Idex ASA Corporate Analyst Meeting

IDEX.OL - Idex ASA
Idex ASA Corporate Analyst Meeting
Nov 02, 2017 / 10:00AM GMT 

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Corporate Participants
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   *  Fred Benkley
      Idex ASA - CTO of IDEX America
   *  Hemant Mardia
      Idex ASA - CEO and MD
   *  Henrik Knudtzon
      Idex ASA - CFO
   *  Stanley A. Swearingen
      Idex ASA - Chief Products Officer

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Conference Call Participants
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   *  Christer Roth
      DNB Markets, Research Division - Analyst
   *  Espen Klette
      Pareto Securities, Research Division - Analyst
   *  Antonio D'Albore

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Presentation
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 Hemant Mardia,  Idex ASA - CEO and MD   [1]
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 Hello. Welcome to IDEX Capital Markets Day. My name is Hermant Mardia, I am the CEO here at IDEX. Today, we're going to be presenting on how IDEX is now capturing the second biometric wave.

 I'd like to thank the investment community attending our event here in London. I'm also very pleased that we have our International Board Members here with us today. We have Morten Opstad, our Chairman; Larry Ciaccia, formally the CEO at AuthenTec, which was led to the transformation in this industry after the acquisition by Apple; Deborah Davis, Global VP formally at PayPal and eBay; and Hanne Høvding, with an extensive career in finance joining us.

 At the end of this session, at the very end, we will be holding a Q&A panel at the end of these presentations.

 I would also like to draw your attention to this disclaimer. IDEX is a pure play fingerprint sensor company. And our focus is really on mass market solutions using what we have, which is a unique flexible and very cost-efficient technology, which we call off-chip sensing. And as we go through the presentations, we're going to describe why we feel this is a compelling and ideally suited technology to the second wave of biometrics.

 Very briefly, to introduce IDEX, we're a company backed by a very strong innovation, which is backed with a very high-quality IP and patent portfolio. We have 122 staff now in key locations around the world with very deep, both biometric but also, industry experience in commercializing in high volume. To that end, we have spent a number of years now establishing a very high-volume and high-yielding supply chain. And also, the channels to market. Again, this will be described later in our presentations. We are listed in the Oslo Børs in Norway, which is where our headquarters is located. And also, we have now key locations in the U.K, U.S. and in the Far East.

 So to introduce today's speakers, first of all, we will be having Antonio D'Albore. He is an industry smart card expert with over 15 years in the industry. I'm very pleased that he is able to be here to give an independent perspective on what is now, we see, as a huge market opportunity and to take a look at the ecosystem, which I think will set a very good backdrop for where IDEX fits.

 Fred Benkley, our Chief Technology Officer, is a prolific inventor, and founded the company called Validity, which was a leading fingerprint biometric company, which was subsequently acquired by Synaptics.

 I'm also very pleased that we have Stan Swearingen, our Chief Products Officer, who was formally General Manager of the Touch Business at Atmel semiconductor, and also CTO at Synaptics, where he was instrumental in their biometric strategy and actually culminated in the acquisition of Validity.

 And at the end of the presentation, Henrik Knudtzon, our Chief Finance Officer, who is formerly from private equity at Herkules Capital and previously to that, McKinsey, is going to give you a shape of the business that we expect to achieve.

 So just taking a look at our agenda for today. I'm going to focus really on how we at IDEX are positioned and are now capturing the second biometric wave, what we believe in that, that's going to make this a really transformational opportunity for our business.

 Antonio is going to take us through the correlate to that, which is the rise of the biometric card market, to the market that's been in the making for quite a while. And then Fred will take us through our solutions, how does IDEX's technology lend itself to being at the leading and cutting-edge of this industry. And Stan will then go through our foundations: What do we set up? Why are we are confident in our ability to capture market growth? And Henrik will then take us through the market opportunity and our path to revenue and profitability.

 And then, we will have a short break, and then we will take a questions-and-answers panel. And right at the end, we also have some key demonstrations, particularly of our contactless and contact card solutions, which I think will be very interesting.

 So taking one step back. We are in the biometrics industry. It's a very compelling industry. The demand is now undeniable. The preference for consumers to take the password element, pins, password and replace them with something that's very convenient to authenticate is now overwhelming.

 And for us, what we're very interested in is looking at how that helps in terms of friction-free transactions, in terms of payment and in terms of identity. And you can see that the numbers here, which are coming out of research from Mastercard and the University of Oxford are very, very strong.

 Now we're going to take a look at the marketplace. In terms of biometrics, the dominant force is fingerprint sensing. And today, that's principally driven into the mobile market. So current mobile solutions have been principally fingerprint sensors, driving up towards 1 billion units. We see an even greater opportunity following the adoption in mobile, which is to look at more advanced solutions. And these advanced solutions in applications of cards, Internet of Things and also towards display integration. And we'll take a deeper look into those later.

 And we see that this is now at the beginning, not of the technology phase, but of the commercialization phase, and we feel that IDEX is a key part of enabling that change to deployment and commercialization. So how do we go about that? From our perspective, we believe the most important deliverables for us are convenience and security. Those two elements go hand-in-hand. If you don't offer the user or consumer something that's convenient, it won't be used. At the same time, they have to have trust and confidence.

 And the way we see we can do that is by enabling identification and authentication through biometric solutions that are scalable. And that, I think, has been the key thoughts for IDEX since I joined, which is to create a technology and take the technology that we have and ensure that they achieve the cost efficiencies and the mass production capabilities that are necessary to be mass scalable.

 So taking a look at what we're talking about then as the second wave of biometric adoption. The first wave, clearly, is here. Mobile has achieved incredible adoption rates in a very short space of time. This was capitalized by Apple, 4 years ago, with the introduction of the Touch ID.

 And it's interesting to look at why was that approach taken by Apple. And very much, you could answer that by saying, it was driven by industrial design. Apple are very focused on the look of the product. So what they were looking for was a solution that allowed them to address biometrics, but within an industrial design framework. And hence, they looked for a fingerprint sensor that fit within the home bottom. And that approach, that dominating of industrial design we've seen continue with the mobile ecosystem.

 So really, it's not being focused as much on the security element. But it's being focused on how do they -- you achieve very good design features with biometrics. And what we've seen that lead to is, really, first of all, a domination by a particular technology, which is capacitive sensing. And that is the technology that IDEX has. We are a pure play in capacity sensing. And that is the one that is proven and dominates and is in mass production. So that's why we're very confident in our ability to scale our technology.

 What it has also led to is a tremendous amount of competition of market commoditization, because once you're driven by industrial design, that becomes the overriding feature. And so, for IDEX, we relate to that market. We acquired technology to allow us to create off-chip touch sensing. And as we look at the market today, we feel it's extremely important and our priority to focus on the second wave.

 And for us, the second wave is about leadership in the next generation of solutions, particularly in the card market. So what that means is really that we are really focusing our resources towards addressing this great opportunity that we have in this burgeoning card market and leading to the next generation of solutions.

 For this, we think that convenience and security are paramount. And we see a huge market opportunity. It's already cards, payment cards, identity cards. It's a global existing infrastructure. And the key determinant here is to be successful, the card solution has to work within existing regulatory standards and exist -- has to be certified by existing bodies. That puts tremendous constraints on the technology, and we feel that if you were to choose a particular technology to do this, IDEX's off-chip technology is tremendously well suited. It's flexible, it's thin and it can achieve very low power, high performance in such a constrained environment.

 In particular, usability is tremendously important. Because clearly, you want to make a transaction, you want to make sure it works. So there's not really so many second chances. Whereas, when you're doing a phone unlock, it's not as critical in application. So we think these dynamics contrast between the two, and those are the dynamics that IDEX believe will drive the adoption for us.

 And I'm really proud that we are able to be a deep partner with Mastercard. Here, you can see a quote from the Executive Vice President of Security Solutions Bob Reany. We have a very deep partnership with Mastercard that we have earned to get to this point. And what -- why Mastercard have chosen to work with IDEX, is because they see 3 things.

 One is, that we have a culture of innovation. We are solving new problems, and that's what Mastercard is about. They are driving the leading edge of innovation here.

 We have a strong commercial focus because this is something that we know. To be a mass deployable solution, it has to be at cost points that are attractive to the users.

 And clearly, within fingerprint, we are now offering an end-to-end solution. So not only do have the sensor, but we have the matching software and we have some very exciting innovations in enrollment solutions, which are also a key part of mass deployment and scaling.

 And why Mastercard? Well, Mastercard have actually been pioneering this biometric card program for many years now. And we first worked with Mastercard 3 years ago. So there's a significant amount of momentum that we've built-up and a lot of experience in getting our products to this point. Mastercard are very critical because they're creating a full end-to-end ecosystem. And that's what you need to create a new market.

 So first of all, they're creating consumer awareness and demand. They have strong relationships with the issuers, so whether they be banks, corporate or government. And those relationships mean they can promote their new technologies and help the customers with deploying those new technologies.

 And we can take the example from earlier this year. There was a very significant trial with Absa and with Pick n Pay to leading banks and retailers in South Africa that deployed our card with our sensor in it, together with Mastercard and our other partner, IDEMIA. So we're very proud that if you look at the key trials this year, IDEX has been a key part of those trials.

 And then if we look beyond that, to deliver this solution, you need the card integrators. You need the whole supply chain ecosystem. So companies like IDEMIA, IDEMIA are a company shipping today 800 million cards per annum. They are formed out of the merger of Morpho and Oberthur, and we're very proud to have them as a partner. And again, they see the value of what IDEX has brought as a productionable biometric solution.

 And we've gone through a long process of certification preparation. We're about to move into the certification now very soon and working with industry standards. Recently, we announced that we have been approved as a key participant in the EMVCo, which is an industry body that you're required to pass through for payment standards.

 So taking a look at the timelines and for IDEX, the last 4 years has been putting in place a strong product foundation. Our off-chip platform products are production ready. We have the supply chain. We have the key partners. We've acquired the talent. And we've acquired very strong institutional funding from both Invesco Perpetual and from Woodford, to which we are very pleased to have their great support.

 Now we're looking to leverage our leadership position. Within payment, particularly, we have Tier 1 partners. We are expecting a commercial rollout next year. And we're already starting to expand out into new verticals.

 So by preparing a product that meets the highest standards, if you like a platinum standard for Mastercard, we believe we have gone through all of the heavy lifting and learning curve that is necessary to take those products into different verticals, particularly identification and access control. So we see multiple market opportunities, and you'll see later on, we're getting very strong customer pull.

 And taking this technology, which works in a very low-power constrained environment where you need good usability, we see an increasing opportunity for the IoT market, which we'll develop and we see as being the next following market for us.

 And as we look a little bit further out, all of our technology advances we see is driving a real sustained leadership in this second wave. First of all, our off-chip technology is pretty unique because we can follow the Moore's law integration curve. And integration is the way that you drive the low system cost. So we think our solution is actually very well tailored to that.

