How Smartphones Are Beefing Up Their Security Efforts

Abstract rendering of cybersecurity and technology
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Over the last year, cybersecurity has once again frequently dominated headlines as well as boardroom conversations and investor focus. The main driver behind that focus includes the increased number of cyberattacks as bad actors capitalized on the sudden pandemic-induced shift to work-from-home. December saw particular focus as it was revealed that a high-profile attack on SolarWinds (SWI) had compromised up to 300,000 SolarWinds clients including a number of blue-chip companies and many highly sensitive government agencies as well as ensnaring FireEye (FEYE) and Microsoft (MSFT).

While attention understandably has been on protecting corporate networks and their crown jewels, access to those networks and in turn device security are areas not to be overlooked, especially given the smartphone’s role in our digital lifestyles and its growing function as the default tool for two-factor authentication (2FA).

Today’s smartphone is a connected hub that allows users to not only communicate – be it via voice, text, or emoji – but also to shop, stream, invest, transact, control their home and soon, sync with their connected car with apps such as Apple’s Care Key feature. In addition to access and control of other connected devices, the apps on those devices house and offer access to financial and other sensitive information.

For example, according to data published by Juniper Research, the total number of online and mobile banking users will exceed 3.6 billion by 2024, but the number of mobile banking users surpassed the number of online banking users in 2018 – two years earlier than anticipated.

Much has been made lately about Apple’s efforts to improve iPhone user privacy, but when it comes to device security, we are poised to see a new twist on an old solution. Combined with the ramp in 5G smartphone volumes, it’s another reason why chip companies catering to the smartphone market should be in an investor’s portfolio.

A short recap of smartphone security

On its website, Verizon has 8 Common-Sense Tips to Keep Your Smartphone Secure, which includes using a personal identification number (PIN), password, or pattern to lock one’s device. Those solutions are holdovers from mobile phones but have a number of limitations, including the ability of others to read your PIN or password as you enter it.

In a bid to address this shortfall, in 2012 Apple acquired fingerprint sensor and scanning company AuthenTec, whose solutions read the image of a fingerprint and detected motion and patterns and had been embedded into laptop computers from the likes of HP and others. In 2013, Apple introduced its first generation of Touch ID technology with the debut of its iPhone 5S, which was followed by its second generation in 2015 with the iPhone 6S which saw the functionality expanded to include authenticating App Store purchases and Apple Pay. In 2016, Touch ID arrived in Apple’s MacBook products so when a user set up their iPhone or MacBook, they would be asked to place a finger on the Touch ID sensor to record their fingerprint. That information was stored locally in a secure enclave on the Apple A7 and later chips, not in the cloud, a design choice intended to make it impossible for users to externally access the fingerprint information.

At the time, Touch ID was praised as another layer of biometric security for the iPhone but one notable drawback was the fingerprint sensor was housed solely in the iPhone’s home button. To be fair, Apple wasn’t the only company to utilize fingerprint recognition technology to secure their smartphones but when a company has an installed user base the size of Apple’s, every move gets noticed.

In 2017, Apple introduced Face ID with the iPhone X which utilized facial recognition technology to both unlock the device and authenticate transactions across a variety of apps. Face ID technology works by taking a 3D scan of your face from all angles during the device's set up, which is, like the fingerprint information, saved inside the device’s secure enclave hardware chip and references it when you want to unlock your phone or authenticate a transaction. The “magic” behind Face ID and its 3D facial mapping includes a dot projector, traditional front-facing camera, flood illuminator, and infrared camera. According to Apple, the probability of someone else unlocking a phone with Face ID is 1 in 1,000,000 as opposed to Touch ID at 1 in 50,000 (unless you happen to have a mischievous identical twin, which has been proven).

Recently at CES 2021, Qualcomm (QCOM) introduced its Qualcomm 3D Sonic Sensor Gen 2, an under the display fingerprint sensor solution that is 77% larger and offers 50% faster performance compared to the first generation. The solution’s appeal lies in eliminating the need for an additional bezel around the display while still retaining biometric security at the front of the device. The new Qualcomm sensor is expected to land in high-end Android smartphones this year, which is likely to foster a number of model upgrades given various in-display reader types have been in several smartphone models from Samsung, Huawei, Oppo, and Xiaomi.

We would argue that one of Apple’s skills when it comes to introducing new technologies to its product line is its ability to gauge the landscape, while another is to leverage its hardware and software ecosystem. In the past, that has made Apple a company that brings about a tipping point in new smartphone technologies and it should come as little surprise that it too is working on bringing Touch ID back to the iPhone with its own in-screen fingerprint technology. Should Apple move to bring Touch ID back (perhaps in the iPhone 13?), it could very well have its own two-factor authentication process for iPhone, a move that would likely jive with the company’s overall stance on privacy.

If history holds, it will likely mean the larger smartphone market will incorporate in-display fingerprint technology in their new smartphone models. That would be a boon to not only Qualcomm but others, such as Synaptics (SYNA), that have competing solutions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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