Apple – Tick in the box.
Hacking of Face ID proves its security
A Vietnamese cyber security firm and Android phone maker, Bkav Corp, has managed to reliably bypass Face ID (see here) by creating a 3D mask of the user’s face with special attention being paid to the eyes, nose and mouth. However, it is pretty clear that a huge amount of work went into the creation of this mask.
Firstly, it was designed using expert cyber security knowledge and an intricate understanding of how Face ID works. Bkav first demonstrated a bypass of facial recognition on laptops in 2008 and has been a player in the field ever since. Secondly, 3D printing, 2D printing and hand-made artistry was used to create the mask indicating just how intricate the process was. Thirdly, each mask costs $150 to produce. Finally, it took 9 days to crack (even with at least 10 years’ experience) and we suspect Bkav was working on this flat out.
The net result is that Bkav continues to advocate for the fingerprint being the best method of authentication for an electronic device. However, we think that the intricacy and cost of this hack, combined with the fact that a detailed 3D scan of the user’s face is required, is actually an endorsement of Face ID as a verification system.
Taking this with surveys that suggest that 60% of users prefer the system over fingerprint (9to5 Mac) and the fact that there few reported issues with the reliability and speed of the system leads us to think that Apple has successfully ticked this box. Nevertheless, fast and reliable Face ID is clearly quite difficult and expensive to achieve (Samsung’s is awful), which leads us to think that Apple has set a standard for high end devices going forward.
We think that this will trickle down through the tiers with time, but it looks like fingerprint sensors may have a limited life span. Furthermore, Apple now has a clear point of hardware differentiation over its competitors that is likely to last for a generation or two.
It is worth noting that, in the ecosystem, Apple is still miles ahead primarily due to Google’s inability to deal with the endemic fragmentation, security and updating issues that continue to hamper the Android user experience. Hence, we remain unconcerned for Apple’s iPhone gross margins for the next 12 to 18 months. That being said, we think the shares continue to price in a larger iPhone X driven cycle of replacement than we see as likely. This, combined with excellent price appreciation so far this year, leaves us indifferent to the shares.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.