 And the same technology that we're developing today to drive usability and cost, we see is helping us towards display integration, and Stan will be taking us through that a little bit later.

 And then looking at what we're talking about then. Our technology, obviously, I've been talking through why we feel off-chip sensing as a technology is very important to us. Fred is going to take us through and show you a little bit more granularity about the difference between off-chip sensing and the prevalent silicon sensing. IDEX can do both. We actually have the patents and the IP that are fundamental to do both, and we have done both.

 But we think for this market, image size matters. When you're operating in a card, you need extreme usability, and we're going to go through how that is achieved and what that means. And what you can see here in this graphic, very simply, is that as size increases, the cost differential, the cost advantage of our off-chip sensing becomes very significant. Silicon sensing scales linearly with image size. And for IDEX, we really have no specific limit as to how large we can go. It really is about meeting the system application.

 So just to take that then as a recap. We're going to address this market opportunity that we see is now on the threshold of exploding. And we're very well setup. First of all, we've -- have products that are ready for this market, both in contact and contactless. They are designed inherently using existing, proven, high-volume production partners.

 We have a set of deep partnerships. Not all of which have been announced, but I'm very proud that we are now finally able to talk about Mastercard and also, what we have previously announced, Morpho, which is now IDEMIA. These are critical partnerships that have been wedded to IDEX because of the solution we bring.

 And then, we've taken a journey to take a biometric solution, which is something new, put it in a payment card and make it compliant with existing standards. That's a significant task, and it's a significant barrier to entry. So that overall picture is why we're very excited to be at this place where we see the card market about to take.

 So with that, I'm going to pass onto Antonio, who is going to talk through the rise of the biometric market.

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 Antonio D'Albore,    [2]
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 Okay, okay. Let me see. Good morning, everybody, and thanks to IDEX for inviting me here today. I am pleased today to have my contribution to this event with my presentation about biometric cards, cards that we all have in our wallets: debit, credit, loyalty, membership, all kind of cards.

 It's interesting to see that by this year, there will be a total of approximately 4 billion card issued worldwide. And among this 4 billion card, 3 billion of them, they are payment cards. And it is interesting to see that the global trend is that there is still growth in the card issuance space. As you can see, mostly dominated by the payment card, but there are also ID card and other kind of card. They are still having year-over-year increase in global shipment.

 It's interesting also to see that despite the increasing trends of mobile and electronic payment, cards, payment cards, still remain the favorite payment methods globally by so -- by many people. Other phenomenon in the industry is that more and more government, they are replacing their paper-based card or simply card into more advanced smart card. This is another key element.

 And there is a strong push in the industry for powered smart card, smart card with additional electronics to perform additional functions. Like OTP cards, so cards they have an additional display that generate a pin or a one-time pin or a one-time password. Or a card with a dynamic CVV, that is the small number on the back of your cards that is changing every 30 minutes, for example. Or a card with multi-profile, so a single card where you can choose somehow, debit, credit card or another payment profile.

 And also, there is another wave for the multi-application card, like the recently launched Maldives National ID Card, wherein a single card, there is a national ID card, insurance card, healthcare, even a driver's license card in a single element. This is to show you that there is a need. There is a -- the market is driven by innovation and by different kind of card deployed to different kind of segment.

 Why this is the time of biometric cards? There are several needs that the industry and the governments need to address. Number one, critical problem worldwide is the fraud caused by financial cards fraud. It is a huge problem that need to be addressed.

 Also there is a strong problem for to fight the logical and physical access control. People enter without authorization into building facility. And at the same time, there is a need to secure logical access to computer and to system. This is another key area that is a huge problem at this moment.

 There is also a need to fight criminal organization fake ID business for migrants, but also for people that for some reasons, they want to cross border with fake documents.

 At the same time, the governments need to secure the identification of their own citizen. And there is a strong need to properly identify the big flow of migrants, refugees that are displaced, that are moving from country to country where this is a big issue.

 All this, of course, need to be done, making sure all the private information of the people, of the individual, are kept safely, compliant with national and international regulation.

 But what is actually a biometric smart card? Biometric smart card is a smart card with an additional element. This element is the fingerprint sensor. If you look into the anatomy of the fingerprint card, we can see -- we can imagine card made of many different layers, okay. Each layer with a specific function. Key elements here are the smart card chip, that is something we are all very familiar. And the fingerprint sensor. Fingerprint sensor is applied inside this brown layer that we can call flex or inlay. This is one of the layer of this kind of sandwich. And this is key elements of the biometric smart card.

 In red, I have highlighted the key components. That are the fingerprint sensor here with its associated electronics and the smart card chip. Of course, on this kind of elements, there can be present other additional electronics. There can be a battery or there can be an antenna for your contactless, tip -- tap and pay card. But there is also a possibility to put additional elements like LED, button or on-off switch. This is the key enable -- enabler of a biometric smart card.

 All those electronics needs somehow to be powered, okay. We see in the industry there are 2 main trends. There are products with battery and products without battery. Let's see, all the earlier implementation of biometric card, they had battery because it was the simplest, the cheapest way to launch the product into the market. But battery, they are not always an easy choice. Battery contain lithium, and lithium in some territories are subject to certification, to specific regulation and may create problem.

 Now the current trend is to make biometric card without any battery with so-called energy harvesting technology. That is the same technology we use nowadays to recharge the cell phone wireless. It's exactly the same technology, where the energy is harvested by the terminal, okay.

 Especially, for application like payment, I believe in the future, most of the implementation will be conductors. Customer, everybody, we are so happy to pay the terminal with tap and pay. And this will be the same for biometric application.

 Those kind -- those layer that I showed you before, or those layer, they are assembled through an industrial process that is called lamination. The predominant technologies are hot lamination and cold lamination. Hot lamination means that all this layer, they are sted, put together and there is a temperature and pressure applied for a certain time while the cold lamination is a technology where, between the layer, there is a kind of adhesive and all this layer are put together by -- only by pressure at environment temperature for a certain time.

 Let's see, most of the card manufacturer for mass volume, they prefer hot lamination. It has been a proven technology within the year. Billion of cards are produced nowadays with this technology. Despite of that, there are some application, normally low-volume or for prototype, that use the cold lamination. Cold lamination is also popular in Asia, in someplace, where there is low labor cost because it can be -- cannot be fully automated.

 In terms of value chain, let's see that we can indicate the biometric card solution provider as the company that own the IPs related to the technology of the inlay. They basically acquire all the components, like the sensor, the ASIC, the electronic, they acquire all the electronic and give all these components to the company of the electronic supply chain to produce the inlay. That is part of the delivery that is given to the card manufacturer.

 Card manufacturer like Gemalto, for example, that is world #1 card manufacturer in the world. It's a company that they have just completed industrialization in their R&D and factories in Europe, and they announced that their biometric smart card. Or IDEMIA that was the company, historically, was the first in belief in biometrics smart card, and they had the highest investments specific on biometric smart card. At this moment, it's the company with the strongest industrial plants ready for mass adoption of this technology.

 Or other companies like G&D, it's a German company, #3 in the world for -- as the number of cards produced. They have not announced yet biometric cards. This does not mean that they are not working on it. Or company like KSID, it's a Korean company. At this moment, it's the company who did the largest number of card delivered into the market on several players. I will show you this later. Or a company like CPI Card Group, that is the largest supplier of payment card in North America. They also already announced recently availability of biometric smart card.

 In terms of trial, we can go back to 2014 and 2015, when there was first trial in Sberbank, Norway and Danske Bank, Denmark, both of them sponsored by Mastercard. In fact, Mastercard was the first financial institution to believe in this technology. And at this moment, I think they are the one with most exposure in the market and the one that are creating market awareness for this kind of technology, authentication technology. In 2016, we had the Bundesdruckerei, that is a large institution in Germany. They developed a biometric smart card that is still currently under test in Germany within their office.

 This year, it was a very important year for biometrics smart card. Because most of the industrialization process are completed or going to be completed. And the customer, they are testing their card on many different application, on many different location, for different purpose. Among, let's see, the most significative trial, I think, that are worth to mention, the one that have been, for example, AirPlus is a company belonging to Lufthansa Group. It's a German company. They are issuing payment card for corporate travel.

 Again, Bulbank, Bulgaria, banking card. Woori Bank, South Korea, cards made by Korea Smart ID. Those are card for logical access control to government website for tender and other government-related systems.

 Istanbul Municipality, they went to smart card. This is operating. They have identification card for taxi drivers. Again, Absa Bank, Pick n Pay, they're a bank and retail operator in South Africa. Both of them sponsored by Morpho and Mastercard.

 And very important, very significant, the trial undergoing right now, in United Nation in Geneva. Today, they launched a tender for card for logical and physical access control. The real target here is to check the technology for future implementation in refugee camp, for refugee identification and also for benefits for, let's see, kind of debit card. This is a very relevant trial that everybody are looking for. And it's very interesting that organization with UN is really looking deep into this technology.

 For next year, I think one of the most significant trial that will be done in Europe will be in France by Cartes Bancaires, it's a domestic -- with a domestic payment scheme and that will be card supplied by both, Gemalto and IDEMIA. That will be one of the key trial. As far as I know, the card are under preparation and early 2018, there should be deployment in the market.

 In terms of shipment, what I can see next year will be a very important year. We will see a real mass adoption of the biometric technology in both, payment and ID. And I see huge increase with a potential up to 200 million card 2019 and up to 350 million card globally by 2020.

 In terms of market price for this product, I think from the current low-volume pricing, close to USD 30, the target of all the player is to be able to go to the market with something around $10, $12 by 2020. That's the global target of the card suppliers.

 In my opinion, I think some of the critical elements to be successful in the biometric smart card market, you need to have availability of multiple player -- supplier in the ecosystem to supply the -- to be in line with the market expectation.

 Low components cost. This is critical because card, they are commodity. They are not luxury product. Power consumption of the components need to be very low because a smart card is a resource-constrained environment, it's not a cell phone, where we have a large battery. In this -- in the biometric card, we have a small battery or no battery at all, so low consumption is key.

 Flexible sensor. This is key. Cards are kept in our wallet. They are bending. Card itself are bending, sensor must be flexible as well. Also, the process of integration within the card manufacturer need to be in line with the existing process. Card manufacturer, they don't like exotic manufacturing process. And of course, all of this need to be in line and compliant with existing local and international standards.

 Thank you, everyone. I think I'll pass the place to Fred.

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 Fred Benkley,  Idex ASA - CTO of IDEX America   [3]
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 Hello, everyone. Good to be here today. And my name is Fred Benkley, and I'm the Chief Technology Officer at IDEX. I have sort of been in this industry since its infancy, the beginning back in the late '90s. I watched it grow, have the gray hairs to prove, through the years and watching all the changes. I came to IDEX 4 years ago through the acquisition of PicoField. And before that, I was founder of Validity Sensors back in 2002, doing the first off-chip sensors in the marketplace back when swipe sensors were en vogue.

