Seeing Machines throws down the gauntlet

Last week Seeing Machines threw down the gauntlet to would-be competitors and those hoping to acquire it on the cheap. Broker Cenkos responded by raising its price target to 19.5p.

At its full-year results presentation on Wednesday, it reaffirmed solid progress over the past year. This followed news earlier that week of a US$41m ‘strategic’ fundraise. The money raised will finance costly R&D efforts as it seeks to capture 75% plus of the global driver monitoring market, increase it share of the trucking market and expand further into aviation.

In a pretty frank presentation CEO Paul McGlone made it pretty clear that Seeing Machines intends to grab a dominant market share in auto over the next 6 months before any move to seek a dual Nasdaq listing. My reading is that Qualcomm now needs to open its wallet wider than it has ever done to acquire Seeing Machines.

Risk of cheap bid is over

Let me say that again. The risk of a cheap bid is over. US funds coming in at 11p aren’t doing so to make a measly 5x their money. In my estimation, as the market wises up to Seeing Machines taking over 75 percent of the global DMS market, anything below £1 a share is not going to secure Seeing Machines.

As proof of that is the news that Mirametrix, which uses AI for computer vision applications, was reportedly sold for a huge multiple. Seeing Machines is, in my opinion, worth far more.

The recent A$140m contract with Tier 1 Magna (which also invested £10m in Seeing Machines) should serve as a wake-up call to investors and rivals alike. There will be plenty more wins over the next few months.

My central thesis; that SEE win Toyota, Honda, VW (including Audi), Volvo, Jaguar Land Rover, Stellantis and Tesla in addition to BMW, Mercedes, Ford, GM, Byton and Fisker remains very much intact. Why? Because as far as driver/occupant monitoring goes, Seeing Machines is pretty much the only game in town.

Sadly for investors, these contracts take time to officially sign and partners are, for a variety of reasons, not keen to provide too many details. Yet, growing auto revenues from license fees tell its own story. They are projected to keep on growing as the company wins more and more business. By the end of this financial year, we’ve been promised much greater clarity on an auto pipeline that I expect will be worth a billion Australian dollars.

In the meantime, with Covid concerns growing alongside the realisation that the global economy isn’t recovering as it should, there will be ups and downs in the share price. Still, the direction of the business is clear: it is taking over global DMS.

Of course, I fully expect Seeing Machines to continue to downplay the potential size of contract wins, even as it announces them. For as Cenkos analyst John-Marc Bunce confirmed in his note of 24th November: “Seeing Machines has been underplaying the value of its RFQ wins and relationships to increase its chance of winning more business.”

Even so, after the penny drops in automotive, I expect a bidding war will materialise — though Qualcomm is currently the hot favourite to win it.

Show me the money Qualcomm!

I don’t know when Qualcomm will bid for Seeing Machines but I doubt it will wait until the success of Seeing Machines is public knowledge. At the moment it has a slight edge, not to mention a huge wallet, but the fact that Magna is making subtle overtures must be unsettling. 

Maybe I’ve had a little too much port, but the present scenario is reminiscent of a scene from the film Jerry Maguire, with Qualcomm’s Christiano Amon required to scream: “Show me the money!” As Paul McGlone dances. If Qualcomm fails to do that, I know a few other companies that will. 

Meanwhile, in the absence of any ‘reasonable bid’ investors will have to be patient. For newbies that is a lot easier to do than for long-term investors but progress has clearly been demonstrated. Fleet is growing at approximately 40% a year,  SEE is winning auto business and its penetration into aviation is growing.

Admittedly, the fine detail on many issues is still scant, and there are always execution risks, but what isn’t in doubt is that Seeing Machines technology is going to dominate this market over the next few years. There was enough in the presentation to give valuable insights into its business but insufficient detail for those seeking easy ways to value the company in the very short term. 

While Cenkos has immediately raised its price target to 19.5p, Stifel has yet to issue a note. Is it saving a note for some big news prior to Christmas? 

Costly R&D

Unfortunately, continued costly R&D is unavoidable as Seeing Machines is being pushed to deliver up to 40 additional features alongside its core technology (everything from being able to tell if a driver is using their phone to identifying the ID of the driver) to win the A$1.1 billon in contracts currently up for grabs. Fortunately, Paul McGlone has said that the company will attempt to license such technology where possible and eschew rash and costly takeovers. Thankfully, no competitor is anywhere close to being able to deliver a comparable system to the timescales required by auto manufacturers — timescales driven by legislation in Europe and the US. 

In addition, SEE should be able to charge increased rates for some of these features. Cenkos estimates an average selling price (ASP) of US$14 a car recently, an increase on its previous estimates, and it is hoped this trend may continue given SEE’s domination of the market. Like Qualcomm, but on a smaller scale, it is selling a highly complex system not a single product to a market desperate for its cutting-edge, DMS technology.

Despite serious pressure to cut costs in automotive, there appears to be no other DMS company that can really deliver to the specs demanded by car manufacturers in the short time frames and price points at which they want it. Thus, I expect Seeing Machines to be well on it way to winning 75% plus of the global DMS market by 2025, increasing profit margins as it does so.

Similarly, it is working on the 3rd generation of its Guardian aftermarket product for trucks – while at the same time starting to go into trucks at the manufacturing stage. We await a contract announcement regarding that in due course.

