Close to the OEM end customer

FPC’s biometric systems are a combination of sophisticated hardware and software, while a precondition for sales being that both of these features will be customized. The strength of FPC’s business also lies in its close relationship with the end customer, from sales to customer-specific customizations to continued software updates.

Scalable business model

The biometric technology is scalable in relation to a wide range of markets. FPC’s system solutions are marketed to two segments – smartphones/tablets and vertical markets with embedded fingerprint technology (embedded solutions).

R&D and marketing as well as sales – the strongest links

FPC is a fabless manufacturer, meaning that FPC does not manufacture hardware itself, but it owns the essential links of R&D, marketing and sales, as well as production management in its own value chain.

Two-way marketing in the smartphone/tablet segment

Marketing and sales directly target smartphone/tablet manufacturers (OEMs) that decide which units will be incorporated into their technical specifications, also known as a design win. The OEMs also state which adaptations must be made to adapt FPC’s biometrics systems. FPC’s marketing also targets module suppliers who are able to strengthen their businesses with FPC’s strategic system solutions.
Marketing and sales are both handled on a proprietary basis, as well as via distributors and resellers. In addition to direct contact with customers, major global trade fairs are an important channel.

The distributor – an important link in the delivery chain

Distributors are an established link in the electronics industry. One of the distributors that FPC supplies is the Chinese firm WPI (World Peace Industrial Group).

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Given that FPC has qualified a biometric system solution for smartphone/tablet manufacturers, it is natural for this customer relationship to continue as the manufacturers develop new products.

This established partnership with the module suppliers and distributors of smartphone/tablet manufacturers’ strengthens FPC’s continued partnerships and relationships in continued customer-specific product development/customization.

FPC receives revenues when its hardware – in the form of wafers (sensors in continuous format) or packaged sensors (LGA) – is delivered to the distributor or module supplier. Software development is ordinarily part of the contract. Software development/customization may also be charged to an OEM separately as part of the software license. FPC only reports one type of revenue in its accounts.

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The business model for smartcards is more direct, because FPC accounts for distribution of packaged sensors via subsuppliers, bypassing the wholesale level. Marketing is conducted in two directions, targeting both smartcard manufacturers and smartcard issuers, with such players as MasterCard and Visa. Revenue is generated by the smartcard manufacturer.

Module supplier – an important partner of two parties

Like many other advanced products, smartphones/tablets are produced by assembling modules from several subsuppliers. In the mobile industry, this is largely performed by module suppliers, and every OEM has its preferred module partner. The module supplier is responsible for the assembly and packaging of module components.
Among its many end customer contacts, FPC works closely with ten or so module suppliers, notable among which are CrucialTec and O-film.
The module suppliers may be viewed as both partners and customers, since they set specifications while also being a partner in FPC’s product customization.

The chip manufacturer – a global player

FPC’s hardware – the silicon chip – is primarily manufactured through the Chinese company SMIC (Semiconductor Manufacturing International Corporation, listed on the NYSE and Shanghai exchanges), one of the five largest semiconductor manufacturers in the world. SMICs powerfully expanded their production in 2015 in order to meet sharply rising demand. Meanwhile, FPC engaged an additional manufacturing partner, also one of the five largest manufacturers, in order to increase its delivery capacity.
Production takes place in several factories. FPC orders silicon chips based on forecasts to ensure its delivery capacity. The silicon chip manufacturers must build new capacity in order to increase their capacity. As the market grows, volumes become increasingly important, giving FPC a strong position as a customer and a purchaser, by being a priority customer that utilize production in line with existing capacity.
The chip is further refined when necessary through processes including LGA packaging, with the help of other suppliers, depending on volume.

Smaller silicon chips generates higher margins

Chips with a smaller surface area contribute to lower production costs and thus a better gross margin. In 2015, product development resulted in increased functionality on a significantly smaller sensor area, reducing surface area by nearly 70%. The sensors are manufactured in wafers, which come in a particular size so that smaller sensors reflect significantly more sensors per wafer. FPC estimates that its gross margin could consistently be in the 40-45% range for a protracted period.