 So we've watched this market evolve over the years, and I have to say it's been a long journey. And thankfully, our investors have been patient along the ways. But I have to say that I'm actually more excited right now than I've ever been before in the industry with the explosion and the pull in the card space, IoT markets. All these emerging markets that are going to catalyze all the investments that have been made in this market over the years.

 So again, we have some exciting things to talk about here today. And I guess the first place to start is just sort of with a landscape overview of fingerprint technology. Most of you in this room are intimately familiar with all these technologies: optical, thermal, ultrasonic and then, capacitive.

 I think that over the years, I've watched the various optical technologies, thermal technologies and ultrasonic technologies come on the scene with various amounts of promise. I think those technologies are still being worked on. But after 20 years in the business, I think it's pretty clear that if you look out and see what is dominating, what is actually selling in large volume, it's capacitive fingerprint sensing technology but to a higher -- to a high degree, actually, what's being delivered now.

 When you talk about capacitive fingerprint sensor technology, you have to split it into 2 categories. The first is, what we refer to as, on-chip or silicon-based sensors. And everybody knows the players in this market. We are also a player in the direct silicon market. But the newer technology, what we'll call the second wave of biometric technology, is really off-chip, where we separate the driver chip from the sensing elements, which has a number of advantages we'll talk about in detail.

 But I want to start by saying that off-chip isn't the up and coming technology. It's a proven technology. We already have a large deployment of off-chip technology through Synaptics, originally the Validity technology. We already have flagship phones with hundreds of millions of sensors sold.

 So be it no doubt that the supply chain is well proven, and IDEX technology leverages those same supply chains. So I know there's been some questions that have been put around this to whether the volume ramp-up is going to be there, and the supply chain has been proven in -- for off-chip technology.

 Okay. I want to talk about 2 different -- Hemant, you talked -- Hemant talked about the wave that had to do the market wave going from the phone, iPhone announcement in 2013, to now what's happening in cards. That was a market wave. I want to talk today about a technology wave. Because in parallel with the market wave is an equally powerful technology wave. And that technology wave has to do with having the existing technology, which has dominated, up to this point, which is on-chip technology.

 And you can see a picture of an exploded iPhone there to the left. I want to say that one of the things that's happened in mobile is the industrial design has really driven the sensor size. Because in order to fit these sensors into these buttons, the buttons have had to shrink down in size and further ergonomics. So a lot of what's happened in mobile, it's a different dynamic than we'll talk about in a minute at what happens in cards, where there was a natural evolution to shrinking the sensor.

 And in doing so, of course, as you shrink the sensor, you now need more powerful matching algorithms. You have less and less of picture. In fact, some of these sensors are so small, if you actually drew a little square on your finger. You would maybe capture one minutia of a tube, a very small portion. Or another way to put it, if you were trying to do a facial recognition and just catching your left eyebrow and trying to identify you, if you have a powerful enough algorithm, maybe you can do that. But it's not the optimal way to go.

 Now existing capacity -- or existing on-chip technology, of course, has a couple of limitations. The first being that, again, the image size is defined by the silicon size. So if you want a large area, you have to have large silicon. Large silicon is expensive. There's no way around that. So that's one of the reasons why that it was shrunk down.

 The other thing that's very critical about existing silicon technology is that it basically doesn't have any intelligence or very limited digital intelligence. And this is a big point that I think has been missed a lot in the industry. The nature of the processes and the technology means that you can't put on board the digital intelligence, the MCUs, the memory, the encryption, engine that you need.

 Antonio showed the support structure that has to happen in a card, all the extra components that have to be added. It's not only the cost of those components, but it's the power of all those components. And it's not just the power of any one component. It's the power of all those components.

 So basically, when you go off-chip, you take away these limitations. And as you master off-chip and you look at the roadmap of what can happen in off-chip, not only can you drive the cost down, aligned with Moore's law, and leverage these in more dense process nodes. You can bring all of this digital intelligence. And if you look at how cost constrained the card market and how high volume it's going to be, it's going to dwarf other markets.

 There's going to have to be a much higher level of integration that's happened in the past. IDEX has foreseen this and has a very strong roadmap to integrate all those elements. Not only driving the cost down, but you have this issue with managing power. And if you can bring all these power management components also in addition to these blocks on board, you can intelligently manage the power. It's very difficult to do that in discrete form.

 So if we move to the next slide here. The sensor size really drives performance and usability, more so in a card environment than a mobile environment. And you can see on the left, obviously, if you capture a very small area of your finger, you have to have more intelligence in order -- in the matching algorithm, which requires more MCU power -- more MCU horsepower, digitally as well as physically.

 But there's another significant, maybe even a larger problem, because in cards, you don't have all these, you don't have a quad-core Snapdragon at 1.5 gigahertz for free. You have to put on some processor of your choice. It has to be low-cost. It has to be low resources in order to not consume a lot of power.

 But there's another significant problem in cards and that is how do you do the enroll, mass enroll, obviously, if you have enroll stations. And you have that model in third world countries where people go to an enroll station, and they put their hand on a big optical sensor where somebody is facilitating that, it's relatively easy.

 But what happens when cards come out of the third world and they go into first world markets, where nobody is going to go to a bank. They're being phased out, a lot of local branches anyway. So you're going to have to have a user be able to do the enroll themselves. Now the problem with a lot of card, a card doesn't have a display like a smartphone does that you and everybody's used to in the iPhones and the Android phones, being able to see the picture of the fingerprint and you sort of play a little game of fill in the dots.

 It's all about -- enroll is so critical. We jokingly call it the gift that keeps on giving because if you don't get the enroll right, your experience matching is going to be poor for the length of the use of the device. So this is a key area of focus for IDEX. And if you look on the left, if you take a bunch of small squares and try to piece them altogether without any visual feedback, you've got to do it contiguously without any gaps.

 It's very difficult, if not impossible to do with just an LED feedback type of arrangement. That's all you're going to have on a card environment and actually get a high-quality enroll with a small sensor. So I think driving the sensor to a small form factor, which is what's happened in mobile is going to be the opposite in cards for the enroll problem alone. And obviously, as you increase the enrolls and double, triple the area, something IDEX can do because off-chip you can make as big as you want. You really address the enroll problem.

 And secondarily, the other thing about cards that's interesting, the use case is very, very different. When you grab a card and think about it -- and we have some demonstrations we'll show you later, where you actually can do enroll, we can make a card for you and then you can put it in a POS terminal or a simulated POS terminal. You'll find that grabbing that card and the act of placing it in a terminal, in a POS terminal, that there's a level of hand eye coordination that is different than you'd get in a phone, which you have right up close to your face.

 It's much more difficult. What does that mean? Your ability, if there's a square that you have to touch on a card while you're putting it in a POS terminal, if that square is too small, what happens in practice is you're going to miss that square. We call those partial touches. And we have developed and have an internal matching algorithm that is industry-leading in being able to take partial touches and still match them.

 We start with a larger sensing area. Plus we have an algorithm that is tolerant to that. But if you talk with the credit card manufacturer, not the one we're partnered with, and you really use trials, you'll find that usability, usability and usability is the theme that you'll hear in cards. So it's up to us that are creating this technology to make it highly usable in the marketplace. And again, large area is not just a good thing to do. It really is a must thing to do.

 Okay. I think we went through a little of this, but the fundamental difference between touch silicon, direct contact silicon in off-chip is very simple. In direct contact silicone, you can see the box, the green squares there are the sensing elements. The silicon has to be at least the size of the sensing area. It's usually bigger with some support circuitry. So very simply, if you're going to make an 8x8 sensor at 64 square millimeters, and you add 10% type overhead for support circuitry, you're at 70 square millimeters. And if you're at $0.03 a square millimeter in silicon, you have $2 of silicon cost.

 There is just fundamental problems with scaling and using large area silicon in cards from a cost point and where these card manufacturers want this cost driven to. Of course, you take that limitation completely of the table when you separate the drive chip from the sensing elements. And of course, you then can leverage advanced processing nodes in the future.

 I think Hemant showed this slide earlier, but it's worth a second look. And you can see the takeaway here as the boxes get bigger, the area gets larger. There is a linear increase in cost. So the larger the sensor is, the more off-chip wins and carries the day. And again, there are many compelling reasons in cards why that is going to be the case. The last, obviously, you have the usability and you have the cost reduction of doing off-chip and it being separated from the sensor size, but there's another benefit that hasn't been discussed an awful lot. In cards, there are -- it's the total BOM cost. It's all the components, from a cost point of view and a power budget point of view, to say that you have the lowest power sensor alone, it's not the whole story. It's the power of the entire system, just like it's the cost of the whole system.

 So basically, by doing off-chip, you have this almost infinite roadmap to integrating all these components, bringing them on chip and reducing it and simplifying. It's not only cost, it's the -- the power part of it is the simplicity of manufacturing. These inlays that Antonio talked about are very expensive, and these hot lamination processes are very expensive. And the current cards that are showing high BOM cost for these, really don't have a pathway. Because, again, the sensor's large area, it doesn't have any intelligence. So statements that people are making that they're going to get from a $30 cost overnight to a $5 cost, just there's no data to support that. There is no technology path that really supports that. So again, this problem has to be addressed holistically.

 Little bit of our history in creating off-chip sensors. Again, we have on-chip and off-chip. But we've put the majority of our R&D efforts into off-chip because we believe it has the right metrics for the marketplaces that we are engaging. Basically, we have a single driver chip, if you look at the portfolio of many of the sensor companies. They have dozens of silicon parts every time they have to spin an entire silicon to create a sensor, a new sensor for a particular application.

 Right here, we have already created 4 different sized sensors, from rectangular to oval to small square, large square with one single drive chip. We just take the, what we call the IOs, the inputs and outputs of the drive chip, and we just connect them up to a different sized matrix. And magically, voila, we get a larger area sensor. And we've been able to demonstrate that we can do this and have no degradation of performance. We have best-in-class wet and dry finger performance. By objective, they're probably testing.

 The next thing, of courses, there is if you can get bigger, where does the roadmap end? And again, the appetite for a larger area, from usability from enroll continues to grow. And basically, the path that IDEX is choosing, even chosen, even though it's been more capital-intensive in the technology side, it's got legs indefinitely into the future for these markets that are evolving, not to mention, we can do flexible substrates because you have a drive chip you can make any substrate that you want. And in particular markets like IoT that, that's a huge advantage.

 There are significant barriers to entry. I don't want to dwell on this too long. But there is a reason why there's only 2 companies in the off-chip business. It literally, technologically is 10x harder than on-chip. That's why so many people do on-chip because it's pretty simple in comparison. So IDEX has a huge history back to 2003 with some of the early swipe off-chip sensors. And then, that was augmented in 2013 by the acquisition of PicoField, acquiring the technology players from the past and also, we have acquired an advanced matching technology.

 But when you look about -- when you look at the teams that you have to assemble, there -- well, first of all, there's a limited pool of experts in this field. When you have an emerging market, that's one of the problems that you have. So where do you -- how do you scale the company technologically? One of the things that we have done is acquired teams from related markets, from the touchscreen market, where people have to do touchscreen integration, the kind of capacitive sensing that you have to do is similar.

