Google (NASDAQ:GOOGL) (NASDAQ:GOOG) announced Android Pay at Mobile World Congress on Monday. Android Pay is a mobile-payments platform that makes it easier for smartphone makers to implement mobile payments using things like biometric fingerprint scanners similar to Apple (NASDAQ:AAPL) Pay's mechanism.
The same day, Samsung (OTC:SSNLF) unveiled its new flagship smartphone, the Galaxy S6. The new phone design incorporates a fingerprint scanner that functions similarly to Apple's TouchID scanner, and is integrated with Samsung's new payments platform, LoopPay.
The company behind Samsung's new fingerprint scanner is Synaptics (NASDAQ:SYNA), and the new area sensor it produced could drive significant revenue growth at the touch-sensor company.
Getting more revenue from Samsung
The most straightforward benefit for Synaptics getting its new fingerprint sensor into Samsung's flagship device is that it brings in more revenue per unit. Pacific Crest analyst John Vinh estimates the new chips will cost Samsung $3.50 versus the $2.00 it paid Synaptics for its swipe sensors last year.
With sales of the Galaxy S6's predecessor being disappointing, that design win alone might not be that noteworthy. Last year's Galaxy S5 sold 40% fewer units than expected in its first six months. While most people expect a bounce-back in sales this year, a few million dollars in extra revenue isn't a big game changer for Synaptics, which is expected to generate $1.7 billion in revenue for its fiscal year ending in June.
The upside is that Samsung is still the largest smartphone maker in the world, and could include the new fingerprint sensor in more of its smartphones this year with the introduction of its LoopPay mobile-payments platform. Samsung sold more than 300 million smartphones in 2014, according to Gartner. If a modest one-quarter of its phones are high-end devices receiving an upgraded fingerprint sensor, that's a $125 million incremental opportunity for Synaptics.
The big opportunity with Android Pay
The introduction of Android Pay gives other smartphone makers a compelling reason to add biometric sensors to their devices. So far, fingerprint sensors have remained relatively niche, with the implementation hard to pull off. The swipe sensor simply didn't provide the same utility as Apple's TouchID scanner built into the home button. Samsung's new implementation of Synaptics' area sensor shows that it's possible to emulate Apple's design.
As such, investors should expect fingerprint sensor sales to ramp up over time. Indeed, Synaptics CEO Richard Bergman told analysts on the company's most recent earnings call, "expect the pace to pick up over the course of the year." Bergman didn't offer any details on potential design wins, though.
As more uses for biometric authentication come out besides unlocking devices, Synaptics will see sales of its fingerprint sensors grow. Android Pay may be just the start.
At the very least, Synaptics is poised to benefit from companies that want to imitate Apple. (Cough, Xiaomi, cough, cough.)
What this means for investors
Synaptics won't be without competition in the fingerprint sensor area, but the design win in Samsung's Galaxy S6 is an excellent start to taking a big piece of the market. Synaptics is relying on fingerprint sensors for a large portion of its growth as the PC market remains flat, and Synaptics is looking for ways to increase its average content and component prices for laptops and two-in-ones.
Analysts currently expect Synaptics to grow revenue nearly 20% in fiscal 2016 on top of its expected 79% revenue growth in 2015. In order to reach that level, it will need more than a few design wins with Samsung. There are several trends working in its favor, though, including mobile-payment platforms like Android Pay.