=85) 55% 35% 28% 0% 1% Fingerprint Facial Iris Other 71% plan to implement fingerprint sensing, down from 79% in the prior survey 69% plan to implement facial recognition, up from 55% 35% plan to implement iris recognition, up from 28% 14

15 Dual Implementations On The Rise Responses Perc ent of Responses Finger- Fac ial Iris Total # Firms Resp. Finger- Fac ial Iris print Rec. Rec. Resp. per Firm print Rec. Rec. Financ ial Servic es % 41% 15% Industrial % 39% 20% Consumer % 36% 22% Healthc are % 36% 32% Telec om % 39% 22% Total % 39% 21% On average there were 1.78 responses per firm, up from 1.64 in the prior survey At the industry level, Pharmaceuticals average 2 implementations per firm Microsoft Hello enables easy configuration of fingerprint, facial, and iris recognition; products are already available Intel Authenticate strengthens security by capturing biometrics data in hardware rather than software 15

16 Survey Demographics Served Industry of Responding Company Manufacturing Financial Services Retail Telecom Services & Communications Healthcare Pharma Healthcare - Provider Energy & Natural Resources Hospitality Healthcare Payer Media and Entertainment Travel, Transportation, and Logistics 5% 4% 3% 2% 2% 1% 1% 10% 15% 27% 31% Surveyed companies represent a broad array of industries and sectors 0% 5% 10% 15% 20% 25% 30% 35% 16

17 Survey Demographics Role of Respondent CIO, CTO, CDO, Chief Digital Officer CEO IT Senior Management CFO Marketing Senior Management COO CMO or CMT Business Strategy Senior Management CSO 4% 3% 2% 2% 2% 9% 21% 27% 30% 0% 5% 10% 15% 20% 25% 30% 35% Respondents were CEOs and C-level or senior executives in IT, marketing, financial, and strategic planning roles 17

18 Survey Demographics Size of IT Budget 45% 40% 35% 30% 40% 43% 25% 20% 18% 15% 10% 5% 0% $51M - 250M $251M - 500M $501M or larger IT budgets of responding firms ranged from $51MM to $501MM and above 18 Powered by survey.com

19 Addendum Analyst Certification Each author of this research report hereby certifies that (i) the views expressed in the research report accurately reflect his or her personal views about any and all of the subject securities or issuers, and (ii) no part of his or her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report. Important Disclosures This report constitutes a compendium report (covers six or more subject companies). As such, Cowen and Company, LLC chooses to provide specific disclosures for the companies mentioned by reference. To access current disclosures for the all companies in this report, clients should refer to or contact your Cowen and Company, LLC representative for additional information. Cowen and Company, LLC compensates research analysts for activities and services intended to benefit the firm's investor clients. Individual compensation determinations for research analysts, including the author(s) of this report, are based on a variety of factors, including the overall profitability of the firm and the total revenue derived from all sources, including revenues from investment banking. Cowen and Company, LLC does not compensate research analysts based on specific investment banking transactions. All statements in this report attributable to Gartner represent Cowen s interpretation of data, research opinion, or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of the date of this report). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice. Disclaimer This research is for our clients only. Our research is disseminated primarily electronically and, in some cases, in printed form. Research distributed electronically is available simultaneously to all Cowen and Company, LLC clients. All published research can be obtained on the Firm's client website, Further information on any of the above securities may be obtained from our offices. This report is published solely for information purposes, and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Other than disclosures relating to Cowen and Company, LLC, the information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete statement or summary of the available data. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice. For important disclosures regarding the companies that are the subject of this research report, please contact Compliance Department, Cowen and Company, LLC, 599 Lexington Avenue, 20th Floor, New York, NY In addition, the same important disclosures, with the exception of the valuation methods and risks, are available on the Firm's disclosure website at Price Targets: Cowen and Company, LLC assigns price targets on all covered companies unless noted otherwise. The price target for an issuer's stock represents the value that the analyst reasonably expects the stock to reach over a performance period of twelve months. The price targets in this report should be considered in the context of all prior published Cowen and Company, LLC research reports (including the disclosures in any such report or on the Firm's disclosure website), which may or may not include price targets, as well as developments relating to the issuer, its industry and the financial markets. For price target valuation methodology and risks associated with the achievement of any given price target, please see the analyst's research report publishing such targets. Notice to UK Investors: This publication is produced by Cowen and Company, LLC which is regulated in the United States by FINRA. It is to be communicated only to persons of a kind described in Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order It must not be further transmitted to any other person without our consent. Copyright, User Agreement and other general information related to this report 2016 Cowen and Company, LLC. Member NYSE, FINRA and SIPC. All rights reserved. This research report is prepared for the exclusive use of Cowen clients and may not be reproduced, displayed, modified, distributed, transmitted or disclosed, in whole or in part, or in any form or manner, to others outside your organization without the express prior written consent of Cowen. Cowen research reports are distributed simultaneously to all clients eligible to receive such research reports. Any unauthorized use or disclosure is prohibited. Receipt and/or review of this research constitutes your agreement not to reproduce, display, modify, distribute, transmit, or disclose to others outside your organization the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets). All Cowen trademarks displayed in this report are owned by Cowen and may not be used without its prior written consent. Cowen and Company, LLC. New York (646) Boston (617) San Francisco (415) Chicago (312) Cleveland (440) Atlanta (866) London (affiliate) COWEN AND COMPANY RATING DEFINITIONS Cowen and Company Rating System effective May 25, 2013 Outperform (1): The stock is expected to achieve a total positive return of at least 15% over the next 12 months 19