 We have acquired whole teams and have some of the key players. One of the key players worked on the original iPhone touchscreen. So we're importing people that have similar backgrounds and understand the cost demands, performance demands. Some of our team members were the first to do hover capability.

 And the last thing that's really important -- and I can't say enough about this, I know Stan will say more about this, is system. We cannot look at a biometric device, especially in the card IoT space, as a widget that just gets glued on, attached on, and swapped out by 10 manufacturers. It is a systems integration problem. And unless you'd developed the systems expertise to do everything end-to-end, you cannot really be successful. You're not going to be able to drive that kind of solution, especially in the card space where everything is so highly integrated. And it's going to become more so in the future.

 Patents, that's another entry barrier. We feel like we have a big war chest. We've got some of the original patents, going back to the late '90s, acquired a bunch more through PicoField. But I want to say that it's -- even though we've got numbers up there. We've got numbers in all those different sectors, because it's not -- when you talk about systems, not patents on one area, we have them in many areas.

 But ultimately, it is not a numbers game. It's a quality of those patents. Are those patents foundational? Now unfortunately, people will throw up screens and say, "Well, I have just as many as you." Well, how do you begin to maybe get some objective metric of whether patents are really powerful foundational blocking patents. I guess one of the ways, I think, that you can use fairly is how many citations do these patents have looking forward into other patents. How many people have referenced you filing their IP?

 And if you look across our portfolio, across-the-board, 56 different entities have referenced our patents. One of our foundational patent alone has over 20 citations by other patents that followed in the future. So we do objectively feel like our patent base is quality. Again, there's a difference between quality and quantity.

 Here, systems integration, again. I can't say enough of how important it is. In fact, we have been -- most people in this industry refer to their sensor as an ASIC, an application-specific integrated circuit. We really don't make an ASIC. We really make a system on a chip. And that's what's going to carry the day. We put all the elements. So because we have our own matching algorithm, and because we're integrating our own NCU and have our own power management unit, we can tailor all these things, specifically, for the application and optimize them holistically. Again, Steve will talk more about it.

 The same thing is absolutely true with security. The higher level of integration you are, the more you can build a secure system, and this is one of the huge issues is security and being able to meet that. So that lends itself to that point. We feel, again, this is sort of in summary here, that we are positioned -- again, I haven't met many of you long-term investors in IDEX but I know there's had to be a lot of patience. And IDEX has been, behind the scenes, I can speak from a technology point, doing the heavy lifting. This technology is extremely difficult. It's very easy to do Me2 incremental. But we spent several years, in fact, since the acquisition of PicoField, myself and my team in the expansion, we've been in the trenches. That's part of why we haven't been in the Capital Markets Day before because we've been developing a technology and making those fundamental investments, getting all these pieces together. And right now, we're at that point, we've got these pieces together and we've got the winning strategy and roadmap for this market, instead of doing something incremental. And I think in the near future, some of that's going to become very tangible in things that we all like to see. So that's my talk today. Thank you. And at this time, Stan, if you would?

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [4]
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 Good morning, everybody. My name is Stan Swearingen, and what I wanted to do is give you a little bit of my background because I think we're all products of our environment, so you'll see how I view the world. So as Hemant mentioned, previous to joining IDEX, I was the CTO and the General Manager for Atmel's touch business. And my primary role there -- well, running the touch business was one of the roles, but primary role was really working and crafting the strategy around Atmel's portfolio: microcontrollers, flash, crypto memory. And so when you look at a card in that block diagram, what I was doing at Atmel was looking at the evolution of those components. Before I joined Atmel, as Hemant mentioned, I was at Synaptics. And I was actually intimately involved with the formation of the biometrics division and the vision around how do we evolve the human interface. And at that time, I was involved with the early design win activity of the Galaxy phone, designing in the touch ID equivalent. Before that, I was the CTO of the company and I ran the entire technology team through the evolution of display integration as well as touch and display, merging the display driver and the touch controller. And I was really proud, we were the gold standard for touch of innovation. And when I left Atmel -- or I left Synaptics, we had won every single flagship phone, and we had unbelievable market share and we had a rate of innovation that nobody else could come close to. So we did, as I mentioned in-cell, followed by force, followed by passive stylus, followed by glove mode. And this whole idea of innovation is what drives margin. So when you look at commoditization, commoditization is part and parcel with a stalled innovation engine, or a lack of technical challenge. And so I think you get appreciation of the scale of the products we developed. The first product I worked on there just shipped its billionth unit, one product. So we used to joke, anybody can do a demo but it takes a world class team to engineer something that can ship in hundreds of millions of units. And we've assembled that team here. And I can competently say it's the All-Star team. So getting a late in my career, but to work with such a talented team that we assembled in a fairly short period of time, and our systems capability is really joy. So part of the other thing is, well why did you join IDEX, right? We sold Atmel to Microchip, so why are you here? And there is 2 pieces for it. One, and I don't want to inflate Fred's ego, but working with a founding father of an industry is a very rewarding thing. Because 30 years, or I know you'd probably started out in high school, but 30 years of institutional knowledge, there's insights and nuances you just can't get any other way. And the other part is, I love tough challenges. So actually met Hemant 2 years ago in Barcelona, and he talked to me about the card market. And I was thinking, wow, talk about a super constrained environment where a tremendous about of innovation has to be brought to make that a reality. It's really exciting for me. And so for me -- it was other considerations but those 2 considerations and taking on a technical challenge. And I would tell people I was talking about in-cell back in 2010. And I can tell you when we talk to people about in-cell, which today is a given, people told me, "People tried this for 20 years. It can't be done. It's not feasible." But we had the insights of the technology converging -- convergence that said it was feasible. And so with that backdrop, I'll talk a little bit and I'll show some of the slides Hemant did, but slightly different view on some of the slides. So the same fundamental components and I'm going to talk a little bit about the market, talked a little bit about the technology. The partnership with Mastercard is critical, and I'm going to talk about how important it is to have a partner at the front end of an innovation engine. And then we'll talk about the compliance and standards. So when you look at a market -- and I could draw the exact same market for touch. If you go back in time to fingerprints. Fingerprint technology was around well before Apple introduced it. So what was it that happened that made it so pervasive? You had a market maker called Apple. And what Apple did is they took the constituent components of the technology and put it together in a compelling way. And that's what Apple does. So when you see what Apple does, they made the market, so you have to ask yourself, okay, Apple does that for mobile, who's going to do it for credit cards? Because somebody has to take the holistic view and be able to influence the end customer, be able to understand the usability and what has to happen, and that's Mastercard. So I'm quite confident and I've been through this now. Larry and I are actually -- working WiFi, so we're some of the founding fathers that brought WiFi to market and Bluetooth to market. There's a common theme here, which is a company has to have the ability to move the market. IDEX couldn't do that by itself, none of our technology partners. You need somebody of a Mastercard's stature to do that. So the stars aligning now where you have a market maker. But the other thing that's interesting in this model is a technology provider has to take on an expanded role at the beginning of a market. So if I go back in time to Synaptics, Synaptics, when touch exploded and the iPhone launched, we actually had to go meet with the manufacturers of ITO and films and help them understand how are they going to manufacture this new thing called a touch sensor. And then we also had to go on the other side and work with how do you engineer something that's going to ship in hundreds, and how do you test it? How do you do that in a cost-effective way? Because when you're shipping things in billions, pennies matter, half cents matter. And so the other thing you'll see in the big market is supply chains naturally collapse to efficiency. There's no room for margin stacking. So any place there's multiple players, they, by definition, have to collapse to make the market happen. So what you have to be as a technology provider, you have to take on an expanded role. So as Antonio showed you, the card manufacturing, we have to help card manufacturers understand how do you integrate a fingerprint sensor. Sounds straight forward, but if they're doing it in billions of units, we can't come up with a technology that says "oh you have to go buy a bunch of new machines. You've got to change the way you..." We have to adopt our technology to their process. So those are key things that you have to build a competency in a company around, and the capability around. So if you look, the other thing I used to jokingly say at Synaptics was, don't confuse us with how we collect our money, with who we are. We're a systems company. We have to be a systems company to make the card market happen. We may collect our money selling a total solution. Because there's going to be different levels of sophistication in the supply chain. There are going to be people that just say, I just want the total solution. I want to put plastic around it, go to market. You need to have much more sophisticated players that are saying, I just want you sensor. But you have to develop the sensor with the system understanding. So if you look at our portfolio on our offering, we have contact and you'll see a demo. We have contact and contactless, so dual-interface. And that's a tricky one from a systems engineering perspective of how do you come up with an optimum system that can do both contact and contactless. And so right now, we are -- the technology is there. We are out there now working through the integration challenges. And so as Fred mentioned, the heavy lifting on our silicone and on our algo-s, on our software, our tools: that was things we did last year. Now it's all about how do you partner with the IDEMIAs, and the Gemaltos and Mastercard and get through the security and the regulations. So that's the phase we're in. So if we look here, Fred talked about the supply chain. So when you're shipping things in billions of units, you have to have partners who are used to doing things in billions of units. TSMC: gold standard. Their engineering models are phenomenal. Their responsiveness, just can't say enough. They are Tier 1. Similar for Amcor. Now obviously, we're going to have to expand this, right? So we already are in the process of qualifying multiple, we call them [OSATs], packaging and technology partners. And then, we have to partner in a way with Gemaltos and the IDEMIAs, which is interesting because we're codeveloping with them. So we have to put an architect or systems engineer, head-- bolt them together, so that they can talk about the traits analysis. So when you put together a high performance embedded system, it's all about traits. And what I mean by traits is do I solve the problem in an algorithm, in a digital domain? Do I solve it in the analog domain? Do I solve it outside those domains in some other way? Do I use a different sensing modality? So an example, when we look at this, we look at capacity, we look at off-chip. As Hemant mentioned, if we thought silicon sensing was the right approach, we have the wherewithal to do silicon sensing. Ultrasonic, I started working on ultrasonic fingerprint technology in 2010, when I was at Synaptics. Fully vetted the space, know it inside and out, know optical inside and out. Believe me, if I thought ultrasonic was the right thing for this application or optical, I'd be telling Hemant, "okay, let's talk about building that competency." So these traits are really important and it comes from deep insights with your partners. And I can tell you when we put our system's architects in front of the Gemaltos and IDEMIAs, they are of equal stature. So this is the kind of caliber of the people we've brought on board. I'm actually pretty proud of them here in the U.K. as well. So they're very close from the ability to get on a plane and sit down and talk about power analysis, power budgets, field modeling, all these system things you need to do to be a true systems provider. And then the market enablers. And again, really super proud and excited to be a part of -- partnered with Mastercard, because they are the, we jokingly call them the Apple of the credit card industry. They are the ones that are going to make it happen. And then as Antonio talked about, there's payment, there's government ID. There's all sorts of different types of cards. So how do we think about creating our technology in a platform way, such that we make the investment once and very quickly we can do quick derivatives to fill the needs of these other markets. And that's what we've assembled. So here, the partnerships and we're just seeing -- I'll talk a little bit about this in a future slide. When you do pilots, when you do customer feedback, you get an understanding of the performance of your technology. So 3 years ago, we were solving and understanding and finding out of problems our competitors have yet to even see. So when you think about virtuous cycle, if you're out there early, that's why first mover advantage is so important. Out there early, insights nobody else has, you have a process by which you get those insights into your technology and deliver your technology. So just as your competitors are coming out with technology, what they see today, you're following that with something that they are going to take another year or 2 to get to. So it's this cycle that you have to make sure happens. And there's a lot of nuances and a lot of natural energy that causes it to stall. And I think you've seen that today in the mobile market with the capacitive button. Because if you look at it, if somebody would have done display integration, they would rule that market. Display integration is a really super tough, and I'll talk about that. We were working on display integration for fingerprint sensing. I started the research effort in 2010. And the people who did that research work for me at IDEX now. So we have people that have been thinking about this problem for 8 years, and it's a tricky problem. It is solvable, though. So again, how do you solve it in such a way that it's applicable to your current market, and not so obviously, it is 100% applicable to the card market.

