Apple Inc.
(
AAPL
) recently announced its intention to acquire Melbourne,
Florida-based mobile and network security provider
AuthenTec Inc.
(
AUTH
) for approximately $356.0 million in cash. According to the 8K
filing, Apple is paying $8 per share, a 58% premium over
Authentec's closing price of $5.07 on July 26, 2012.
Under the terms of the agreement, Apple will pay another $20.0
million to acquire certain non-exclusive licenses of AuthenTec. The
iPhone maker also has the option to pay around $115.0 million for
certain patent licenses within the next nine months. In addition to
these, Apple will pay $7.5 million to develop a 2D fingerprint
sensor compatible with its products going forward.
AuthenTec develops fingerprint and area sensors, software for
identity management and e-commerce solutions, and embedded security
solutions for network and mobile security systems. The company has
a long list of clients,including the likes of
Dell Inc.
(
DELL
),
Hewlett-Packard
(
HP
), Lenovo, Asus,
Cisco
(
CSCO
),
Nokia
(
NOK
) and
Texas Instruments
(
TXN
). AuthenTec earned $69.8 million in fiscal 2011.
We believe that the acquisition is consistent with Apple's
strategy of acquiring small start-ups, which have historically been
essential to its business growth. The acquisition will help Apple
to offer a more secure mobile commerce platform built on near-field
communication ("NFC") technology. AuthenTec recently introduced its
first smart sensor for the NFC mobile commerce market.
We believe that the acquisition will provide Apple a significant
competitive edge over
Google's
(
GOOG
) Android and
Microsoft's
(
MSFT
) Windows Mobile operating systems, which have been susceptible to
security threats owing to the weaknesses in NFC technology.
Moreover, the improved security features will also help iPhone to
take enterprise market share particularly from
Research In Motion's
(
RIMM
) BlackBerry smartphone.
Following the news of the takeover, AuthenTec shares jumped 66%
to close at $8.42 on July 27, fueling expectations for a higher
bid, particularly from Samsung, which recently entered into an
agreement with AuthenTec to use its VPN technology for its
devices.
We believe that a hostile bid from Samsung is possible given the
fact that the Korean handset maker is focused on enhancing the
security features of its product lines in order to maintain its
lead over Apple.
According to IDC, Samsung maintained its #1 position in the
smartphone market in the second quarter of 2012. The company
shipped 50.2 million smartphones in the quarter compared to Apple's
26.0 million. Moreover, the companies are fighting each other in
court over design and software patents. We believe that a bid for
AuthenTec will further increase hostility between the two companies
going forward.
Apple has been a leader in the technology space and has always
wooed its investors with its innovative product line. However,
stiff competition, the overcrowding in its major markets and
increasing legal complexities are the main concerns going
forward.
Currently, Apple has a Zacks #3 Rank, which implies a Hold
rating over the short term.
APPLE INC (AAPL): Free Stock Analysis Report
AUTHENTEC INC (AUTH): Free Stock Analysis
Report
CISCO SYSTEMS (CSCO): Free Stock Analysis
Report
DELL INC (DELL): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
Report
HELMERICH&PAYNE (HP): Free Stock Analysis
Report
MICROSOFT CORP (MSFT): Free Stock Analysis
Report
NOKIA CP-ADR A (NOK): Free Stock Analysis
Report
RESEARCH IN MOT (RIMM): Free Stock Analysis
Report
TEXAS INSTRS (TXN): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research