Will Seeing Machines’ likely Nasdaq listing elicit a bid?

Rumours that Seeing Machines is planning a dual listing on Nasdaq gained further credibility with the attendance of CEO Paul McGlone at a recent shindig organised by house broker Stifel to promote that very idea to clients. The question is, might a dual listing be the catalyst for a bid?

It’s long been known that a dual listing on Nasdaq has been under consideration at the Aim-listed tech company for a number of years. At a previous investor meeting held online on 24th November 2021 Paul McGlone stated (in answer to the question: ‘Are there any plans to move to a US market?’): “It is in our plan, it’s only sensible that we talk about it. I do imagine that we will end up there but I want to see some additional momentum before we flick the switch on that particular transaction.”

With Seeing Machines coming to dominate interior monitoring with its class-leading DMS/OMS system, it appears that time is drawing close. Indeed, some argue that such a listing would be guaranteed to increase its US profile and enable it to secure more backing from US tech funds.

Stifel served as joint bookrunner on an $85 million dual-listing Nasdaq IPO for Renalytix AI back in July 2020. The price tripled shortly thereafter but has since come right back down. More successful was GW Pharma’s dual listing back in 2013, before it was eventually acquired.

Mobileye IPO

A more appropriate comparison is the Nasdaq IPO of Mobileye, floated for US$5.3bn in 2014, bought by Intel in 2017 for $15.3bn and now in the running for a potential $50bn spin-off IPO, backed by Morgan Stanley. 

Examining the prospectus for the original Mobileye IPO in 2014, indicates that Seeing Machines is set to be a superior business. Not only is it dominant in auto but also in fleet and aviation. Moreover, its robust technology has applications well beyond the transport sector. 

Expected date of dual listing

While it appears that no firm decision has been made by Seeing Machines regarding a precise date for a dual listing, I believe that the much-mooted plan is moving inexorably forward.

My sources indicate that (barring a market meltdown) it is most likely to happen around Spring 2023, by which time Seeing Machines is expected to have achieved several milestones that will have more US tech funds eager to jump in. These milestones include:

  • An order pipeline of $A1bn in auto;
  • A fleet operation that has proven it can scale, boosted by the third generation of its Guardian product, which will be easily incorporated into telematics products for trucks and buses;
  • The launch of a dedicated aftermarket division to sell its Guardian product to niche manufacturers of buses and trucks, with monitoring services sold to their customers; and
  • A licensing deal in the aviation sector.

I also believe that there is an outside possibility that increased momentum in auto and fleet, with Seeing Machines pretty much set to win every contract it contests, could bring forward the date.

Will QC gatecrash the party?

The question is, will the host of chip companies who want SEE’s IP wait until its value has been boosted by a Nasdaq dual-listing IPO before swooping? Moreover, will Qualcomm’s Christiano Amon risk another chip company, or one of the three Amigos (Amazon, Alphabet and Apple) eating his lunch? It doesn’t seem likely. The Arriver acquisition proved Qualcomm fights for want it wants. 

Given the crucial importance of Seeing Machines vision technology to Qualcomm’s Snapdragon Drive automotive stack it seems logical that he will act quickly, to forestall any rival acquiring this important strategic partner. 

Sector ripe for consolidation

The sector is certainly ripe for M&A deals. Even peripheral DMS players are starting to be bought. In fact, one took place late in 2021, with Lattice Semiconductor acquiring computer vision company Mirametrix. The latter has a rudimentary DMS and, according to unnamed sources, went for a ‘huge multiple’ in a private deal. You can see its offering here: https://ir.latticesemi.com/investor-overview/presentations

Note the slide detailing some of the consumer uses for its technology entitled ‘Consumer Challenges’ — it may ring a (door)bell for some investors. The wide range of markets in which SEE’s technology can be used, aside from its transport applications, is one reason it is an attractive target.

Smart Eye would probably love to be taken over as would Cipia. However, SEE is the demonstrable market leader and will be the one that all the major players covet. 

As ever, if you’ve found any value in this article please consider making a donation to a charity of your choice.

The writer holds shares in Seeing Machines.

