Thursday, 15 Nov 2018
Business

Behind iPhone Face ID, a fight against costs

The acquisition of Finisar Corp. by the company II-VI Inc. (for the purchase of "two to six"), worth $ 3.2 billion, is actually one thing: how much it costs Apple Inc. to build iPhone with Face ID.

After the first rumors in 2016 that Apple was considering facial recognition technology for iPhone, stocks of 3D sensor manufacturers have surged in a few months.

The story of the last 12 months has been very different for Finisar, II-VI and its competitor Lumentum Holdings Inc., which manufactures all the vertical cavity surface emitting lasers, or VCSEL, that Apple needs. The demand for lidar, the laser scanners used in autonomous cars also using VCSELs, has not yet materialized significantly. Meanwhile, smartphone sales are slowing and Apple is compressing better prices with suppliers to compensate for this. Business inventories stagnated.

The iPhone maker usually likes to have two or more suppliers for each component. He can then play them against each other, which allows him to get lower prices. The Austrian company AMS AG, which also supplies part of the iPhone's Face ID sensor network, announced last month that its profitability would decline in the fourth quarter. The message was clear: Apple paid less for each component.

In addition to the three existing VCSEL providers, others, such as AMS and Royal Philips NV, manufacture the components but do not yet provide the specifications required by Apple.

That's why Friday's acquisition is a logical step. This gives companies more power in their negotiations with Apple.

There are of course other benefits to the agreement, which should be finalized in the middle of next year. He attributes to Finisar about 17 times his projected profits for 2020 (his fiscal year ends in April). This seems like a good deal for II-VI, which is currently trading at 14 times the expected profit. Companies expect cost synergies of $ 150 million within three years of closing by combining their manufacturing capabilities and relying on cross-selling to their respective customers in smartphones and smartphones. -of the.

But Apple is the biggest concern. As 3D sensor technology matures, the iPhone maker will likely demand even lower prices. By reducing the number of competitors, the clock will return to II-VI. And since Apple has already committed $ 390 million to help Finisar build a new plant in Texas, II-VI is hoping to be able to count on the smartphone manufacturer to continue as a customer.

To contact the author of this story: Alex Webb at awebb25@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a columnist for Bloomberg Opinion covering the European technology, media and communication industries. Previously, he had covered Apple and other technology companies for Bloomberg News in San Francisco.

© 2018 Bloomberg L.P.

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