AuthenTec (NASDAQ: AUTH), the world’s leading provider of fingerprint sensors and solutions to the PC, Wireless and Access Control markets, released their Q3/2008 earnings and held their analyst conference call Thursday, October 30th after the market closed.

After the mid-quarter update that AuthenTec abruptly held, there were many questions that needed to be answered about AuthenTec’s business going forward.

While Q3’s results were ahead of expectations, AuthenTec’s guidance for Q4, coupled with their already lowered guidance for all of 2009, inclusive of a significant customer loss, still call into question whether or not AuthenTec has the viability and products to succeed without being folded into another company as part of a larger pie.

However, that being said, AuthenTec’s earnings release and subsequent conference call where decidedly upbeat in relation to their previous mid-quarter call announcing a significant customer loss as well as lowered guidance.

What follows is a summary of AuthenTec’s earnings announcement, conference call highlights, and my take on the company’s latest quarter and results, and what you should do if you own AuthenTec.

New to the AuthenTec story? 

AuthenTec, Inc. is a fabless mixed-signal semiconductor company that provides fingerprint authentication sensors and solutions to the high-volume personal computer (PC), wireless device, and access control markets.

AuthenTec offers a range of fingerprint sensors that enable users to access and control multiple functions on an electronic device by touching or sliding their finger across the sensor.

The company’s fingerprint sensors utilize unique information in fingerprints to verify the identity of the individual, as well as the unique, individual fingers on the same person.

With more than 35 million sensors sold worldwide, AuthenTec’s award-winning sensors take full advantage of The Power of Touch® by utilizing the company’s patented TruePrint® technology to deliver the most convenient, reliable and cost-effective means available for enabling touch-powered features that extend beyond user authentication.

These sensors are used in various applications related to security, password replacement, financial transaction authentication, and personalization applications.

The company’s products are used in a range of PC products and related peripherals, including laptops, desktops, memory keys, hard drives, keyboards, mice, and other devices.

In addition, AuthenTec’s products also integrate into various wireless devices, such as mobile phones, and personal digital assistants and personal navigation device, as well as access control devices comprising door locks, time and attendance devices, and remote wireless entry keys.

AuthenTec primarily offers its products to original equipment manufacturers, original design manufacturers, and contract manufacturers and sells its products through a direct sales force, a network of independent sales representatives, and distributors.

Want More?

• Start: with my initial company overview here.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Q3 was good, beats estimates
• Other Business Highlights: Lower Q4 guidance, 2009 might be better than thought
• Conference Call Highlights: Customer loss impact, Economic Impact
• Bottom Line: Nothing’s Changed: AuthenTec Still a HOLD with some upside from here

Hit Me With Some Numbers

AuthenTec Beats Estimates, Lowers Guidance, Margins Decline

Here are some of AuthenTec’s earnings highlights (growth from previous year’s Q3/analyst’s estimates where applicable):

• Quarterly sales of $18.4 million (up 22% from prior year/vs. $18.32 million projected by analysts)
• Non-GAAP quarterly income of $1.4 million, or $.05 per share (up 62% from $.86 million, or $.03 per share in the prior year/vs. $.03 per share projected by analysts)
• GAAP quarterly income of $.55 million, or $0.02 per share (up from $.52 million, or $02 per share in the prior year)
• Gross margin of 47.4% (down from 47.6% from prior year, and down sequentially from 48.5% in Q2/2008, and 49.6% in Q1/2008)

My Take: While this quarter was solid, our concern largely lies with the future, not the past.

Taking that into consideration, we see that AuthenTec has a disturbing trend of decreasing margins quarter over quarter, and year over year. AuthenTec attributes this to the ramping up of a new wireless packaging technology and the manufacturing inefficiencies that come with it.

Oh, and one more note: This year’s Q3 contained one extra week that was not included in the previous year’s results, goosing AuthenTec’s numbers.

This speaks to the problems that they are facing within their industry, as well as the overall market forces which are forcing their largest customers to delay or cut back on their purchases from AuthenTec entirely.

I’ll go into more detail below.

Other Business Highlights

Lower Guidance, Slowing Business Trends

• Q4/2008 revenue expected to range from $12.5 million to $13.5 million ($13.0 million midpoint) vs. analyst’s estimates of $17.85 million.
• Q4/2008 non-GAAP loss per share to range between (-$0.01 and -$0.03) in the fourth quarter vs. analyst’s estimates of $.02 per share profit.
• For the entire fiscal year of 2008, AuthenTec is projecting sales of about $65 million, vs. analyst’s estimates of $70.1 million.
• Operating expenses as a percent of revenue decreased to 47.1% from 49.53% in the year-ago quarter.
• Margins expected to range from 47-49% for the rest of 2008 because of the ramp-up of new chips with lower yields and inefficiencies typical of new product introductions and scaling.
• Operating cash flow: $1.9 million
• Ended Q3/2008 with approximately $67.8 million in cash and investments vs. $66.6 in Q2/2008
• Capital Expenditures (CAPEX) were $295,000 in Q3.
• Inventory was $6.9 million which represented 69 days on hand, compared to Q2/2008 which was $7.0 million or 68 days on hand.
• Sales breakdown was as follows: PC segment about 85% of total sales, Wireless segment about 10% of total sales, and Access Control was about 5% of total sales.

My Take: Revenue guidance was chopped significantly for Q4, largely due to the macroeconomic environment, but not, according to AuthenTec, as a result of customer or market share losses.

It appears that large OEM’s and ODM’s are scaling back their orders from AuthenTec as they attempt to work through the inventory that they have on hand right now.

In fact AuthenTec’s competitors, such as rival Atmel Corp. (NASDAQ: ATML), are experiencing the same declines in consumer demand, and OEM and ODM push-through.

I will say that AuthenTec has successfully battened down the hatches, and is conserving cash well, and even had a large cash surplus this quarter when many companies are having trouble staying afloat.

With the coming turbulence ahead, AuthenTec is going to need this extra cash.

Now let’s take a look at the analyst conference all highlights and management’s discussion of the business.

Pages: « previous page 1 2 3next page »

Rate this article: (1 votes, average: 5 out of 5)

 Loading ...

 email to a friend