A$23m Stellantis win for Seeing Machines

It seems likely that the OEM win announced today by Seeing Machines is for Stellantis, using Magna’s driver monitoring system (DMS) in a mirror.

In any case, given the minimum lifetime value is A$23m, it is a pretty safe assumption that it will actually end up being at least three times that figure.

Cenkos close to upgrading

Broker Cenkos has maintained its 20p price target but admits it really could be lowering its discount rate and bumpting up that target price, given Seeing Machines’ accelerating win rate that is leaving competitors far behind.

Here’s the concluding comment from Marc Bunce, the Cenkos analyst covering Seeing Machines: “This new automotive DMS award comes less than two weeks since the last which further supports our view that Seeing Machines win rate and market share in automotive Driver Monitoring Systems are increasing. It is also reassuring to hear that this view is now also publicly supported by Nick DiFiore with his expectation for 40% market share by volume now marginally ahead of our expectations which represent around 38.5% by volume to 2030. We iterate our Buy recommendation and 20p valuation and note there remains significant upside in this from reductions in our discount rate, small increases in our Automotive market share expectations, increases in our cautious aftermarket expectations and the addition of aviation (we will incorporate aviation when we get visibility into meaningful contributions).”

Certainly, when Seeing Machines announces the wins I referred to yesterday I expect Cenkos to upgrade.

The writer holds stock in Seeing Machines.

Takeover thesis maintained as Seeing Machines dominates global driver monitoring market

Despite the ongoing market falls, my sources (note the plural) indicate that Seeing Machines is winning ‘everything it goes for’. In particular, I’m expecting confirmation of another sizeable contract win in Japan, another huge one in the US and plenty of very positive Fleet news. Thus, my conviction that Seeing Machines will soon attract a bid remains as strong as ever.

Further contract wins

My sources indicate that another Japan win announcement is very, very close. I hesitate to use the word ‘imminent’ but you get the idea. In addition, I’ve heard a whisper that GM has awarded a huge Lidar contract for Ultra Cruise and thus expect that Seeing Machines will soon be getting confirmation of a huge contract. I anticipate this to occur within a couple of months.

I’m also expecting Seeing Machines to win Toyota and announce further expansions with Ford and Stellantis in due course. Lastly, the significance of the recent win of Renault via Qualcomm’s 3rd Generation Snapdragon cockpit platform shouldn’t be ignored. What it indicates is that Seeing Machines will be in every car that has Qualcomm’s system.

In addition, I hear Fleet is doing very well and there will soon be some significant announcements regarding aftermarket sales and a further partnership that should enable it to scale up the introduction of its driver monitoring technology in Europe to comply with the forthcoming safety legislation. 

Clearly, despite the gyrations in its share price, the business is clearly going from strength to strength. That is certainly a claim made by company executives themselves in recent interviews, such as this one with Nick Di Fiore who heads up automotive but also this video with CEO Paul McGlone. It is backed up by leading independent industry analyst Colin Barnden of Semicast Research, as well as financial analysts from a growing number of brokers; Cenkos, Panmure Gordon, Berenberg, Stifel and Peel Hunt.

In short, my thesis that Seeing Machines takes 75% by value of the global DMS/OMS  auto market remains fully intact, a market that could be worth A$1bn in 2025. That figure ignores the market represented by trucks, trams, trains and aviation – global markets in which Seeing Machines is set to dominate.

I, therefore, maintain that a near-term bid for Seeing Machines is very likely – regardless of the state of the overall stock market. (Regarding macro projections, I’ve been a long-term fan of Albert Edwards insightful analysis and would urge every investor to follow him. He has long been castigated as a ‘bear’ but in my opinion he is a realist, and investors are now coming to realise that.)

Seeing Machines is the global leader in one of the hottest areas in a very hot tech sector. It’s partnering with tech behemoths who are led by very smart people. They won’t pass up the opportunity to acquire Seeing Machines. Though they could well face competition from private equity players with a trillion dollars of dry powder.