 And so we have the standards, we have the issuers and that POS. And what excited me about the card market, as I learned through other markets, is if you have to change the infrastructure, we have to say, boy, biometric is so powerful, but all the retailers have to buy new POS machines. And so for people who aren't in the U.S., chip cards, I still go into stores today and they don't have a chip card reader. Today. I mean, in Europe, I used a swipe card last year and the waitress laughed at me. She's like "my grandparents had these." So I was like -- so the concept of the global community and how they interact with technology. If you can come up with the new usage model that leverages current infrastructure, so what you're going to see in our technology, the reader doesn't have to change. The infrastructure stays the same, great convenience, tough technical challenge, and I'll sure you on the slide right why it becomes tough.

 So biometric payment card, clearly, Mastercard, anybody can judge these numbers. If you look at forward looking forecast, usually wildly off. So I usually take off factor of 10 and say "wow what's it look like if I factor it down by 10?" I think still a big market. So the market's really, it is anybody's guess how big it is. But it's meaningful from a company of IDEX's position that even if it doesn't materialize in the magnitude we're talking about, it's still significant. And it's really -- Antonio touched on this so I'm not going to dwell too much, but fraud protection is a really big problem. I've had my credit card and identity 3 times in the past year, somebody's taken my card and bought products all over the globe with my credit card number. So if it -- and I pride myself in being absolutely normal. So if it's happened to me, it's happening to a lot of people. And so solving that problem for the banks and finance, that's a pretty meaty problem to crack. And when it is cracked, the amount of economic value that's going to bring is going to be significant. So the motivation factor is there to solve the problem. And that's why Mastercard, they are out there because they know the power of what this means of delivering the biometric performance to a card application. And we talk about sensitivity to cost. Every market I've ever been involved with is sensitive to cost. But what's not so obvious, and Fred touched on this, you can reduce the cost to the system, but you can increase your ASP and your margin. Because if you bring the cost through integration and other means, if you bring the cost of the system down, or, as an example, when we did in-cell at Synaptics, we took out the whole sensor. And we didn't go and say we're going to take out the whole sensor, and oh by the way, Mr. LCM, you get all the margin. We want our fair share of that. We did the heavy lifting. So what you'll see in a lot of the slides is cost and cost reduction, but don't necessarily think that means ASP or margin decline. These systems are so complex and they have such high-value, the margin should be representative of that. I think Henrik's going to talk a little bit about that.

 And here, the government ID and Mastercard, although we talked about them in the context of a payment provider, they're also unbelievably involved with financial inclusion. It's a major strategic objective for them. I forget how many banks, hundreds of governments and institutions that are working with Mastercard to solve that problem. So not only, working with Mastercard, do we get the insights on the payment side, we're also getting tremendous insights on the financial inclusion. And I think every day, and Joe can -- or Hemant, it's like every day now, we've got some new government that has some ID program and these are tens of millions of cards. So as Antonio talked about, government ID, dealing with immigrants and those sort of things, is a huge opportunity as well for us. And so if we look at -- so that's great, Mastercard, IDEMIA. What other ideas are we starting to see pull from and penetration? So we made an announcement. We have a really significant partner in Asia, and they're building cards as we speak. And they'll start to show those cards to their customers. And we're also seeing acceleration across multiple -- and it's, when you're involved in a market that starts to materialize you go from, I'm having to push the story to now I'm getting inundated with people who want to meet with you. So there was a big show, was last week, 2020? And we sent some people there. They literally were in meetings 12 hours a day, the entire show. That's how many people wanted to meet with IDEX and wanted to talk about this concept of smart card integration.

 So access control, again, I won't dwell on it. It's another adjacent market, leveraging the exact same technology. And Fred talked a bit about the partners, as we mentioned in a previous slide. And Amcor is a gold standard in packaging, but when you look at our technology, our technology lends itself for all sorts of packaging. So the exciting thing for me about off chip is you can do some pretty interesting things with some technologies that are not quite so obvious that will dramatically change the cost structure while improving the performance. And in future quarters, you'll start to see some of that from us.

 Now I'm going to try to distill in one slide what I talked about in this innovation engine. So we have a systems engineering team, it's a very simple model, it's not proprietary. You have a group of people that's [inked] to understand the application in unbelievable detail. And they model it, they understand it to such a level that they can start to do architectural concept work and say "well what about this concept and how would it play against the model? What if we made this trait, that trait?" And so there is a body of work which is in this innovation and architecture. And we had to go and actually do an entire power budget, and understand in a contactless card, where is the power consumed? Who are the power consumers, and what are innovative ideas to dramatically reduce the power profile? And a lot of the innovation was actually outside of our sensor. So we had to come up with new power sequencing schemes, new ways of starting and stopping our scanning, all sorts of really innovative systems and IP. And I think you saw some of the patent filings we're starting to file for. So that's kind of the hardware side of things.

 The next is, remember when I talked about POS terminals and we've got to fit into a POS terminal. So NFC, think about this, we're harvesting the energy from a field, a radio wave field. And we're having to power an entire biometric system where we capture a fingerprint, match a fingerprint and do all that in a very [finite] period of time. And you would say, well, just engineer your system to meet the NFC spec. And you would fail miserably, because a majority of the readers in the field don't meet the NFC spec. So now what you have to do is figure out well then, how do you know what to design to? Easy, I'll go profile a bunch of readers. They're secure. They don't let you have access to the readers because it's -- they don't want people cracking them. Without a partner like Mastercard: unachievable. With a partner like Mastercard, modeled, understood, and that's actually a picture of the NFC field as it moves to the edges of the reader. So we're quite confident now when we show you our demo, we know exactly what the field available to us is in the worst case readers. So we have to engineer our solution to deal with that. And then we do all that, then we have to say, well "now we have to make it flow into the existing manufacturing process." And so now we have to meet with machine manufacturers and assemblers and have workshops with card integrators, on, okay, how do we need to deliver our product to you such that it's so easy to apply and it's high yielding and so forth. And that's the work we're doing as we speak.

 And then this all leads to a really compelling roadmap. So if we look at -- there was an announcement that went out recently about a partnership we formed with a global payment provider, which I'm over the moon about. I mean as an innovator, it doesn't get better than this. So we actually have the opportunity to innovate. We are actually meeting with that partner's customers. So think about a company that's got the system's wherewithal back that sit down with the end customer and talk about the problems that they're having with the technology. And then, you brainstorm with your partner. You come up with architectural candidates. And then you qualify the requirements and start to define the requirements so you can flow it into your technology, then you prototype it. You then take the prototype out and you field-test it. You then get all the input from the field test to refine your technology further, and that defines your roadmap. It's a virtuous cycle. It's very difficult for somebody who is not in the cycle, how do they know what problems we're solving? They don't, until they see it in our product. A silicon development takes, roughly, about 18 months. So if you knew what we were doing today, the fastest time you could intercept us would probably be 18 months, unless you really did some extraordinary things. And that's just the silicon side. Then we have the algorithms, the matcher, enrollment. There are so many opportunity to innovate in this system. It's as excited as I've been in any system that I've been involved with.

 And then we talked about the platform. So the beauty of an off-chip platform is, you can have 1 SOC, if you will, and you can use different sensors. You can use different algorithms. You can use different matchers. So we have a Lego-like approach, which is we can very quickly assemble a solution and go after a particular vertical based on insights and the traits. And as we showed, we have contact, we have contactless, large sensors, smaller senses. So we're really quite a robust roadmap for a team our size.

 And so if you look at that, you say, well okay, if that's all well and good, what other market could you attack? IoT is very synergistic to cards, if you think. And not all IoT, having -- I was at Atmel. IoT is a pretty broad term thrown around a lot. So there are applications as you can imagine, if you've solved for ultralow power, flexible, go through the list you have to do for a card, you could very easily see, well that would be applicable to a wearable. That would be applicable to -- and you can start to see very quickly that we can take investment we made for the cards and very quickly, have a very compelling offering for IoT. The challenge in IoT is IoT doesn't have an Apple or a Mastercard. So one of the things we spent a lot of time at my previous job was where does the next wave of innovation come from for IoT? It comes from 4- and 5-person maker movement. So what you have to do is, you have to come up with a solution that's 0 touch. So you have to have a module that you can just ship, and the person who is going to integrate is doesn't need to know anything about biometrics. That's why having your own matcher, having all these elements are important because then you can -- we call it a bounded module. Then you can do a turnkey solution and it's very low touch and you can use a much broader sales model as well. And so we've laid the groundwork and have a product offering that we'll start to introduce to the IT market here shortly.

 So if you look at that, and I'll touch a little on display integration, because I know it's a hot topic. So display integration is, and how I view display integration from my days at Synaptics is, you're really taking the sensing elements -- true display integration, the sensing elements of a biometric sensor would have to be built as a part of the display manufacturing process. So when I look at display integration, it means a display will innately come from a display manufacturer as a biometrically-enabled module. Now some things that are converging from a technical perspective that give me hope it's feasible from a capacitive perspective, is if you look at the pixel density of the displays that are currently coming out, they're 500 dpi. 500 dpi is actually more than you probably need for biometrics, so the pixel density is there. The interconnectivity is there. There's some other systems problems that need to be solved for capacitive to be a viable technology for display integration, and we believe they're solvable. There's other paths. You can say I can use optical and I'll use an optical imager to image through the display and put it behind the display. But as you can imagine, displays seek to get thinner and thinner. So anything that has to go behind a display may have its day in the sun, but is it a long-term viable technology? And so when you look at display integration, it really -- their nirvana is, you build a display and it naturally does fingerprint. And the other thing that, ideally, you would want is you want to touch anywhere in the display. So you don't want to have to -- and the idea is persistent authentication. So picture, you could authenticate people naturally as they're using the device. You don't need a special, hey, unlock, it's just, because you're interacting with the device via touch, you're getting that authentication persistently, which gives the security level a tick up. And so for us, as I mentioned, myself and a few of my teammates at IDEX have been thinking about this problem for going on 8 years. So it's not like we just -- and we have some well-formed ideas and it's just, it's in research and what research says. And now we've defined some of the problems that have to be solved. And what has to happen is the other supporting technologies have to converge to solve that problem. So it's on our radar. I think it's important for us to enter mobile in a very disruptive way. For us to go to a standard sensor that competes on the back of the phone, with a -- I mean, as an innovator, that's not really exciting for me. What's exciting is to be the first person who figures out how to integrate a new display, to figure out contactless. One of the things that a dear friend at Synaptics used to say, you know when you have innovation right? It looks like magic. And when you see the contactless demo, it's magic. It's like how can you do all this stuff with -- there's no battery. You're harvesting radio waves, right? So for me, I'll leave you with that thought, and then I will turn it over to Henrik.

