Tag Archives: Honda

Seeing Machines wins A$21m Japanese auto contract

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Seeing Machines has won its first Japanese car manufacturer, rumoured to be Honda, in a deal initially worth A$21m (US$14.6m). The cars will go into production in 2025.

The actual headline figure for the win is highly conservative and is likely to end up many times bigger as the car manufacturer rolls out the technology across an ever-increasing number of models. This is what happened with BMW, Ford and Mercedes and I’m confident it will repeat here. 

Japan turns to Seeing Machines

The really important learning from this win is that SEE has finally cracked Japan, after years of hard work. Marc Bunce, an analyst at broker Cenkos, says: “We believe today’s win is a first step into the Japanese market and that the cost and performance advantages of Seeing Machines software and embedded systems approach, will enable it to win further business with Japanese OEMs.”

Hence, this will prove to be the first of many contracts with Japanese car companies that will confirm Seeing Machines position as the global leader in driver/occupant monitoring (DMS/OMS).

SEE already has a confirmed (conservative) auto pipeline of US$240m, although in all likelihood it is likely to be double that. As Bunce explains: “The ‘cumulative initial lifetime value’ of these award wins now up to A$345m/US$240m which we believe is predominantly based on conservative minimum production commitments for initial vehicle models. However, with actual production volumes usually much greater than minimum commitments, and the technology already being seen on models beyond the initial award win, we believe the likely lifetime value of these awards is already considerably larger.”

Global leadership

It’s now clear, as predicted here 4 years ago, that Seeing Machines is set to take over 75% of the global DMS market. Ironically, it seems that the market has de-rated its main rival Smart Eye based on this assumption without re-rating Seeing Machines. It is a position that, while frustrating to those holding the share, can’t last much longer.

Seeing Machines very dominance is the reason I don’t believe it will be allowed to remain independent much longer. With every auto contract won the importance of Seeing Machines to Qualcomm’s ambitions in the auto market become more obvious. Given that Qualcomm was keen to swoop on Arriver I expect the time is approaching when Christiano Amon will again reach for his wallet to try and secure the global leader in DMS/OMS.

Qualcomm CEO Cristiano Amon let the cat out of the bag in a recent interview, in which he discussed Qualcomm’s diversification strategy. He confirmed, after boasting of its US$16bn auto revenue pipeline and talking about the Arriver purchase: “Clearly M&A is going to be part of Qualcomm as we accelerate those non-handset businesses.”

With SEE’s auto-win rate increasing the prospect of an actual A$1bn pipeline isn’t very far away. If you also include revenues from its fast-expanding Fleet and Aviation divisions, Seeing Machines is a must-have for a chip company that wants to diversify its revenue stream.

SEE is almost totally de-risked, with earning visibility becoming clearer every month. The future cashflows from auto, fleet and aviation are going to be huge. Moreover, with the continuing investment in its intellectual property to ensure its systems remain far ahead of any rival, it has created a strong moat to fight off any would-be competitors for the foreseeable future.

Takeover target

By the end of its current financial year, all this should be clear to even the most sceptical investor but to savvy industry players, such as Cristiano Amon, it must be obvious now. Amon doesn’t strike me as the kind of man who would ever allow a competitor to eat his lunch – as Magna can bear witness.

Only Alphabet, Apple or Amazon would have the financial muscle to separate Qualcomm from its intended target. I’d add in Tesla as a wild card. Elon Musk loves pulling surprises and Tesla needs a decent DMS. Instead of blowing tens of billions creating an in-house solution he might just wake up one morning and decide to buy SEE.

Blue sky valuation?

As to valuation? Well, I’d value Seeing Machines’ Auto division at US$5bn minimum, Fleet about the same. Aviation isn’t as advanced but it’s a huge market that it is developing, so say US$2bn. In total, its intrinsic value is approximately US$10-12bn today.

Alternatively, If someone has the nous to offer 50p a share and SEE accept, well done. In 2 years they could probably float the company for 5x to 10x that. 

Some will doubtless say I’m talking nonsense. But the same naysayers said that 4 years ago when I predicted Seeing Machines would grab a 75% share of the global DMS market.

The writer holds stock in Seeing Machines

Panmure puts 28p price target on Seeing Machines’ auto division

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In a note published on September 18th Sanjay Jha, an analyst at independent broker Panmure Gordon, reiterated his ‘Buy’ recommendation and placed a 28p price target on Seeing Machines.

The price target is lower than the 30p target he had in June but is still a remarkable endorsement by an independent analyst of the company’s domination of the global market for automative driver monitoring systems given all that has recently taken place in fleet.