Investors are still waiting for a Caterpillar-style license deal for aviation with L3Harris. While we wait for it to materialise, there appears plenty of upside from the current share price of around 10p-11p. With significant news expected at CES in early January, only a market crash is likely to prevent the current share price from rising substantially over the next few months.

The writer holds stock in Seeing Machines.

Is Tesla going to use Seeing Machines?

Evidence appears to be mounting that Elon Musk may attempt to get the National Highway Traffic Administration (NHTSA) off his back by upgrading Tesla’s driver monitoring systems (DMS) with Seeing Machines state-of-the-art, camera based driver/occupant monitoring.

At its Investor Day earlier this week, Qualcomm CEO Christiano Amon made repeated references to its progress in selling a system rather than individual components to auto OEMs, in the form of its ‘Snapdragon digital chassis’. This includes its telematics, digital cockpit, Car-to-Cloud services, ADAS and autonomy solutions.

Tesla a customer

Amon cited Tesla (1hour, 5 mins) as the model for legacy OEMs who, with Qualcomm’s help, can also become technology companies. The legacy OEMs clearly want Tesla-like valuations, Qualcomm wants to sell 10 times more chips — and even Tesla apparently needs Qualcomm expertise. 

Indeed, Tesla also featured in a background graphic of 36 car marques (25 global OEMs) that apparently use Qualcomm’s Snapdragon Cockpit platform.

Global automotive customers of Qualcomm

Details were sketchy but Seeing Machines is partnered with Qualcomm and supplies its driver monitoring system as part of the overall system. 

There is no certainty that Tesla will incorporate the entire Qualcomm system but it would make sense for it to, at the very least, include the driver monitoring aspect featuring Seeing Machines technology.

Qualcomm growth in automotive

Certainly, Qualcomm’s strategy of diversifying into automotive is gathering pace and it now has an order book of US$13bn in automotive.

Qualcomm’s annual automotive revenue rose by half to nearly US$1 billion in the fiscal 2021 year that ended on 26 September. Qualcomm CFO Akash Palkhiwala, forecast last Tuesday that this would grow to approximately $3.5 billion by fiscal 2026, thanks to numerous deals already signed. In 10 years time, Qualcomm expects that number to grow to $8 billion.

The National Highway Traffic Safety Administration is an agency of the U.S. federal government, part of the Department of Transportation. It describes its mission as “Save lives, prevent injuries, reduce vehicle-related crashes” related to transportation safety in the United States

With the NHTSA investigating accidents involving Telsa vehicles, alongside increasing concerns that Tesla’s marketing its semi-autonomous autos as being capable of ‘Full Self Driving’ technology is misleading consumers, Tesla does need a fix. Incorporating Seeing Machines DMS would help prevent accidents due to driver fatigue or distraction and possibly prevent intervention by US regulators that could damage Tesla’s share price.

Elon Musk

Elon Musk is a complex character with faults and foibles like most humans. He is also a visionary, arguably more significant than even Nikolas Tesla. Just listen to Musk opining on the importance of interplanetary travel for the survival of the human species (back in 2016) if you doubt that. I’m sure Musk can see the sense in using Seeing Machines DMS technology.

However, I may be wrong – or a little ahead of my time – and you should always do your own research. When it comes to investing, being too early is often the same as being wrong. Until you are proven right.

The writer holds stock in Seeing Machines.

Roy Holehouse needs your help

One of the best-known and highly-regarded private investors in Seeing Machines has fallen gravely ill and is currently in intensive care. He isn’t expected to survive and, while your prayers can help, his family could also do with financial assistance at this time of crisis.

A friend of the family has created a gofundme page and many holders of Seeing Machines and even members of the company have donated.

If you too can spare some cash, no matter how little, feel free to donate. It’s certainly in a good cause.

Here’s the link to the page: https://www.gofundme.com/f/f3u5cw-a-helping-hand?utm_source=customer&utm_medium=copy_link_all&utm_campaign=m_pd+share-sheet

Thanks.

More detail on Seeing Machines deal with Shell

I was rather disappointed by the lack of detail in the RNS announcing the Global Framework Agreement between Shell and Seeing Machines. In response to my questions below, Shell has provided more information but confirmed that it won’t disclose the financial details of the agreement.

1)What exactly is a Global Framework Agreement in this context? Does it for instance mean that the fine detail is still to be negotiated? The intent of the Global Framework is to settle the main terms and conditions for the contract, including commercial pricing information. We are able to negotiate these terms with Seeing Machines once, which then allows any Shell entity around the world to call off that agreement.

2) Is it possible to quantify the approximate minimum annual value of the contract? This will depend on the uptake of the Global Framework by local assets, which at this time is not defined.

3) What is the length of the contract? For example, is it a 3 or 5-year contract? The Global Framework is a 5-year contract, but local assets can sign ‘call offs’ against this Global Framework that could extend past 5 years.

4) Why did you choose Seeing Machines? If you underwent competitive trials how long did they last? As a global organisation, with responsibility for the safety of employees, contractors and the general public, we have an obligation to implement evidence-based risk management strategies to manage the hazard of fatigued and drowsy driving. We tested multiple driver monitoring technologies. We recognise Seeing Machines´ Guardian System to be very promising in its ability to detect drowsiness and fatigue, and alert the driver. It took just over a year to set up, conduct and assess the results of the test.

The writer holds stock in Seeing Machines.