Inside to acquire Embedded Security Solutions
Inside Secure has entered into an agreement to purchase Embedded Security Solutions (ESS), AuthenTec’s business which designs and develops encryption-related security hardware intellectual property (IP) and software for a variety of industries, including the mobile and networking markets. The transaction is expected to close before the end of 2012 subject to certain customary closing conditions. The Supervisory Board of Inside Secure has unanimously approved the transaction. At closing, Inside Secure will pay US$ 38 million (EUR 28.7 million) in cash subject to a working capital adjustment, and up to an additional US$ 10 million (EUR 7.6 million) subject to completion of certain post-closing transactions. Inside says the transaction is expected to be accretive to its 2013 adjusted operating and net results, and to enhance the company’s gross margin.
AuthenTec activities are organized along four business lines:
- Embedded Security (ESS),
- Touch Chips,
- Smart Sensors,
- Identity Management.
Apple is in the process of acquiring the AuthenTec (cf. Smart Insights Weekly #12-37), for a total consideration of US$ 356 million (EUR 278 million). Apple has already announced that the company planned to cut off all non-Apple customers sometime in 2013 (cf. SIW 12-40).
As a consequence, parts of AuthenTec which are not Apple’s primary target are held for sale.
The ESS portfolio offer includes a comprehensive suite of embedded security solutions which include semiconductor IP, security toolkits and DRM solutions that address both client- and server-side security.
The solutions are centered on the use of encryption algorithms and security blocks to protect data and ensure confidentiality, integrity and availability. ESS offers three product lines: a Content Protection product line, a Security Toolkit product line and a Semiconductor IP product line.
With this acquisition,
- ESS brings to Inside Secure complementary offerings for a complete security architecture, as well as additional solutions for securing both content (Digital Rights Management or “DRM”) and data exchange (Virtual Private Network or “VPN”),
- ESS complements Inside Secure’s know-how with a talented team of 79 qualified employees located in Europe, Asia and in the US, as well as its security intellectual property and technology portfolio, which aligns with Inside’s long-term strategy to generate its own IP licensing revenue,
- This acquisition will allow Inside Secure to access a wider customer base in the mobile, content provider and network industries that serve a variety of application markets (smart grids, automotive, gaming and others),
- By leveraging the strong capabilities of Inside Secure’s existing Mobile NFC and Digital Security businesses, the combined offer should lead to additional sales in high growth markets.
ESS products are used in hundreds of millions of mobile and networking products to ensure data privacy for businesses and individuals, and are sold to a variety of Tier-one brand name customers, such as Alcatel-Lucent, Cisco, HBO, LG, Motorola, Nokia, Samsung, Sky and Texas Instruments. ESS recorded net revenue of US$ 25.3 million (EUR 19.1 million) in 2011, with gross margins exceeding 90% and operating income of US$ 6.3 million (EUR 4.8 million). For the first nine months of 2012, the net revenue was US$ 21.4 million (EUR 16.2 million) and the operating income US$ 6.2 million (EUR 4.7 million). Over 80% of ESS revenue is generated from licenses and recurring royalties.
With this acquisition Apple’s strategy becomes somewhat clearer: Apple plans to retain ownership of, and make use of, AuthenTec fingerprint sensors and identity management solutions, including NFC expertise, in future devices.
Adrian Kingsley-Hughes, from ZDNet, adds: Apple “Passbook is interesting on its own, when combined with NFC technology it becomes much more compelling. It eliminates the hassle of having to dig out the iPhone, search for the right card or ticket and then scan the screen. To date, NFC has been a solution looking for a problem to solve. Apple's way of leveraging technology through apps could give it relevance.”