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.