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 Henrik Knudtzon,  Idex ASA - CFO   [5]
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 Thank you, Stan. Good morning. My name is Henrik Knudtzon. I'm the CFO of IDEX. And I will be talking to you today about how IDEX will pursue profitability and revenues. And basically tying up everything we've talked about today and what the implications are financially. Today you've heard Fred talk about our technology, our Off-chip technology, highly suitable for cards. Stan talked about our foundations, how we're going to capture that. And all of this has been enabled by significant investments being made in IDEX over a long time. And that investment has yielded products which are ready to go to the market, which you saw in Stan's presentation. It's yielded a very capable strong team, which we have today. And also, as Fred talked about, we do have a lot of very solid IP. And all of that will be used now, capturing the next wave. And we are targeting the biometric card market, and that's where we expect to secure a very significant market share. And also as Stan recently talked about, we will be leveraging those building blocks into the IoT space, and further ahead, in mobile, with the display integration.

 And Antonio talked about the market. The biometric card market is expected to be huge. We see lots of interest now from banks, from retailers, from government institutions. And in fact, IDEX's perspective is that the biometric card markets in 2020 will be about 250 million to 300 million units. That's a significant market. We expect that the ASPs in this market will be from $3 to $5 for the biometric solution, which gives a total market of $750 million to $1.5 billion, a huge market. And we do believe that IDEX market share will be significant, and we've said 30% and up. And the reason we believe in that significant market share is because of what we talked about today. Our technology position with the Off-chip technology, it's how far ahead we are in terms of certification, our partnerships. And we also believe that this is sustainable because the card space is -- it's an ecosystem, which is very -- it's European-centric, most of the card integrators, they are concerned about security. Obviously, if you're in the payments situation, you need high-security. You need certification and you need robust IP. On top of that, we have the certification process itself, which is not trivial to complete, which IDEX is in the process of doing. And again, we did talk about the technology but we believe with our system approach, we will have a cost and value advantage in offering this compared to a lot of other technologies out there.

 So I'll try to make this a bit more tangible. I mean $750 million to $1.5 billion, it's a huge market. So the way we're trying to illustrate this is to talk about what does this mean and what does the customers look like. So we're breaking it down into 3 customer groups. The first one is the payment group. That's basically banks and credit card issuers. There's thousands of these customers out there. In the U.S. alone, I believe there's something like 8,000 banks. A typical opportunity, a bank could range from hundreds of thousands to several tens of millions of customers. And what we have said for this example is that a typical customer program would be around 600,000 biometric units.

 The next customer group is the government, the government customers. That's typically driven by the population of a country, the population of a geography, et cetera, and that could range in the millions to the tens of millions. It's huge opportunities. And for this example, we said that a typical customer program would be 10 million units.

 The last group are others, so that would be corporations, it could be governments, and markets are typically access-controlled and other smaller verticals. A typical opportunity here would be somewhat smaller. Let's say, 350,000, just for the sake of this example. And where are we today? Well, we have been piloting as we've talked about. We have piloted with banks, with Absa in South Africa, with Bulbank in Bulgaria. It's also Pick n Pay in South Africa. So it's being trialed, and we expect next year that this will ship in volumes to banks and to payment institutions. But also we're seeing lots of interest from the Far East, Asia, with access control and other customers as well. So in 2018, we expect to see several deployments of sensors to actual customers.

 Beyond that, in 2019, we expect to this to pick up, it will build momentum. We expect to see the first movers in the government space with financial inclusion and ID programs. And then by 2020, we do expect this to have become a huge market. And just to illustrate what kind of numbers this is, we made 2 cases: what you need to believe in terms of the number of customers and to achieve 75 million unit shipments. The composition could look like 40 bank programs, 4 financial inclusion programs and 30 other customers. And this illustrates the scalability of it.

 In terms of the total mass of customers out there, this is a fairly small portion of that. And the second case is just doubling that. So we have momentum. We do believe in strong pick up next year and this market will grow a lot. It doesn't take a lot of end customers to actually achieve these numbers.

 So next, I want to talk about gross margin. We are aiming at a gross margin of 40% to 45%. Currently, we're at about 17% year-to-date, but we have several levers to increase the gross margin. Some of these have already been actioned. And the first one is, what has depressed our gross margin, historically, is the model we've had with some of our mobile sales, which has been a license-like model. By moving to a direct model, which we will be doing in cards, we expect to have a higher share of the value. The second is also the shift from mobile to cards. We expect to get a higher share of the value. And as Stan talked about, since we're offering a system solution, we can actually capture more of the value, which will increase the gross margin, which is critical to our strategy and we believe we have a very strong model for that. Thirdly, and this is very tangible and already completed, is the shift to the new ASIC, which we launched earlier this year. The economics of that model is better than the previous ASIC, which means that, that will also increase the gross margin. And then we have other levers as well, so we'll work on the bill of materials through improved packaging. And importantly, as the volumes increase, we expect to get better payment terms, purchasing terms, which all will contribute to getting to the target of 40% to 45%.

 In terms of OpEx, we believe that we are currently at capacity to follow the strategy we have laid out. We have invested quite a lot recently and there's 3 cost drivers at IDEX. The majority is headcount. And we have added a lot of people, in fact, we added a net additional 42 people the last 12 months. And now we believe that we have the capacity and we have the bandwidth we need to execute on the strategy. The second cost item is external development spend. As we are quite development intensive, we have used a lot of external and third-party vendors for that. Now we have increased internal bandwidth, so we actually expect that to someone decline going forward. And in in other OpEx we expect to be at capacity as well. So that means we do not expect the OpEx to increase going forward.

 In terms of funding, as of Q3, we had a cash balance of NOK 359 million. There's no financial debt. We do not expect the OpEx to increase going forward. And with the current OpEx run rate, we do have OpEx coverage for the next 6 quarters. This slide basically sums it up. We do expect the biometric card market to be the driver of growth in 2018. In 2020, we have a target of more than 30% market share in this huge market. We will be leveraging our platform technology and products to the IoT market as well. And also, we expect to be able to enter the mobile market with display integration products. Gross margin, 40% to 45% through the levers I discussed. OpEx currently at capacity. And we are solidly funded for our current OpEx plan and the revenue ambitions we have. So with that, I'll turn over to Hemant, again.

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 Hemant Mardia,  Idex ASA - CEO and MD   [6]
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 Thank you to, first of all, everyone here who has attended today. We are going to conclude in terms of our presentations and we're going to, then, follow with a Q&A. But just to summarize, we're very excited now with everything that it has taken in terms of investing to build up a capability to deliver the promise of what we have as a company. I think IDEX is uniquely set. That uniqueness has been acknowledged by Fortune 250 names, in particular, in this case, Mastercard, who we've been working and deepening our partnership with. And some of the accomplishments of that you've seeing along the way and the promise and the potential has been acknowledged. And so for us, at this time, where, I think, 2 or 3 years ago, when I first started talking that IDEX was coming into the card market, people said okay, we don't understand. Where is the card market? And I think we were effectively taking a pioneering stance to say this is something that is going to happen and IDEX will be right at the forefront of it. Clearly, for any mass volumes you saw the kind of numbers that Henrik was indicating. Of course, today, we can only indicate them. You can see the scale. You can see from Antonio's excellent presentation, the potential that is here once you create such a biometric card. And certainly, my experience is anyone that I have met even on the street or even that I meet day-to-day, and I show them the card, their first question is when can we have it? So for me, it's a very obvious pull, and I think IDEX, now, is really positioned.

 For this to be a healthy ecosystem, naturally, there has to be multiple suppliers and I think, as Antonio said, this is a key part of -- so I think as we look at the overall development over the next few months of this marketplace, we can expect to say many more companies in the whole ecosystem attracted. That's a good thing. That's what it's going to take. This is something that's got to be a global scale. There's thousands of customers. There's multiple industries here. So this is something we want to see, really, become predominant and ubiquitous around the world. And I think for us, to be able to present now today a vision of what we have, where we come from and that we're now on the cusp of commercial rollouts is an exciting thing. So with that, I'd like to conclude our presentation. For here in the room, we're going to take a short break, 5 minutes, and then we're going to take question-and-answers across the panel. So thank you very much.

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Questions and Answers
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 Hemant Mardia,  Idex ASA - CEO and MD   [1]
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 I will open it up to questions and answers.

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 Unidentified Analyst,    [2]
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 This is Francois (inaudible) from UBS. I just have 2 high level questions on the smart cards opportunity. Do you think it makes sense to have 2 different architecture in the markets, given that one of your main competitor is having a different approach, [LeMon], on silicone on the off-chip? Do you think 2 different architecture is possible given what we saw in the mobile where standardization is key for mass adoption? If yes, you'd seem to be one of the only one in off-chip really pushing for the smart cards. So what are the opportunity that would come from, basically, that's a question of high level. And the second one is, as we get closer to the commercialization of the product, who is going to pay for it? Is it the banks, the consumers, and how much?

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 Hemant Mardia,  Idex ASA - CEO and MD   [3]
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 Maybe I'll take the second question first, and then I'll, yes, correct. So okay, Stan, why don't you kick off?

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [4]
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 Take the first question, yes. So as far as the -- the way it works is the superior architecture is going to win, right? So a market can support multiple architectures. As an example, the Galaxy phone has off-chip. And there are hundreds of millions of units. So there is a proxy for having multiple architectures. I think the question becomes, does a multiple architecture really change the dynamic of the supply chain, and in this case, it doesn't, right? Because if you look in the packaging, you look at TSMC for silicon. So I think, at the end of the day, the dominant architecture will be the one that's best suited for the application. And I think that's when you see, as I think Hemant and Fred touched on, with mobile, because ID drove the decision-making that the -- and there are many resources available on the smartphone that, naturally, that architecture had some baked-in advantages. In this case, we believe our architecture has the advantages and it will win the day because it will have such a compelling value prop. But there is so many nuances and different payment cards versus identity. So will there be segments that a silicon sensor could fulfill? Absolutely. So as Hemant said, it's going to be a multibillion dollar market. We have no illusion that one supplier will supply that entire market. So it's an excellent question. At least, my experience from mobile and my saw unfold in mobile says, yes, the market can have 2 different architectures.

