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.

The Pretenders are dead, long live the King of DMS

At yesterday’s Capital Markets Day for Seeing Machines it was standing room only, as Colin Barden an independent analyst at Semicast Research presented the news that investors in Seeing Machines have long waited to hear: though the coronation has been delayed, it will be the King of DMS.

It was hard news for rivals but, in one slide, Barnden presented his projections for the market shares come 2022. He estimates 40-45% for Seeing Machines, followed by 15-20% for Mitsubishi Electric. All other rivals are left lagging far, far behind, with Smart Eye in particular estimated at 5-7%.

That said, I saw no evidence of complacency from the Seeing Machines staff, quite the reverse. McGlone, in particular, came across as a man determined to deliver profitable growth. He certainly doesn’t look like the sort of guy who will let a rival eat his lunch.

Paul McGlone, CEO, Seeing Machines

Paul McGlone, CEO, Seeing Machines

The growing interest in its DMS technology was clear from the host of analysts I met at the event: Sanjay Jha of Panmure Gordon, Lorne Daniel at FinnCap, Caspar Trenchard at Canaccord Genuity and even one from Steifel (there may well have been others). I’m sure the house broker Cenkos was represented but house analyst Jean-Marc Bunce was the invisible man on this occasion.

Fleet

Probably, a wise decision on Bunce’s part as I’ve been trying to find out why he’s taken such a conservative stance on fleet. In his note dated 23rd September he states on page 1: “We believe the guidance for 27-30k connections at the end of FY20 is conservative and underpinned by a strong pipeline.”

Yet on page 4, he contradicts this, becoming ultra conservative, when he writes: “….our Fleet connection forecasts are based on connections below the guidance of 27-30k”.

I wondered why he decided to do this and also upon what number of fleet connections he actually based his projected revenue figure of A$20.9m? By my calculations to arrive at A$20.9m he must have used less than 18,000 installations, which does appear excessively low.

Yesterday the new CEO, Paul McGlone was in combative mood as he faced down attempts to extract projections on the number of Fleet sales for 2020, sticking to guidance of 27-30k. He even declined to provide a current figure. I assume this is because Seeing Machines hopes to upgrade at the interims and doesn’t want to spoil the surprise. Personally, I don’t particularly like surprises even to the upside.

The reduction in the unit cost of Gen 2 Guardian by 21% announced yesterday must surely drive increased uptake from fleets as will the increasing number of distributors and deals with insurers.

Mike Lenne, the Human Factors expert who heads up Fleet does appear to be its secret weapon when it comes to persuading Fleets to use their technology to improve safety. HIs calm, analytical approach should pay dividends and puts Seeing Machines in a league of its own.

It was the first time I’ve met Tim Edwards, one of the original brains behind the technology along with fellow co-founder of the company Sebastien Rougeaux. Edwards comes across as a very modest man, particularly for a genius who jointly developed this life-saving technology.

Aviation

While CEO McGlone and Pat Nolan, who heads up Aviation, were chided slightly for building up expectations re. an aviation licensing deal with CAE and L3 Harris, I got the impression such a deal is at most a 2-3 months away. We’ll see I guess. The great news is that end users (such as Alaska Airlines) are now requesting that manufacturers of full flight simulators now have eye-tracking from Seeing Machines.

Auto

As for Nick DiFiore, who heads up Auto, I’m expecting him to deliver a lot. Volvo for one, VW for another pretty soon. Followed by Japanese OEMs. Oem decision-making has been the main reason for delays up to this point but See does appear remarkably well positioned with Xilinx to grab market share from Nvidia and Mobileye. The fact that Fovio can identify an incapacitated driver makes it a shoo-in for Volvo and parent Geely may well have decided it needs it too.

The US market really needs to hear this in its own accent and so it was good to be told by Paul McGlone that it will be getting a US broker. I do hope it is Morgan Stanley. I’ve long wished to read/hear Adam Jonas extol the virtues of Seeing Machines.

Overall then, while I would have liked more opportunity and time for detailed questions, I feel that further patience will be handsomely rewarded here. Of course, every investor should do their own research.

The writer holds stock in Seeing Machines.

Long live the King of the DMS

In a recent note from Redeye, its analyst commented that whoever wins VW or Toyota in the second half of the year will be ‘King of DMS’. He seems to think it may be Smart Eye, whereas I’m convinced it will be Seeing Machines that wins both.

I also believe Smart Eye will soon suffer the embarrassment of Volvo choosing Seeing Machines for its 2021 flagship XC90’s DMS.

Certainly, after a successful fundraise Smart Eye looks ‘strong and stable’ but as the British electorate knows only too well, the truth will out. Propaganda eventually has to give way to reality. That time has arrived for Theresa May and will very shortly arrive for Smart Eye. Tick tock.

Enough of analogies, Smart Eye even as number 2 will have its share of the cake that SEE doesn’t want. China is a big market and I wish it well there. I just hope Chinese consumers don’t take a ride in Byton’s M-Byte when it launches later this year — it features SEE’s superior DMS.

I also believe that the BMW X5 and Audi A8 will revert to Seeing Machines – for as the Beatle song Drive My Car, could have said:  ‘Using a DMS at up to 37mph is all very fine, but I can show you a better time’.

In the auto world premium means ‘the best’. In a very competitive market Audi and BMW can’t afford to look like chumps v. Mercedes when it comes to safety. That is why auto OEMs are telling, yes telling, Tier 1s to use Seeing Machines technology.

Some will naturally dispute what I’m saying. Still, let those with ears to hear, hear.

The writer holds stock in Seeing Machines.