Apple Acquires AuthenTec... and Its Sizeable Business in Secure DRM Clients for BYOD
Apple announced today its intended acquisition of Authentec for $356 million – a valuation of nearly 7x over fiscal year 2011 revenue. Interestingly, although the acquisition is being highlighted in terms of AuthenTec’s flagship business in fingerprint scanning and touch sensor technology for security of mobile computers, revenue growth for this side of the business has been falling. On the other hand, revenues for the company’s embedded business more than doubled from $12.5 million in fiscal year 2010 to $25.3 million in fiscal year 2011. Margins for embedded are at an impressive 83% for 2011, up from 2010, while the margins for hardware-based smart sensor solutions came in at 36%, down slightly from 2010.
Part of Authentec’s embedded security products include DRM solutions based on OMA and PlayReady DRM for Android and iOS devices. Customers for Authentec’s multi-platform DRM Fusion products include Japan’s largest cable provider J:COM , Cyfra+ (part of CANAL+) in Europe, Pantech – among Korea’s top three mobile handset makers, and Samsung. Growth is fed by the soaring adoption of personal computing devices on the one hand, and massive global investment in TV Everywhere offerings on the other.
OTT and ubiquitous video offerings are becoming a must-have component for any online video offering. At the same time, video is becoming the killer application for a range of high-performing handheld and portable devices, and secure DRM clients are required to receive and render high-quality premium content on such devices. Thus, a range of companies from traditional conditional access systems (CAS) vendors to vendors of home media gateways, set top boxes, embedded operating systems and CE devices are either developing their own software DRM technology or acquiring established vendors of software DRM clients. Examples include Irdeto’s acquisition of Cloakware, Motorola’s acquisition of Secure Media, Google’s subsequent acquisition of Motorola Mobility and also Widevine, and Cisco’s recent acquisition of NDS. Microsoft is an interesting outlier, with its own PlayReady DRM as well as a rich ecosystem of third party solution and component providers. Apple’s acquisition of AuthenTec is interesting, then, not just for the well publicized enterprise security possibilities, but also because it is the latest twist in a long-running chain of interesting merger, acquisition and strategy stories in the conditional access and DRM space. AuthenTec has a significant range of offerings for Google's Android which competes directly with Apple in the smartphone and living room TV spaces. It also offers strong support for Microsoft's PlayReady which has significant market share and forms the heart of secure SmoothStreaming services which compete with Apple's media streaming alternatives.
As a result, this acquisition is likely to cause far reaching ripples and changes in competitive landscape for a wide range of vendors and applications. Does this finally place Apple within reaching distance of the maturity and reach that Microsoft and Google have with their IPTV middleware platforms and OTT TV solutions - which might well justify the high premium Apple is paying for the company? Does this create new opportunities for competitors like Discretix who also offer strong multi-DRM solutions for a range of mobile platforms? Or will Apple simply focus on the enterprise security portions of AuthenTec as expected, and spin off the DRM unit to a vendor of set top box middleware or hardware conditional access systems? Time will tell.