Peel Hunt note on M&A activity

This very week Peel Hunt issued a note entitled, ‘Accelerating UK bid activity’, written by Charles Hall, Head of Research and Clyde Lewis, Deputy Head of Research. Although it focuses on companies in the FTSE 250, I think there is a read-across for quality companies on AIM. 

Here’s an extract from the note:

“A classic indicator of a disconnect between short-term concerns and longer-term opportunity is when non-equity investors start to buy the assets. This is clearly happening, with 10 bids for FTSE 250 companies progressing currently. This is unsurprising given the de-rating of the FTSE 250, with the overall index-18% YTD and 80% of the members down on the year. This has driven heightened interest from overseas and private buyers. There have been 14 proposed and announced bids in the past six weeks, adding up to £21bn of equity value.”

Discussing the themes for investors to consider, the note goes on to state: 

“The pace has clearly accelerated after a slow start. There is a clear focus on hard assets, with most of the businesses being acquired having strong market positions with clear and lasting cash flow credentials. The mix of financial and corporate buyers reflects the strength of balance sheets, access to funding, and the ability to look through a tough economic environment. Weaker sterling should also increase the appetite from overseas.” 

I’d urge investors to do their own research as I’m not Nostradamus, just a journalist. That said, it’s undeniable that investors are still ignoring the oh-so-clear value to be had in Seeing Machines.

Cheer up

With all the terrible things going on in the world I’ve found that watching interviews with the legendary journalist and political analyst Anthony Howard has greatly cheered me up this week.

If that doesn’t float your boat, why not watch Queen performing We are the Champions at Live Aid in 1985. It’s a song that will make a fitting anthem for investors in this company when it is bought for billions. I dedicate it to all investors in Seeing Machines and its hardworking and talented staff.

The writer holds stock in Seeing Machines.

Seeing Machines wins A$21m Japanese auto contract

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

Growing broker coverage for Seeing Machines

Seeing Machines is picking up more broker coverage from quality analysts as it nears an inflection point from growing license fee income from autos and trucks. Berenberg today issued an initiation note with a ‘Buy’ recommendation and a price target of 12p, while Peel Hunt has also tipped SEE. 

Berenberg 12p target

While Berenberg’s price target is quite conservative, the arguments and conclusions contained within the note were reassuring as they confirmed that:

  • Seeing Machines has the “best-in-class DMS technology among peers”.
  • Aftermarket (Fleet) product is a hidden gem. “Guardian…is considered a top product by customers such as Shell, Caterpillar and National Express, who say it has significantly reduced their traffic accidents and cut their transport insurance premiums.”
  • Stellar growth from auto license fees is a near certainty. “As we expect royalty revenues to more than double yoy from 2022E up until 2025E (c113% CAGR), we see an inflection point for the OEM business and for SEE. To top it off, all the revenue projected up until 2024 has already been awarded (ie as long as the cars are manufactured, SEE will hit these revenue forecasts).” 

This extract from the Berenberg note is worth quoting at length:

OEM business (c60% of 2025E sales) at an inflection point: SEE receives royalty revenue each time a car using its DMS technology is produced. We expect this revenue to more than double every year from 2022E to 2025E (c113% CAGR) based mostly on contracts already awarded. This is, however, assuming just a 33% win rate for SEE and a c25% drop in per-car royalty revenue over 2022-25E. Our channel checks provide a high level of confidence that the group has unparalleled DMS technology, with capabilities to power other smart car features as well (eg occupant monitoring), which along with the regulatory tailwinds mandating DMS should bring about an inflection point for the group’s OEM business. In a blue-sky scenario where SEE has a higher win rate (60% by 2025E) and maintains pricing power (by releasing more features), we see c65%/95% upside to our 2025E group base-case top-line/gross profit estimates. With SEE winning 46% of recent bids, the blue-sky scenario is within reach.”

Note that in its base case for 2025, Berenberg has sales at A$137m and gross profit at A$84m.

In the blue-sky case, Berenberg has sales at A$225m and gross profit at A$163m.

Personally, I expect upward revisions to this very soon as my base case is 70%.