20 Market Perform (2): The stock is expected to have a total return that falls between the parameters of an Outperform and Underperform over the next 12 months Underperform (3): Stock is expected to achieve a total negative return of at least 10% over the next 12 months Assumption: The expected total return calculation includes anticipated dividend yield Cowen and Company Rating System until May 25, 2013 Outperform (1): Stock expected to outperform the S&P 500 Neutral (2): Stock expected to perform in line with the S&P 500 Underperform (3): Stock expected to underperform the S&P 500 Assumptions: Time horizon is 12 months; S&P 500 is flat over forecast period Cowen Securities, formerly known as Dahlman Rose & Company, Rating System until May 25, 2013 Buy The fundamentals/valuations of the subject company are improving and the investment return is expected to be 5 to 15 percentage points higher than the general market return Sell The fundamentals/valuations of the subject company are deteriorating and the investment return is expected to be 5 to 15 percentage points lower than the general market return Hold The fundamentals/valuations of the subject company are neither improving nor deteriorating and the investment return is expected to be in line with the general market return Cowen And Company Rating Definitions Distribution of Ratings/Investment Banking Services (IB) as of 12/31/15 Rating Count Ratings Distribution Count IB Services/Past 12 Months Buy (a) % % Hold (b) % % Sell (c) % % (a) Corresponds to "Outperform" rated stocks as defined in Cowen and Company, LLC's rating definitions. (b) Corresponds to "Market Perform" as defined in Cowen and Company, LLC's ratings definitions. (c) Corresponds to "Underperform" as defined in Cowen and Company, LLC's ratings definitions. Note: "Buy", "Hold" and "Sell" are not terms that Cowen and Company, LLC uses in its ratings system and should not be construed as investment options. Rather, these ratings terms are used illustratively to comply with FINRA regulation. 20

21 Points Of Contact Analyst Profiles Robert W. Stone Boston Rob Stone is a senior analyst covering additive manufacturing and digital media. He has been named six times in the WSJ Best on the Street. James Medvedeff, CFA Boston james.medvedeff@cowen.com James Medvedeff is an associate covering additive manufacturing & digital media. He joined Cowen in 2010 with an MA in economics. Reaching Cowen Main U.S. Locations New York 599 Lexington Avenue New York, NY Boston Two International Place Boston, MA Cleveland Detroit Road Suite 100 Rocky River, OH San Francisco One Maritime Plaza, 9th Floor San Francisco, CA Atlanta 3399 Peachtree Road NE Suite 417 Atlanta, GA Chicago 181 West Madison Street Suite 3135 Chicago, IL International Locations Cowen International Limited Cowen and Company (Asia) Limited London 1 Snowden Street - 11th Floor London EC2A 2DQ United Kingdom Hong Kong Suite 1401 Henley Building No. 5 Queens Road Central Central, Hong Kong Cowen and Company 21