Apple – Tick in the box.

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Hacking of Face ID proves its security.

• The inevitable hacking of Face ID has been achieved but I think that the lengths that the hackers had to go to crack the system proves that, for all practical purposes, it is a worthy upgrade from fingerprint recognition.
• 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 as:
  • First: 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.
  • Second: 3D printing, 2D printing and hand-made artistry was used to create the mask indicating just how intricate the process was.
  • Third: each mask costs $150 to produce.
  • Fourth: it took 9 days to crack (even with at least 10 years’ experience) and I 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, I 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 me to think that Apple has successfully ticked this box.
• However, fast and reliable Face ID is clearly quite difficult and expensive to achieve (Samsung’s is awful) which leads me to think that Apple has set a standard for high end devices going forward.
• I 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.
• In the ecosystem, Apple is still miles ahead largely due to Google’s inability to deal with the endemic fragmentation, security and updating issues that continue to hamper the Android user experience.
• Hence, I remain unconcerned for Apple’s iPhone gross margins for the next 12 to 18 months.
• That being said, I think the shares continue to price in a larger iPhone X driven cycle of replacement than I see as likely.
• This combined with excellent price appreciation so far this year, leaves me indifferent to the shares.