Peel Hunt tips Seeing Machines

Separately, Peel Hunt analysts in their regular ‘Tech: Bits & Bytes’ note recommended Seeing Machines as “a pick-and-shovel play for the smartification of transport”.  

They added: “Seeing Machines is finally starting to see non-NRE OEM revenue’s come through. As the OEM engagements evolve, ARM-like high margin royalty revenue streams should unlock for Seeing Machines.”

Seeing Machines now has broker coverage from Stifel (house), Cenkos, Panmure Gordon and Berenberg, while it is clear that Peel Hunt is clearly following the story closely. As Seeing Machines picks up more auto contracts and grows fleet, not to mention Aviation (and possibly starts to move into other markets, such as marine), I believe this will re-rate. 

Yes, SEE is well down with market jitters. Yet, I’m more convinced than ever that Seeing Machines is likely to be the subject of a bid within the next few months. There is no need for it to show a profit as the coming revenues and profits are clearly coming as license fees ramp up.

Ukraine

As to Ukraine, I think there is scope for negotiation that will reduce tension provided the US and NATO stop trying to bully Russia in its own backyard, using Ukraine as a stick (though that stick got a bit smaller yesterday). Tariq Ali has written great analysis in the New Left Review that puts the recent moves in perspective – though you won’t see him being interviewed on any mainstream media news outlet in the UK.

I’m certainly concerned about a proper stock market crash later this year, as inflation concerns give way to deflation and the growing realisation that only debt is holding the wider stock market up. So Seeing Machines, my advice is to get the deal done by June.

The writer holds stock in Seeing Machines.

Desperate stuff from Redeye

This week’s note on Smart Eye (SEYE) from a Redeye analyst was disappointing and, quite frankly, unfair to investors who mistakenly believe it’s the leader in driver monitoring (or, as it might now term it, ‘interior sensing’). It isn’t. 

Perhaps desperation at the fall in Smart Eye’s share price following the Volkswagen (VW) win by Seeing Machines has prompted this latest attempt to maintain the myth that Smart Eye is the market leader. However, any sober analysis leads one to question this.

Smart Eye’s recent moves on the acquisition front are evidence for me of its late realisation that it can’t compete on the DMS/OMS front with Seeing Machines, proven by its recent failure to win VW.

Furthermore, I think SEYE has overstated the value of its wins to date, while Seeing Machines has understated its own 8 OEM wins. For example, One of Smart Eye’s early wins was with BMW, but it has since been supplanted by Seeing Machines. VW and Mercedes have also gone with Seeing Machines. Do you see a pattern?

In the US, General Motors, Ford and FCA (now part of Stellantis) chose Seeing Machines. Similarly, Fisker and Byton chose Seeing Machines. 

The much-vaunted early Audi design wins back in 2017 by SmartEye have also failed to go fully into production, as has the Jaguar Land Rover win a few years back. Redeye naively assumes that they have been temporarily postponed. As the analyst states on page 5 of this note published on 9th May, 2021: “Smart Eye says it has still not lost any design wins, but some are postponed for external reasons.” Let me suggest that those wins have been lost, as the auto companies concerned realise Seeing Machines’ technology is more advanced.

Importantly, the VW and Fisker wins indicate that Seeing Machines is not only the leader in DMS but is also winning as car manufacturers seek to build in occupant monitoring systems and move to interior sensing. Yes, Smart Eye can talk the talk re. Occupant Monitoring but the only cars currently going into production with OMS have a Seeing Machines system.

A further indication of SEE’s leadership position is evident from the fact that Qualcomm chose to partner only with Seeing Machines. Similarly, Magna has chosen to use Seeing Machines technology. 

My research indicates that Smart Eye’s “pure software” model effectively means that it is treated like a commodity and doesn’t really gain the respect of the Tier 1s whereas, in sharp contrast, Seeing Machines is acknowledged as the expert in DMS/OMS. After all, OMS is effectively only DMS with more occupants. And Seeing Machines leads the way in DMS.

