This Small Company Is Trying to Democratize Apple's Touch ID

This small company is looking to profit handsomely from the democratization of Touch ID-like fingerprint readers.

Jun 29, 2014 at 6:30PM

When Apple (NASDAQ:AAPL) first launched the iPhone 5s, one of the key features of the new phone was that it sported a very robust fingerprint sensor built right into the iconic home button. At first, people were skeptical -- fingerprint readers aren't anything new and, particularly in notebooks, weren't always the most user friendly. However, Touch ID's simplicity was a game changer.

As is always the case with any technological innovation, there's one small company that's aiming to bring Touch ID to the masses.

Touch ID for everybody?
If you've been following tech stocks, you'll note that Synaptics (NASDAQ:SYNA), a leading vendor of touchpad and touchscreen sensor solutions, has been on an absolute tear.

A not-so-insignificant part of the company's recent outperformance (the company guided up for the current quarter) has been due to its very timely acquisition of Validity Sensors, a small fingerprint sensor solution provider very similar to AuthenTec, which Apple acquired in 2012 for $356 million.

Synaptics' new fingerprint sensors scored a nice design win in the Samsung (NASDAQOTH:SSNLF) Galaxy S5 and, more recently, Samsung's recently announced Galaxy Tab S series of tablets.

This is just the beginning of a long, rich roadmap of products, according to Synaptics' CFO Kathleen Bayliss (emphasis mine):

This is the roadmap. We're basically providing slide sensor solutions today in notebooks; we are the provider in the marketplace today for notebooks. In mobile phones [there is] also [a] slide-based solution. Our small area touch solution, where you touch your mobile phone, we expect to see that shipping in the second half of this calendar year.

The swipe sensor found on the Galaxy S5 and Galaxy Tab S is better than no sensor at all, but many seem to prefer Apple's Touch ID. With Synaptics rolling out is own home-brew version of Touch ID, a broader number of handset vendors will be able to integrate this functionality into their devices.

Samsung, locked in a perpetual competition with Apple for high-end smartphone share, should be pleased..

Great for Synaptics, but what about Apple?
As the handset market looks to differentiate further, Synaptics appears to be in the driver's seat for even more content share gains. It's not inconceivable that, in three to five years, most smartphones will come with a Touch ID-like fingerprint reader, further democratizing key high-end smartphone features today. The market seems to agree, as Synaptics shares are trading near all-time highs.

For Apple investors, the question becomes a bit trickier. The unfortunate reality for Apple is that any technological leap or innovation -- the smartphone, 64-bit apps processor, touch sensor, and app store -- can and will be copied by others looking to profit from the democratization of this technology.

This means that Apple needs to not only deliver a better, more refined experience than its competitors, but it also needs to stay a step ahead with respect to technological and feature innovation. This isn't impossible, but it gets harder with each generation.

Foolish bottom line
For Synaptics investors, this couldn't be more welcome news. The company is firing on all cylinders, benefiting from both the secular growth of the smartphone market while at the same time continually expanding its content share within those devices. Further, at just 21 times this year's expected earnings and 18 times expected 2015 earnings, the stock isn't exactly expensive.

For Apple, though, this is an illustration of why investors are probably shy about paying a high multiple for the stock. As great as Apple is, there is always the looming risk that it will eventually not be able to stay far enough ahead of the low end to command the margins, pricing premium, and volumes that it enjoys today.

Leaked: Apple's next smart device (warning -- it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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