Heard from the buy side
By Bill Schaff
Biometrics will bring Security to the Web
A chain is only as strong as its weakest link, and when implementing IT security, that is identifying the human being involved-whether speaking on a cell phone, using a credit card, or e-mailing from a computer. To solve this critical problem, companies will increasingly turn to biometrics to identify people by their unique physical characteristics.
With the exponential rise in e-commerce and cell phone use, fraud is proliferating. Visa, which generated $32 billion in revenue last year, lost $1.6 billion to fraud. Fraudulent calls on stolen wireless phones are already made with such frequency that 4 to 7 percent of communications providers' revenue is lost to fraud, according to Magardi, a consulting firm to the communications industry. But in those losses lies the opportunity, through biometrics, for investors to explore fledgling companies and get in on the ground floor of a technology that may one day be as ubiquitous as credit cards and cell phones themselves.
The research firm IDC predicts that the biometric market will increase from $166 million in 1999 to $1.8 billion by 2004, a compound annual growth rate of 61 percent. Of that $1.8 billion, IDC expects finger biometrics to account for 55 percent, or $1 billion. Voice authentication should account for 15 percent, or $270 million; and facial recognition, hand geometry and eye scanning, should each capture 10 percent, or $180 million, of the market.
The two largest voice-recognition companies are Nuance Communications and Speech Works International. They can save their customers millions of dollars by reducing the number of agents working phone lines and thus lessening the cost of call centers. Nuance, with customers like American Airlines, British Airways, and Charles Schwab, generated $52 million in revenue last year. Speech Works, with customers like United Airlines, Continental Airlines, and AOL Time Warner, posted $30 million in revenue in 2000. The dominant facial recognition company is privately held Visionics. Its technology is currently in 800 automated check-cashing machines and was used in Mexico's 2000 elections.
Finger biometrics will become the most pervasive of the biometrics technologies because it's moderately cheaper ($100 to $300 per unit) than either face-recognition technology ($125to $400) or iris scanning ($750 to $1,000), and it's more practical for small devices like cell phones. Investors interested in picking up the stock of a company that's quickly establishing a leadership position in finger biometrics should consider Identix, a maker of hardware and software.
Identix has provided finger biometrics systems for law enforcement and the civil market for years, and the company pulled in $80 million in revenue in 2000. But the real opportunity for growth lies in the commercial marketplace. Already Identix has joined with Compaq Computer, Dell Computer, Key Tronic, and Toshiba to incorporate its 1-inch-square, 3 mm-thick touchpad into keyboards.
Identix is also putting great effort into its Itrust division, which is allied with Motorola, Aether Systems, and VeriSign to enable security systems for mobile and e-commerce. The systems include an Identix touchpad on the back of a Motorola phone to authenticate the user.
Revenue in the June 2002 fiscal year should grow to $120 million (Identix doesn't expect to be profitable until at least 2003). In recent years, Identix has received a multiple of 3 to 5 times forward revenue despite the slow adoption rate of biometrics technology. Using the high end of the range-justified by the expected success of Itrust-the stock could be worth $20 by the end of fiscal 2002, up 121 percent from its February 9 closing price of $9.06.
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