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 Hemant Mardia,  Idex ASA - CEO and MD   [5]
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 And to take your second question, we showed the ecosystem, how it works, and again, a worthy, important question. So for us, the distribution and sales channels are the large card providers. So the integrators, such as IDEMIA, such as Gemalto, these are the companies that provide and deliver the technology to the banks. So the ecosystem is effectively has to be sponsored, and the sponsor is Mastercard. They're the company that stands behind the product. So this is really important. So just as today, your chip and pin card -- Mastercard don't make cards, but you get a Mastercard branded solution. That means Mastercard is standing behind the security and the liability that is required to make that whole ecosystem work. And they're promoting the products. So as new products come, such as this, Mastercard have a whole program around how this is being marketed to the customers. So be under no illusion there that they are the ones going to the banks. And in effect, this is very important, because they're going to the banks and saying, we're Mastercard. We've been standing behind this program. We want to deliver this solution to you and here is a range of card integrators that you could work with. And the common element right now is that IDEX's sensor is the technology. That's what you saw in the finger print. So for us, that means that working across multiple card integrators is really our strategy. And what's very interesting in the card ecosystem, it's quite concentrated. You can see in the top 3, you've got almost 2.5 billion cards per annum. So it's a very different ecosystem to what you've seen in the mobile space. So I think that whole delivery and how we get cards to rollout is why we've been working hard with card integrators and enabling them with solutions that we've been working on for many years.

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 Christer Roth,  DNB Markets, Research Division - Analyst   [6]
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 Christer Roth from DNB. The first question was actually for Antonio. I'm not sure where he went, but all right, okay. I'll -- exactly, save that one for later. Fraud prevention was mentioned quite a few times, so a reduction in terms of implementing biometric smartcards. But without a display for dynamic CVV, do you really sort of address the issue where fraud is most prevalent in terms of online transactions? So as long as it's used on a POS terminal, aren't you really just sort of substituting the pin aspect, so creating a convenience factor more than necessarily addressing the fraud aspect? Then is this dynamic CVV aspect an important part for a milestone achievement that is necessary to see traction within the smart card payment space?

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 Hemant Mardia,  Idex ASA - CEO and MD   [7]
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 I'll take part of it, if I can. It's a broad question. So I think, again, there's multiple ways and there's multiple fraud-related questions, so you're right that one of the questions and one of the significant issues is online. And this is not, specifically, aimed at that. When we're talking about fraud, one of the flagships for Mastercard is, there are 2 billion people in the world without access to payment, for a reason, which is related to fraud. And so the financial inclusion aspect is huge. And you probably have seen some statistics. The leakage is over 90%. So these are big, big numbers. So that is a huge market opportunity. So really, I think we tend to think very much on the Western world aspects of what we see. So I think the aspects of someone skimming or taking your card and the inconvenience factor. And if we take Mastercard, they've quantified these different elements, so that when they go to the banks, they can say this is the financial proposition that it gives you in addition to customer innovation, which is huge for banks. So I think there are multiple aspects, so I think when we look at an dynamic CVV, that's addressing and solving a different problem. And it's a very valid thing to do.

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [8]
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 So from a technology perspective there's no -- and I think part of what we are hear from Mastercard is biometrics' an additive, so even dynamic CVV, you can have a dynamic CVV card that had a fingerprint, right? So basically -- because if somebody steals my card and it's Dynamic CVV, they still -- so to enable the dynamic CVV I could envision a use model where they would use fingerprints to turn that on. And then the -- so and I think that's important, right? Because what we're not saying here is this is going to replace all the other user analytics and everything. It's kind of an additive level of security that can then unlock just a deeper level of understanding, who's actually using the card, right?

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 Fred Benkley,  Idex ASA - CTO of IDEX America   [9]
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 But inevitably there it's got to evolve to where there are some form of NFC reader either through your phone or they're going to be deployed -- it'd have to be mass deployed, because online fraud is the biggest problem out there, it's the largest number of transactions. So clearly, it's going to evolve to that, where you're going to have local readers and whether those readers are even supplied by that credit card companies is to be determined. But clearly, once you master being able to securely match behind a secure element, and do that all safely and prove that technology out, then you can communicate that and have simulated POS terminals with readers and NFC in your phone and those things are being actively explored.

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [10]
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 But I don't want to hijack your question, but one of the things with Dynamic CVV that really was a keen insight for us. We're always looking at cost. And so what cost you have to hit to hit an inflection point? So Dynamic CVV was really an insight to, "boy, the market will bear some cost" and so when we look at the cost structure of that card and we start to say you know what, there is a proxy that says, yes, we're in that cost envelope.

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 Henrik Knudtzon,  Idex ASA - CFO   [11]
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 And I think the background for your question is probably what's the business case for a card. And the intuitive first thing you go to is fraud prevention. And obviously, there's card present situations, which have fraud, and a fingerprint sensor will help that. But there's also other elements to the business case. So for example, in situations where people don't remember their pin code, so you have lost revenues. And if you forget your PIN code, or you entered it wrong 3x. The bank actually has to issue a new card, that has costs. So add all of these costs and suddenly, you have quite a compelling business case for actually introducing fingerprint, but probably, innovation will be driven by pull from consumers as adoption of fingerprint has become widespread to mobile. So what we're seeing is that the banks who are interested now, they want to differentiate, they want to be leaders, they want to create the card which is top of wallet. How do you make the consumer actually use your card? And having convenience security as a feature will enable that.

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [12]
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 And you had a question for Antonio?

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 Christer Roth,  DNB Markets, Research Division - Analyst   [13]
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 I was just wondering, you spoke about sort of the market overall? Could you give us some insights into your perspectives with respect to IDEX's is offering versus fingerprints, the T-Shape?

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 Antonio D'Albore,    [14]
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 To be honest about T-Shape, I don't have much specific information. What I know is that it's a module that can be embedded into the card using pretty standard industrial equipment and normally available at the card manufacturer site. But I don't have any specific information. That has just been recently released and I got an opportunity to get more the specific information on that.

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [15]
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 I'll comment a bit on T-Shape as much as I know it, right, because it's fairly new. What it is, is it's a delivery system for basically taking how a card is manufacturing, delivering and presenting your product in a seamless way to the manufacturer. We can do the exact same thing, actually off-chip it's a bit easier, because with silicon there's something they have to deal with coding and drivering and those sort of things. So we don't see anything in there, that we believe puts us at a competitive disadvantage, actually, we're having workshops right now and talking about doing delivering in essence, the same capability.

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 Christer Roth,  DNB Markets, Research Division - Analyst   [16]
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 Just a follow-up, in terms of developing going further, can we envision a future where the off-chip version that you offer actually enables you to utilize the existing MCU on a smartcard in terms of processing as opposed to now doubling up in terms of MCUs in cards, obviously, lessening the energy requirement, lowering the bill of materials, et cetera, et cetera.

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [17]
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 I think you saw on Fred's slide, that as we -- because we're off-chip, we're going through advanced lithography nodes, and so by going -- with an advanced lithography node, it is basically TSMC has 65-nanometer, 40-nanometers, 20-nanometers, 12-nanometer, and each time you go to one of these new lithography nodes, you get much smaller die, but you get much -- another thing, you get much lower power. So we -- today, we have an [arm] core in our solutions. So one of the things that we can do is we can trade what happens on our core versus what happens on the MCU. As you look towards forward integration, in order to get the cost structures, yes, somehow that integration has to occur naturally and that's why we used the word natural integration is available to us with this architecture. So back to your previous question, when you look at that natural integration, you look at where it needs to go for not only power, but cost. And the architecture has to do this, right? And the other thing is sensors want to be bigger in card for enrollment and other reasons. So how do you get a bigger sensor, take advantage of Moore's Law and do the bigger sensor in a way that leverages common manufacturing technologies and practices and that's why we're so excited about our architecture.

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 Unidentified Analyst,    [18]
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 So [Christopher] from DNB as well. Can you talk a little bit about when you expect to become cash flow breakeven and what kind of volumes you would need to get there?

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 Henrik Knudtzon,  Idex ASA - CFO   [19]
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 Not to be left out. I think based on the numbers I indicated in terms of, I mean, OpEx gross margin. I think you can do the maths yourself. The big question is, when will it happen? And obviously, we are driving the market. we're working with our partners at Mastercard et cetera. And we have talked about adoption happening next year. We're expecting several customers both in the payment industry, but also in access control and other to happen. So the question is really when is adoption in this space going to be sufficient. And just to give you a perspective on that, if you look at the total number of Smartcards shipped in 2016 from Antonio's presentation. To get to a level where we would break even you would need less than 1% penetration of that market. So I mean, you don't really need a lot of penetration. So I think I'll throw that back to you when you would believe it will happen, but it's certainly -- the market, it's happening now. We're seeing lots of testaments to the market happening, and it's very scalable and the components I gave you, you can have a stab at that yourself, but it will certainly happen in a short time.

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 Unidentified Analyst,    [20]
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 And also the commercial roll out with Mastercard which is now pushed into the early 2018. Was there anything specific that made the certification process take longer than initially expected?

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 Hemant Mardia,  Idex ASA - CEO and MD   [21]
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 I think this is -- what we talked about today, technology and innovation. And there's lots of pieces. Some of which are new to everyone, including Mastercard, including IDEMIA. So this is actually a virtuous thing for us, because we've been learning through the things, they're not public domain. But in the scheme of things, I think to be where we are we'd be very happy that overall with such a momentum and such pull, we showed the ecosystem here, the demand is high from all different parts of the ecosystem, all different verticals. So I think, for us, we have been really cutting the path through with partners, through. There's a number of stages you have to go through. So if you look at the journey that we've taken. First of all, concept trials, the concept trial in this sense means doing a full payment transaction with a biometric card. That's the concept. Then you go into robustness trials, which we've done. You go into pilots, real-world pilots out in the field, which we've done and then you go into third-party certification, meaning, no one can influence it, it is independent, we actually got 3 different third parties involved with multiple assessments going on from the software, from the hardware side, from the overall system and obviously, the security element, the secure element. All of that has been the process what we're running through, and now we're basically have done all the technological side and now it's a question of just running through the process. So I think this first time through has required all of that to be done. And we're basically through into the final throes now of getting that. And the other aspect is, this actually hasn't stopped the promotion. So when we talked about commercial rollout, just to clarify, what we see as that, this is commercial rollout as defined by Mastercard. So for them, they are beginning and they expect to begin in the beginning of next year, the commercial promotion, the product is ready and is going through the final documentation that's necessary for them to provide to the end-users.

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 Espen Klette,  Pareto Securities, Research Division - Analyst   [22]
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 Espen Klette from Pareto Securities. I think I've 4 questions. Firstly, given the competitors are maybe 18 months behind on the Smartcard technology, how confident are you that Mastercard are ready to move ahead with 1 supplier? And secondly, from where you stand today, how far off is your in-display technology from commercialization? And then third, also on the R&D efforts. You are still investing in the capacity of sensors, just a strategic rationale behind this given the commoditization of the market. Is a still a value to be close to the OEMs? With your -- capacity of sensors? Lastly given the gross margins of 40% to 45%. How would your revenue mix look like in 2020, between smartcard, smartphones?