What that means is that OEMs are far less likely to take a chance on Smart Eye for big programmes delivered to short timescales, especially when high-level DMS will be make or break in achieving 5 star NCAP ratings from 2024. It is simply too important for them in a fiercely competitive market to take a chance. For example, imagine the pain that Renault recently experienced at the hands of Euro NCAP, receiving 0 stars for shoddy safety in its Zoe. Such an event must be concentrating minds at car manufacturers around the world. 

That’s why I think Seeing Machines is going to clean up in the DMS/OMS market. Okay, Smart Eye will win a few Chinese models and low volume models elsewhere but for premium and large volume RFQs I don’t expect it to win any of note. 

A further problem for Smart Eye may also be that QC is set to take away its Chinese lunch in due course, supplying Seeing Machines technology as part of its system.

Of course, I may be wrong or, perhaps, my investing in Seeing Machines has affected my judgement.

Well, here’s a little test. Back on 22nd October, 2021 the Redeye analyst wrote: “Three of the largest DMS procurements to date will be completed within next few quarters – where ‘Smart Eye is a force to be reckoned with in all three’. Though we don’t know what this means, we believe Smart Eye is confident of getting at least one or two of these”.

Well, one of them has been completed and it wasn’t Smart Eye that won it. I’m confident that Seeing Machines will win those other two in this financial year, as well as a host of others this year and next. 

Fleet

I’m expecting great things from Seeing Machines’ Max Verberne and his team in fleet, similar to what Nick DiFiore and his team have achieved in auto.

I’m therefore confident that 2022 is set to be a transformational year in fleet for Seeing Machines. Despite the fact it already has approximately 32,000 fleet installations, the pipeline is rapidly expanding, 40% annual growth in revenues is expected. The Shell deal is huge and offers the potential for many thousands of installations each year, National Express is also in the process of rolling out Guardian tech to its enlarged fleet following the acquisition of Stagecoach. That target market represents approximately 40,000 badged as National Express, with approximately 10,000 more belonging to  contractors.

Moreover, such is the potential for driver monitoring as part of an overall control system that it is clear this is only the beginning of a global ramp up in sales. Seeing Machines is only scratching the surface of the potential within telematics with its current partnerships. Europe and the US will be screaming out for this technology as regulations tighten and companies seek to improve both safety and reduce emissions. This will all become apparent as we hear more about the introduction of its 3rd Generation fleet product.

In contrast, SmartEye is ‘pre-revenue’ with a fleet operation that only launched in March 2021, with 20 staff. It had a ‘pilot projects’ operational in July and I look forward to hearing about some meaningful revenues one day soon.

Aviation

Smart Eye is even further behind in aviation. To the extent that even Redeye doesn’t want to talk about it. Suffice to say that it has yet to fly in Aviation.

By comparison, Seeing Machines’ Pat Nolan is airborne, and charting a course for a smooth landing on profit central. Take, for example, the recent agreement with Collins Aerospace, which is the world’s largest Tier 1 avionics company.

In addition, via CAE and L3 Harris, Seeing tech is already in simulators used by Quantas and the Royal Australian Air Force. It is also working with Airservices Australia to use its technology within Air Traffic Control (ATC).

Summary

In summary, not only does Seeing Machines lead in auto, it is far ahead of any competitor in fleet and the only player in aviation. Too little, too late, sums up Smart Eye’s offering in both fleet and aviation. 

I expect the next second half of this financial year to confirm the pre-eminence of Seeing Machines in all three transport sectors. Seeing Machines’ ever-growing pipeline will make this very clear, very soon.

Yes, Smart Eye does have significant value and potential. However, in my humble opinion, it could be an expensive mistake for an investor to presume it is in the same league as Seeing Machines. Of course, any investor should do their own research.

Full-year results for both companies should bear out what I have stated here. In the end, the acid test for both is the visibility of increasing revenues and profitability. If I am correct, Seeing Machines should impress on the upside and Smart Eye will fail to match that.

The writer holds stock in Seeing Machines.

Mobileye IPO is positive for Seeing Machines

News that Intel plans to float Mobileye for around US$50bn in 2022 is very positive for Seeing Machines in a number of ways.

Intel a possible bidder for Seeing Machines?

