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Apple's AuthenTec Deal May Truly Trouble Competition

By Richard Adhikari MacNewsWorld ECT News Network
Jul 30, 2012 5:00 AM PT

Apple wants to purchase security product maker AuthenTec for about US$360 million through a subsidiary, Bryce Acquisition.

Apple's AuthenTec Deal May Truly Trouble Competition

AuthenTec filed a Form 8-K with the United States Securities and Exchange Commission detailing the terms of the proposed purchase.

AuthenTec's users include Apple arch-rival Samsung, HP, and Portugal Telecom. The potential impact of the purchase on them might be huge, but remains a matter for speculation at present.

"This [technology] will first go into tablets and laptops to conform with business offerings, and, second, become a weapon in [Apple's] ongoing battles with a variety of companies, but mostly Samsung," Rob Enderle, principal analyst at the Enderle Group, suggested.

However, "I don't see Apple wielding this acquisition in any competitive way through raising fees or restricting licenses or trying to get a hammerlock on carriers," said Carl Howe, a vice president at the Yankee Group.

Key Terms

The purchase is subject to the usual regulatory oversight and rules, as well as a vote by AuthenTec shareholders.

Termination of the agreement by either side because of regulatory issues will require Apple to pay AuthenTec a termination fee of $20 million.

If AuthenTec accepts a superior proposal from a third party, it will have to pay Apple about $11 million.

Apple will pay AuthenTec a further $20 million for the right to acquire non-exclusive licenses and certain other rights.

Cupertino will have 270 days from July 26, when both parties signed an intellectual property (IP) agreement, to decide whether to license certain hardware and software technology on a perpetual, non-exclusive basis. If it decides to go ahead, it will pay AuthenTec a total of up to $115 million.

AuthenTec will perform one-time work on product development for Apple as an independent contractor. Cupertino will pay up to $7.5 million for this, and will own the resulting IP.

Apple probably wants "to build a simple, highly secure identity verification for mobile payments," the Yankee Group's Howe told MacNewsWorld. "This type of technology is already widely used in Japan."

What AuthenTec's About

AuthenTec offers encryption technology, fingerprint sensors, and identity management software. Its products are deployed by leading companies in the mobile device, networking and computing, and content and service provider industries, as well as governments worldwide.

Top-tier customers include Alcatel-Lucent, Cisco, Fujitsu, HBO, HP, Lenovo, LG Electronics, Motorola, Nokia, Orange, Samsung, Sky and Texas Instruments.

Possible Reaction From the Competition

Earlier this month, Samsung signed a deal to include AuthenTec's virtual private network security in its new Android smartphones and tablets.

Meanwhile, Alcatel-Lucent and AuthenTec signed a deal earlier this week with Portugal Telecom that will let the latter securely deliver mobile video to Android and Apple smartphone and tablet users.

Apple's purchase of AuthenTec might impact these contracts. Samsung and Apple's other competitors will "probably not" want to continue using AuthenTec's technology after the purchase goes through, Enderle said. However, that "would be a mistake."

Samsung "politely declines to comment" on the deal, company spokesperson Makenzie Blythe told MacNewsWorld.

One Security Ring to Rule Them All?

Apple's not likely to restrict the competition from using AuthenTec's technology if the purchase goes through.

"If everyone uses it, millions of devices can have it, and it can become a de facto standard," Maribel Lopez, principal analyst at Lopez Research, told MacNewsWorld.

"I suspect Apple may try to encourage the use of this technology as a standard means of authentication, with fair and reasonable licensing, because getting a penny per transaction done by 5 billion phones around the world is worth more to Apple than getting a dollar for every iPhone it sells," the Yankee Group's Howe opined.

On the other hand, "Apple is very protective of technology they own," Enderle told MacNewsWorld, and it's not likely to license out technology to other companies.

Samsung and other companies "are likely to try and block" the purchase, possibly through lawsuits, Enderle speculated.

Apple did not respond to our request to comment for this story.

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