Inside Secure Takes a Bite of Apple in Deal to Buy Encryption Unit

Inside Secure added to a busy six months of making headlines in the payments industry by announcing Nov. 19 it will purchase Embedded Security Solutions from AuthenTec Inc., a unit of Apple Inc., before the end of the year.

In addition to bolstering Inside Secure's offerings, the planned acquisition is likely to trigger another round of speculation about Apple's plans for mobile payments. Apple purchased AuthenTec in October. 

Inside Secure, a French semiconductor technology provider, plans to involve Embedded Security's expertise in encryption into its existing mobile Near Field Communication and digital security business.

The purchase of ESS, to be paid in cash, is valued at $48 million (U.S.), Inside Secure stated in a press release.

ESS technology is used in "hundreds of millions of mobile and networking products" to ensure data privacy for businesses and individuals, Inside Secure says.

ESS was the embedded security and encryption algorithm division of mobile security company AuthenTec, which Apple struck a deal to purchase in July for a reported $356 million – a deal conducted in near-total secrecy. 

“We cannot answer at this time on why the new owner was willing to sell the (ESS) division,” Inside Secure CEO Remy de Tonnac stated during a conference call Nov. 19. “All we can say is that there is good rationale on that decision and, for us, it’s not every day you find a partnership that fits like this and it was well worth pursuing.”

When Apple reached a deal to buy AuthenTec, some industry observers wondered if the move coincided with the payments potential for the then-unnanounced iPhone 5. The phone was since released without a hardware-based payment capability. 

With the ESS division sell-off to Inside Secure, it appears Apple was more interested in AuthenTec's biometrics capabilities and its fingerprint sensor for potential use with contactless payments.

"Apple is dabbling in all sorts of technology, so it is not surprising that they would be interested in the biometrics," says Gil Luria, analyst with Los Angeles-based Wedbush Securities.

For Inside Secure, the addition of ESS keeps the company's pace with advancement sin security for mobile payments and personal identification.

"This transaction is an important opportunity to extend our position in the security value chain and reinforce our global offer in high-end security solutions," Tonnac stated.

Inside Secure began getting more notice in the payments sector in June when it launched a program to provide licenses for its NFC patents to device manufacturers, filling an industry void after San Francisco-based Via Licensing Corp. had ceased providing similar licenses. 

In October, Inside Secure positioned itself among developers advancing security in the cloud in the wake of Google Wallet moving card data off the handset's secure element and into cloud storage. 

A few weeks later, Inside Secure moved into the handset secure element realm for the first time, announcing development of VaultSecure IC, a secure element that allows multiple third parties to install and control their own applications on the handset chip. 

Inside Secure two weeks ago also introduced PicoPulse, an NFC SIM chip that equipment manufacturers could incorporate in older mobile phone models to convert them into NFC-enabled phones.