Firstly, it would provide Intel with funds to take over Seeing Machines, which is the leading global player in the driver monitoring/occupant monitoring space. Intel would gain additional revenue lines in aviation and other transport verticals. It would also stymie Qualcomm’s strategy of dominating interior sensing within auto. 

Even if the acquisition turned out a mixed success for Intel, it could do what is plans to do with Mobileye; IPO it a few years later for multiples of that value. Remember Intel paid $15bn for Mobileye and that acquisition has arguably turned out to be a very mixed blessing.

Presssure on Qualcomm to bid increases

A further positive for Seeing Machines is that the timing of Intel’s move increases the pressure on Qualcomm to make a bid for Seeing Machines, while the former’s hegemony in DMS/OMS is still rumour not fact. By June 2022 multiple wins in auto DMS/OMS will be known to all market participants and Seeing Machines market value will have risen significantly. 

By acting soon, on its knowledge of guaranteed wins by Seeing Machines that have not yet been officially signed, Qualcomm could save itself billions and avoid a strategic denouement at the hands of Intel. 

Yes, Qualcomm would have to come up with at least US$5bn but that is a relative bargain, given that Seeing Machines profits from fleet, auto and aviation would earn that back by 2030.

The writer holds stock in Seeing Machines

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.

SmartEye vs Seeing Machines

In view of the stellar PR coming out of SmartEye today, I felt it worthwhile to mention that while I applaud its chutzpah, I still don’t think its technology matches that of Seeing Machines. That said, I believe both will progress further and eventually be taken over.

Questions for SmartEye

Let me explain some questions that arose in my mind as I read the announcement from SmartEye today.

  1. SmartEye is saying that it has half a million cars carrying its DMS but, if so, they must be selling it very cheaply given the revenues announced.
  2. Given Seeing Machines has already stated that A$900m of RFQs are being decided right now, it seems odd that SmartEye should contradict this with the statement that “several smaller procurements are soon to be decided in the near term”. Is it possible that this is marketing speak for: “We’ve not won VW or Toyota”?
  3. As if to dispel this notion we’re promised: “Three of the largest procurements of DMS to date are due for sourcing in the coming quarters”. Really? Well, don’t hold your breath if you think SmartEye is going to win them against the combined might of Qualcomm and Seeing Machines.

Of course, I am biased purely because I’ve conducted one helluva lot of research. I believe Qualcomm is set to unveil a host of auto RFQ wins before Christmas, with Seeing Machines DMS/OMS in them. And yes, I’m convinced SEE has won Toyota and VW — I just can’t prove it. Certainly, I don’t hear SmartEye mentioning either company.

Regarding fleet, I believe the global Shell deal is set to be huge. I’ve heard whispers that it could be a caterpillar-style deal, with upfront revenues that will bring forward break-even. Though, with Shell in a quiet period, I can’t confirm.

Moreover, See’s fleet arm is making money, while SmartEye’s nascent fleet offering is still pre-revenue! 

As for aviation, we patiently await the imminent takeoff off of Seeing Machines’ licensing deal with L3. It appears to have been delayed by a year. Regardless, given the progress made, the idea that Seeing Machines aviation arm has no value is plainly ludicrous (not in an Elon Musk way).

Bidders circling Seeing Machines?

By the way, I’m still of the opinion that Seeing Machines is very likely to receive a bid from Qualcomm very, very soon. Indeed, one fund manager recently rang me to ask about a rumour he’d heard coming out of the US, regarding a possible takeover of Seeing Machines. He didn’t mention who it was or his source but, if I was Qualcomm, I’d get the ring on Seeing Machines finger fast.

CES might be the perfect opportunity to announce the betrothal to the world. (I also believe SmartEye will also get bought in due course).

My logic? I just can’t imagine that Qualcomm can risk SEE’s tech falling to anyone else, given its importance to its auto stack offering. Look at how it outmaneuvered Magna to get its hands on Arriver. Certainly, Apple or Alphabet have the potential to outmuscle Qualcomm, as they must also know its potential worth. Therefore, I believe a lot of wooing is going on behind closed doors. 

By the way, has anyone dared tell Elon Musk that buying Seeing Machines might get Missy Cummings off his back?

