Apple Jettisons Some Dead Weight

Investors love to speculate on Apple (NASDAQ: AAPL  ) and acquisitions. After all, with over $121 billion in cash on the books, there's not a whole lot Apple couldn't do with all that money. Still, investors well acquainted with Apple's acquisition strategy will tell you that the company doesn't buy companies for their actual business operations -- Apple just wants their technology.

At AllThingsD's D10 conference earlier this year, Tim Cook explicitly said that Apple has never bought a company for its revenue stream. That's why most of the company's pickups are fairly small, typically $500 million or less, and focus on highly specialized technology that can be integrated into future products.

So when Apple acquired AuthenTec over the summer for $356 million, there were only a few possibilities of what it was after. It's not as if Apple saw AuthenTec's $38 million in revenue through the first half of the year, got green with iEnvy, and figured those sales would add nicely to its own $74.2 billion in revenue over the same time. I don't think investors would have noticed the extra revenue on the top line.

The small company's offerings included smart sensors like fingerprint modules, embedded security software and IP, and identity management software. Some of AuthenTec's customers included Apple rivals like Samsung, Lenovo, LG, Nokia (NYSE: NOK  ) , Hewlett-Packard (NYSE: HPQ  ) , Dell (UNKNOWN: DELL.DL  ) and Motorola.

For example, HP and Dell both offered various notebook models with AuthenTec fingerprint sensor modules built in, as did some of Samsung's Galaxy gadgets. I say "offered" (past tense) because a couple months ago AuthenTec notified many of these customers that they would need to find their fingerprint sensor fixes elsewhere starting next year, as it was ceasing sales.

AuthenTec has subsequently also killed off sales of its identity management products.

Source: AuthenTec.

The company is now selling off the embedded security solutions, or ESS, business to Inside Secure for $48 million. The acquirer said that the ESS business will fit well with its mobile near-field communications and digital security segments. That's good news for some ESS customers like Motorola and Nokia, since they won't be left scrambling for a new provider (like HP and Dell).

Apple has now axed or jettisoned the parts of AuthenTec that it had no interest in, leaving the fingerprint technology that will inevitably be how future iPhones know who you are.

There is absolutely no argument that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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  • Report this Comment On November 19, 2012, at 9:46 PM, chinaman8 wrote:

    thanks Evan for the good, original article

    $356 million is a lot to pay for that small feature

  • Report this Comment On November 21, 2012, at 2:53 AM, lowmaple wrote:

    What will that one small feature be worth on every iPhone in the next ten years?

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