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 Hemant Mardia,  Idex ASA - CEO and MD   [23]
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 Thank you. Okay, so you're going to test our memory now.

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 Espen Klette,  Pareto Securities, Research Division - Analyst   [24]
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 Mastercard moving...

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 Hemant Mardia,  Idex ASA - CEO and MD   [25]
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 Okay. Yes. You look at the -- there's a classic curve, isn't there, for any new market in high-volume adoption at the beginning. And I think, it's the -- first of all, it's about the superior technology. So the early phases, I think, if you follow that normal model, it's pretty normal that you can't take risks with the technology you need to go with something that works. And so we're pretty confident that we're not just solving 1 problem. We talked about the sensor, but we're also dealing with other challenges like enrollment, like the matching. So the whole user experience. So we're not holding to one thing and that partly relates to some of your other questions. So we're providing a solution that we think is very sticky and that solution is becoming stickier and stickier as we get more insights into the real challenges that are out there. So I think, we are confident that there is a strong case for us. As things deploy in volume, things have to develop with sources. There has to be enough sources to supply. So you saw our numbers, we talked about a 30%-plus market share. But again, if you can take the paradigm of the mobile and you can see that early phase certain companies maybe are 70%-plus. So yes, there's a great upside opportunities, the way we've been looking at it. So that's in terms of the first one. Maybe, on the second one I'll pass it on to...

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 Fred Benkley,  Idex ASA - CTO of IDEX America   [26]
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 On R&D efforts (inaudible) versus off-chip, seems like off-chip is where you have your competitive advantage.

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 Espen Klette,  Pareto Securities, Research Division - Analyst   [27]
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 Yes, I think the question was, are we going to continue to invest in that given -- the commoditization?

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 Fred Benkley,  Idex ASA - CTO of IDEX America   [28]
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 Sure, well the commoditization has occurred for the first wave technologically if you look at on-chip, it actually goes back to (inaudible) 1996, 1997, 20 years, fifth, sixth generation devices have been developed. There's been a lot of history, not the case with off-chip, it's relatively new. It still unlocked of areas of vectors of development that we can go. The first and most obvious is, because we can leverage the final process nodes and pull more integration in. That follows Moore's Law, being able to do that. Then because we're off-chip and this is important. We know what silicon roadmaps are, but there's also substrate roadmaps and there are a lot of advanced substrates, which have active devices on them, very low cost, high-volume substrates, where we can make more intelligent combination of the substrate in the ASIC. So there's a still a couple generations of work. And then the third thing is making the sensors larger. As the market drives into an earlier question, what's going to drive the successful technology in cards. I think it's going to be customer user experience-driven and that's what we're finding out from our Mastercard partner. And right now the initial evidence is people want larger and larger, so technologies that can make larger and larger sensors cost effectively are going to be able to supply that need. So capacitive off-chip still has a lot of room for development and integration.

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 Espen Klette,  Pareto Securities, Research Division - Analyst   [29]
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 So on the traditional capacitive sensors for smartphones?

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 Fred Benkley,  Idex ASA - CTO of IDEX America   [30]
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 Traditional capacitive, you can have...

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [31]
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 So the commoditization that's happened in mobile is really based on the sensor being a silicon sensor and then offloading a lot of the compute and a lot of other things into the existing chipset. So commoditization was okay. Once one company did it AuthenTec, then FPC, then Goodix, then bang bang, right? It was how much innovation was necessary to move forward and that's why it commoditized. If you look at the card side, what we talked about, there's tremendous systems challenges that need to be overcome and it's those system challenges and solving those, whether they be in the enrolled domain, the match domain, integration is why we don't foresee this market commoditizing in the foreseeable future. Now the question 2 years, 3 years from now when it's a 1 billion unit market? What happens, I can use Synaptics as a proxy. When I left Synaptics we had disproportional market share and great margin, and hadn't commoditized, because we continued to innovate. And so to me, commoditization is back to -- when innovation stalls, then everybody can do it. And very quickly, fast followers flood in. Do we believe we'll see fast followers, absolutely, when the market is real. So that's why it's so important for us to have a innovative engine that can then continue to innovate and bring new features and solve problems to head off that commoditization. And in cards, capacitive is the answer, because your power envelope you're not going to use ultrasonic, you're not going to use optical, you're not -- so capacitive is the right technology. How you make sure commoditization doesn't happen is you integrate, you solve problems, you invest in the different constituent elements and you can get a disproportional margin. There is plenty of proxy for that. When you look at power management chips, you look at -- so for one thing, a lot of people aren't technologists. In the digital domain, the tools in the digital domain, and the flow in the digital domain, is very deterministic. So if you do a simulation, and you press a button, you get what you get. And in an analog domain, a lot of the domain we're talking about here, the models in the tools are not deterministic, they are directional. So you have that steep knowledge to create these devices. So that's why when you look at a silicon sensor and what the challenges are for silicon sensors. It's not a far leap to see why people can do it. When you start talking off-chip, integration, power management, harvesting NFC fields is just ripe for innovation. I hope, that answers your question.

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 Espen Klette,  Pareto Securities, Research Division - Analyst   [32]
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 And the last one on the on revenue mix, given the gross margins?

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 Henrik Knudtzon,  Idex ASA - CFO   [33]
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 So your question was, the revenue mix in 2020, which I think we can say, will be dominated by cards. I think that's the message we had today that cards is our top priority. But also, since the card products are suitable for specially IoT, we do expect to use the module, which Stan talked about to be able to penetrate the IoT segment as well. But it's almost like it's byproduct of our innovation, but certainly we want to capture that market as well, but the answer is cards. That's what is dominating.

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 Hemant Mardia,  Idex ASA - CEO and MD   [34]
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 Maybe another one?

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 Unidentified Analyst,    [35]
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 [Christopher], DNB. You're talking about the 2020 ASP around $3 to $5 and a gross margin around 40%, 45%, which is just long-term COGS per unit of around $2. What's kind of driving this higher COGS relative to what you're seeing in the mobile space now? And is this something that kind of will be competitive in that period? Do you expect, for example, competitors holding on to that level?

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [36]
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 You want to take that.

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 Hemant Mardia,  Idex ASA - CEO and MD   [37]
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 Obviously. Okay, I think again we've talked about system solutions. So that 3% to 5% mix will vary customer by customer. For the very advanced customers, they will be able to buy less or require less of the portion and for the less advanced, we can provide more of the portion. So that's partly where we see a big opportunity, because, as you've seen, with our technology, we're pretty unique in being able to do that. So that's the first thing in terms of the defendable ASP. In terms of cost, you saw the discussion of off-chip. For us, we can aggressively drive that down and even though we showed that the lower levels smaller sizes, should we desire, we could drive that price down as well, because we're aligned with 2 unstoppable market trends, one is Moore's law for silicon and the other is packaging density. Those things are happening. So in a 2-year timeframe, it's very clear that our cost will drop. So we're pretty confident in wherever we need to stand we will be the lowest cost. But we want to command the best value. And I think that's what we're bringing to the table.

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [38]
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 And I'll add just 1 point to it. When I talked in my talk about the new markets require more of a systems type approach. So a lot of that cost is us doing a system, right? So if you look at some of our offerings. Our offering actually has an MCU, has a secure element, has -- right? So when you think of it, it's not just the sensor. So when you look at the modules I showed you, we actually have modules that you can buy that have the entire card. All you have to do is put plastic around it. So we think, in this time frame and there will be a lot of customers that will move towards a modular type approach. Because they're learning the market and they're trying to understand it and then the next wave will happen, which is now the market is educated, they understand, they made the investment in R&D resources. Now they want to optimize. So when they optimize, they'll just try to disaggregate. And as Hemant said, we're quite confident we'll be at a cost advantage regardless of sensor size, because of the 2 effects. So I think the modeling is kind of tricky, how much of a blend do you have of modules versus discrete sensors. And I think, what Henrik was chose kind of looking at the market dynamic.

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 Fred Benkley,  Idex ASA - CTO of IDEX America   [39]
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 The last thing, as far as cost that's important, biometric performance absolutely matters in a card, because if you can't match you can't do a transaction. Mobile fingerprint sensor is a secondary or tertiary device. So if it doesn't work so good, it's okay. So a lot of that price erosion, the really cheap sensors are biometrically very poor. And that's not going to be the case in cards.

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 Unidentified Analyst,    [40]
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 Thank you. I know Henrik, you mentioned that, your revenues expected in 2020 to be dominated by cards. But at the same time, I found something that Stan said intriguing, that if you guys were to [assemble though] you have to be disruptive. So if you could just give us a quick teaser in terms of what your thoughts on disruptive would be? And secondly, if I remember correctly, Oberthur way back when, was supplied by finger print cards Safran/Morpho by you guys and now after the merger, you obviously continue to supply through to Mastercard. Does finger print cards no longer hold a role within IDEMIA or do they multisource?

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 Hemant Mardia,  Idex ASA - CEO and MD   [41]
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 I don't know (inaudible) that way. But I think we are working in terms of integrating our technology at all levels now. So I think we're confident that we have a program going forward with a combined entity. That's not to say you talked about some different versions of cards that -- there can be some specific cards, but we are -- what we feel is that we have something that fits the requirements that they have as a company. And if you look at it, you will know that Morpho has much deeper biometrics background. So that's what's coming into the new entity. And I think that's extremely favorable for IDEX.

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 Stanley A. Swearingen,  Idex ASA - Chief Products Officer   [42]
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 And then on the disruptive, there's kind of 2 vectors. One is display integration as clear as day. The other one is, could we come to market with a radically different cost structure. So we believe back of the phone buttons are going to exist. So the 2 vectors we're looking at is, is there a path available and we're doing the research to dramatically, I mean, dramatically reduce the cost, because margin's all relative. If your cost was $0.10 and you're selling at $0.60, that's a wonderful business. So we believe there's an opportunity on that vector, and then display integration is really the kind of the holy grail of solving that problem, because we believe even though Apple took the feature out, if they had it available, we believe it would have been in the phone, right? So somebody is going to come to market with a credible solution to that problem. And it's a really super tough problem, which I love, right? Because you take on super tough problems, you solve them, you get disproportionally rewarded, right? So for us we have 2 paths we're exploring right now in research and we have the research capability to do that. And obviously, the nice thing is the disruptive cost structure angle also serves us well in cards, right? So we have no illusion that there's is going to be multiple competitors. There needs to be -- and we got to be on top of our game, and we got to be on top of our game in every facet, cost, innovation and so that's what I've made my living at in the past 15 years. So I'm quite confident that we'll be able to do it.

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 Henrik Knudtzon,  Idex ASA - CFO   [43]
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 So I think that concludes the Q&A for today. Thank you very much.




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