In the note Jha  concluded: “We welcome the rationalisation of the Fleet business which has been a major distraction to the much larger opportunity in the Automotive sector, which saw the share price peak at 14p. Our investment case has been based almost entirely on the upside from the Automotive opportunity and continue to assume that the Fleet business has no value. Seeing Machines is in the pole position to capture at least half of the Driver Monitoring System (DMS) market with competition effectively limited to one other player (Smart Eye). With design wins with five OEMs and many more to come, we foresee a growing royalty revenue stream for many years to come.“

Endorsing the recent appointment of Jack Boyer to Chairman and the appointment of Ryan Murphy as COO, Jha commented: “These are the first steps in what we hope is a major overhaul of the Board and the executive team.”

Jha forecasts sales of A$37.6m for the 2019 financial year, rising to A$50.5m in 2020. “We estimate cash deficit of cA$5m by FY20, which arguably can be covered in debt markets. However, we also believe that the management can cut costs further particularly in Fleet engineering.”

Pointedly, he appears to have a dig at the information flow and forecasts coming out of Seeing Machines: “We note that the management expects revenues in FY19 to be approximately in line with FY18. We believe they should stop giving guidance until they have a good handle over internal information systems. In the last month, we have had two different versions of Guardian units delivered and expected to be delivered. Our forecasts, for what it’s worth, is based on Guardian data provided by the CEO today and our expectations for the Automotive sector.”

More auto wins

I’m personally confident that Seeing Machines will soon announce some huge auto wins: Toyota, FCA and Volvo. Other OEMs that I believe will fall to Seeing Machines include: Mazda, Honda, Subaru and Audi.

Indeed, in a previous note (published 19th June) Jha confirmed: “We believe that Smart Eye has been launched in first generation models of BMW, Audi and Jaguar Land Rover. At the time, Seeing Machines wasn’t allowed to bid for BMW and Audi as they were tied with Takata’s commitment to GM. However, we understand that Seeing Machines have now displaced Smart Eye in second generation BMW and we expect they will replace Smart Eye on future Audi models too. As we have highlighted previously, Seeing Machines has more robust licensing model with two offerings: Software and System on Chip (SoC), the latter allowing OEMs to deploy DMS across models more quickly and efficiently. Smart Eye doesn’t have its own silicon expertise and is heavily reliant on Aptiv to win platforms.”

The writer holds stock in Seeing Machines.

Euro NCAP agrees camera-based DMS crucial to prevent driver distraction

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Last week I spoke with Richard Schram, Technical Manager at Euro NCAP. For those backing camera-based DMS systems he provided a very positive update on the organisation’s plans.

He agreed that the problem of driver distraction could not be solved without cameras but he doesn’t think it is feasible to mandate that by 2021 (for 2020 the coffee cup DMS is what will be pushed for, as it’s easily achievable). By 2022 he expects EURO NCAP to be incentivising the introduction of AEB linked to camera-based DMS. Moreover, Schram agrees that: “by 2024 camera-based DMS will be part of most European passenger cars”.

Given the 3-year lead times for the introduction of technology into cars, it’s clear why the more safety-conscious car manufacturers are moving swiftly to integrate camera-based DMS systems into future car models.

I asked Colin Barnden, Lead Analyst at Semicast Research, to put Schram’s comments into context and he said that it “clearly confirms that Euro NCAP and the EU are in alignment”.

The he went on to explain how:

  • “Drowsiness and attention detection (DDR-DAD) – coffee cup : mandate introduction from 1 September 2021 to 1 September 2023. Euro NCAP 5 star rating starts with these systems in 2020.
  • Distraction detection (DRD-ADR) : mandate introduction from 1 September 2023 to 1 September 2025. The importance of the comment, “[in] 2024 camera-based DMS will be part of most European passenger cars” cannot be overstated and confirms my understanding that distraction detection systems will only be camera based. This will apply also to vans, coaches, buses and trucks – a total of between 20-25 million vehicles per year in my estimation (and that is just the EU28).”

Barnden added: “As previously mentioned the adoption rate for camera-based DMS will be dictated by the rollout plans of the OEMs and they are well ahead of the advisory bodies (Euro NCAP, Consumer Reports) and the legislative bodies (the EC, NHTSA) already. My attention has moved from Europe to where’s next.”

His opinion is that Japan is next. “FotoNation, Seeing Machines and Smarteye are all making a concerted effort there and that is a clear signal of OEM interest. Development of mobility services (eg Waymo) are much more advanced in the US.”

Personally, I’m expecting Seeing Machines to clinch OEM a big contract with Toyota in the next few months (then Honda), as first mentioned in my blog article: Seeing Machines set to win 75% of global DMS market. In that article I also forecast that further progress in the US is close at hand.

I think the evidence is clear that Seeing Machines is set to be the next Mobileye.

The writer holds shares in Seeing Machines.