My advice to Seeing Machines: “Don’t sign any pre-nup until you’ve seen the size of their respective wallets. You’re worth at least £10 billion!”

(Do your own research, as the writer may have been high on life while writing this – Ed).

The writer holds stock in Seeing Machines

Is Seeing Machines set to be taken over within 6 months?

Following today’s interview with Seeing Machines CEO Paul McGlone, I’m convinced that Seeing Machines is set to soon follow Veoneer and be the subject of a bidding war, most likely within the next 6 months.

The main driver is its dominance in the automotive driver monitoring space, where it is set to win the lions share of a multi-billion dollar market over the next year. (My view is it wins at least 70% of the RFQs).

McGlone was very candid in the interview and the key part I’m going to refer to starts from around 13 minutes in. There he outlined the problem winning most of the DMS/OMS market brings to a relative minnow:

“In my opinion, this is the beginning of the consolidation in interior sensing. Not the end, the beginning. I doubt very much whether there will be 3 or 4 majors in this space 2 years from now.”

“One of the challenges we have right now is that with almost a billion dollars of RFQs, which is more than we’ve seen in our entire life, on our table today, and we expect another billion next year, we have a really important decision to make. Do we pursue it all, do we get selective and strategic about what we pursue? What are the investment implications for either choice?

It is very, very clear: if we pursue it all and we win at our historical run rate of 40 plus per cent it is a fantastic return on investment. So, over the next 2 quarters we’ll be looking in great detail around the volume of RFQs, the requirements in each of them…the cost of doing them and the return on investment. That is the big decision for us to make. We don’t have to make it now but we’ll be working on it over the next 2 quarters.”

I personally think the opportunity is so huge that even if Seeing Machines wanted to pursue the opportunity offered by automotive alone, it won’t be allowed to do so. However, I think they’ve already decided to sell if the price is right.

By the way, I think that price will be over £1. Looks silly when the price is 10p but huge contract wins haven’t yet been announced. When they are the price will rise and £1 will eventually look cheap.

Qualcomm grabbed Veoneer from the hands of Magna because it sees the strategic importance of active safety in automotive to its future business.

Seeing Machines is of even more importance as its technology is the jewel in the crown of active safety (an area that has grown in importance as the automotive industry comes to realise that mass adoption of fully autonomous vehicles is decades away). While car computer systems will increasingly carry out more tasks for drivers they’ll still need to ensure drivers are paying sufficient attention to take over when required.

Moreover, Seeing Machines technology, which at its height goes far beyond mere eye-tracking and helps computers to assess the cognitive load of a human (including whether they are incapacitated or not), has many uses that go far beyond passenger automotive. This includes trucking and uses in aviation (training simulators, ground control tracking and planes). Shipping and flying cars will surely follow and spacecraft would logically use it eventually.

Yet, its tech has uses far beyond transport: in XR headsets, mobiles, medical devices and robots. In all these markets Seeing Machines technology has the potential to deliver multi-billion dollar revenues to its owner.

That’s why, although I expect it to be valued partly on a forward order book in automotive, its dominance in the trucking and nascent aviation markets will also increase its intrinsic worth.

Crucially, it should also obtain a healthy premium for its strategic importance in developing future markets.

That’s why, although Qualcomm must be red hot favourites to take it over, there is the likelihood that another chip company (eager to spoil the party) or even a private equity firm (awash with dry powder and seeking to acquire valuable assets) will make a bid.

I also think a bid from Apple or even Alphabet is a strong possibility. Each will know its strategic importance to their future plans and be prepared to outbid Qualcomm for it. For example, after the money spent on Waymo for little real return it might make sense for Alphabet to hedge its bets and spend a few billion dollars to acquire a guaranteed golden goose like Seeing Machines. Equally, why should the forthcoming Apple Car not use its own DMS (from Seeing Machines) and use that technology in its own computer chips to power its headsets, mobiles and computers?

Of course, I could be completely wrong. After all, I once thought driver monitoring would be one of the hottest areas in automotive and look how that worked out.

The writer holds stock in Seeing Machines.