Absolute CEO Says Growth to Accelerate After Samsung WinHugo Miller
Absolute Software Corp., the maker of theft-recovery software installed on a billion laptop computers since 2005, says growth is about to speed up from demand in the $300 billion smartphone industry.
Samsung Electronics Co., the world’s largest smartphone maker, agreed April 3 to put the software in its newest smartphone and tablet, sending Absolute stock surging 16 percent. The Vancouver-based company plans to use the deal as a springboard to more recognition and contracts.
“This has really raised Absolute’s profile quite tremendously,” John Livingston, the company’s founder and chief executive officer, said in a telephone interview. “We’ve set the stage for rapid acceleration of business growth.”
Since 2005, Absolute has struck deals with computer makers including Dell Inc. and Lenovo Group Ltd. to install its Persistence software at no cost on devices during assembly. Absolute then sells to companies, schools, hospitals and government agencies a three-year protection plan, which starts at about $50 a year for computers.
Now Absolute is turning its attention to security for mobile devices, with fees starting at $14 a year. The shift in focus was inevitable as computer customers increasingly employ mobile devices, Livingston said.
“We absolutely had to make a move to tablets and smartphones,” said Livingston, 53, who was teaching at the British Columbia Institute of Technology when he founded Absolute in 1995. “Customers were asking for it.”
Sales last fiscal year, which ended June 30, climbed 9.7 percent to C$74.6 million ($74 million). Bookings, or sales contracts, were $88.7 million, a figure that is expected to decline this fiscal year as computer orders from schools and universities slow, the company said in February.
As the contract with Suwon, South Korea-based Samsung kicks in, it will help boost bookings to $110 million in fiscal 2015, which begins in July, said Thanos Moschopoulos, a BMO Capital Markets analyst in Toronto. The bookings growth rate will be in the “low teens” over the next two years, he said.
The shares fell 2.6 percent to C$5.99 in Toronto trading. The stock has gained 62 percent since Nov. 6, when it hit a 14-month low. Of nine analysts who track the stock, five rate it a buy and four a hold. After reporting a loss of C$1.42 million last fiscal year, Absolute has reported profits in the first two quarters of the current year.
Absolute’s software stands out because it’s “self-healing,” as Livingston puts it. Even if a sophisticated thief deletes all data from the laptop, smartphone or tablet, the moment that device reconnects to the Internet, the software reinstalls itself and sends a signal back to Absolute’s headquarters.
That’s a feature no competitor has yet been able to match, Moschopoulos said.
“No one does theft recovery and data protection the way they do,” said Moschopoulos, who raised his rating to the equivalent of a buy after the Samsung announcement. “No one has a persistence agent burned into the hardware the way they do. That’s their unique differentiator.”
While it competes with Good Technology Inc. and MobileIron Inc. in offering device management systems, Absolute is probably the only company offering the self-healing, embedded software, said Richard Tse, an analyst at Cormark Securities in Toronto.
Good Technology has worked with companies and governments to keep data and applications secure across many platforms, including Samsung devices, CEO Christy Wyatt said in a statement. Ojas Rege, a vice president at Mobile Iron, said the company is also working with Samsung and focuses on corporate customers rather than with device manufacturers.
Absolute’s team of 50 investigators, made up of former agents from the U.S. Federal Bureau of Investigation and other top law-enforcement outfits, use a combination of Global Positioning System technology, customized Wi-Fi data and Internet protocol addresses to track down stolen devices. So far, they’ve recovered 28,000 gadgets, Livingston says. Working with Absolute’s investigators, police can then move in to arrest the thieves.
Samsung will probably sell at least 60 million Galaxy S4 phones this year, after they went on sale last month, according to Tong Yang Securities. Google Inc.’s Android, the operating software Samsung uses, accounted for 70 percent of all smartphones sold worldwide in the fourth quarter of 2012, according to IDC.
Absolute may use the Samsung contract as an entree to negotiations with other Android players, said BMO’s Moschopoulos.
“From a competitive perspective, if you’re HTC you’d say, ’Why don’t we do this too?’” said BMO’s Moschopoulos. “I would expect that they’re talking to a number of other tablet and smartphone manufacturers.”
Livingston says he’s focusing on his newest client for now, given its size and significance. The companies didn’t disclose financial terms of their agreement. Livingston declined to comment on whether Absolute has held discussions with HTC Corp. or other Android manufacturers, or with iPhone maker Apple Inc.
“This Samsung deal is a huge deal,” he said. “We’re not in a rush at the moment to get our technology onto other devices because Samsung is so prolific.”
Apple spokeswoman Natalie Harrison declined to comment.
“HTC does not comment on rumor and speculation,” Tom Harlin, a spokesman for the company, said in a statement. “However, we do work with some of the top enterprise and security solutions in the industry.”
Having surfaced as the top contender in the consumer smartphone market Apple helped invent, Samsung is now challenging industry pioneer BlackBerry’s hold on corporate users. While phonemakers don’t regularly provide details on their business customers, BlackBerry counts some of the world’s largest banks and government agencies among its customers.
“Our competitors are scrambling to imitate the BlackBerry gold standard for enterprise security,” David Smith, the Waterloo, Ontario-based company’s executive vice president of enterprise mobile computing, said in a statement. The BlackBerry Protect software, which tracks lost phones and keeps information secure, is embedded in the device’s operating system, he said.
Samsung’s KNOX software, which includes Absolute’s product, will be marketed to business customers, who are asking for corporate-level security features as its devices become more popular among business users.
“That is what Samsung KNOX and Absolute deliver,” the Korean company said in a statement when the deal was announced.
Absolute’s market value of C$256 million makes it a takeover target, said Moschopoulos. Its second-biggest investor is Crescendo Partners LP, an activist hedge fund with a track record of pushing for deals to boost shareholder returns, he said.
Eric Rosenfeld, chief executive officer of Crescendo, sits on the board of Absolute along with Greg Monaghan, a managing director at the New York-based firm. Rosenfeld said he thinks the company’s potential is undervalued given that customers typically pay right away for their three-year contracts.
“The company gets the cash up front for many of their sales, and then it’s recognized as income over years,” Rosenfeld said in an interview. “What we focus on is cash flow, and the company is a very strong cash-flow generator.”
Rosenfeld said his investment in Absolute is open-ended and is focused on creating value, not necessarily triggering a sale of Absolute.
Livingston, for his part, said he tries to ignore the market chatter.
“We don’t pay too much credence to that rumor and innuendo,” he said. “We’ve got great technology, we’ve just got embedded in Samsung, we’re so focused on driving the business, growing the customer base and making sure the world knows that Persistence technology is something they want and need to secure their devices.”