InvenSense's Motion Sensors Make Smartphones Easy

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Wouldn't it be great if you could answer an incoming call by just moving your smartphone to your ear? Or having it stop ringing by simply turning it over? Well, such technology already exists, andInvenSense ( INVN ) makes it.

Sunnyvale, Calif.-based InvenSense makes sensors that track motion on smartphones, tablets, gaming consoles, smart TVs and wearable fitness devices. The company has been on a fast expansion track, fueled by increased demand of these markets.

Its new CEO Behrooz Abdi calls these ever-increasing features on the smartphone contextual awareness: "What is the movement, how is the phone being used, what are some of the complex gestures that you can do with the phone?"

InvenSense has more than 100 corporate customers. The three largest ones are Samsung at 20%, Nintendo at 25% and Quanta at 15% of revenue, writes Ashok Kumar, senior technology analyst at Maxim Group in a report. The company's chips are also included in Acer, HTC, LG, Asus and Motorola tablets and smartphones.

Design Inclusions

In addition, InvenSense has partnerships and design inclusions atGoogle ( GOOG ),Microsoft ( MSFT ),Texas Instruments ( TXN ),Broadcom ( BRCM ),Nvidia (NVDA),Verizon (VZ) andIntel (INTC).

"We forecast the attach rate of motion sensors to increase from about 45% of an 800-million-unit smartphone and tablet market in 2012 to 70% of a 1.7-billion-unit smartphone and tablet market by 2015," said Kumar. "InvenSense remains well-positioned to monetize this growth in motion processing."

Its proprietary Nasiri Fabrication process is what separates InvenSense from its competitors. As a result of this technology, the sensors have a smaller footprint, use less power and perform at a higher level for customers, thus lowering their costs.

InvenSense's smart sensors are able to make a lot of decisions based on the environment and the movement, explains Abdi.

"Our competition always relied on the rest of the system to make decisions, based on the output of their sensor," he said. "Whereas we can actually take the output of our sensors, have multi-axis and take the information from all the different sensors, fuse them together, make more intelligent decisions based on those, calibrate one set of sensors against other sensors and get those decision factors to the processor in the system."

InvenSense also does not own any of the manufacturing facilities for its sensors, unlike its competitors do. This provides it with lots of flexibility, notes Abdi.

"We don't have to worry about building out brick-and-mortar factories and we have multiple partners such as TSMC and GlobalFoundries," said Abdi. "And we work with those manufacturing partners, and that gives us a vast manufacturing capability and flexibility to move devices around between factories and be able to drive cost and supply chain much more efficiently."

Greater Capacity

InvenSense is also in the process of significantly expanding its capacity. The company expects to more than double its capacity from 200 million units in 2012 to 400 million to 500 million units by the end of 2013. This is based on various design wins in the market, says Abdi. However, analysts speculate that the main design win could beApple (AAPL).

"They have most large phone and tablet companies except for Apple," said Gus Richard, senior research analyst at Piper Jaffray. "And I would note that a large new customer has requested that they double the capacity. They are increasing their internal test capacity quite substantially. So it's one thing to ask a potential vendor to be ready to increase output significantly. It's quite another to go out and spend capital and buy and build test systems to be ready for that volume."

Ahead Of The Game

As the market trends demand more sophisticated sensors, companies such as InvenSense need to stay ahead of the game. The fierce competition also puts pressure on pricing, which is another reason the company constantly adds more functionality to its sensors.

"They are on the technology treadmill, which is the shift from 3-axis gyroscopes to 6-axis and then 9-axis (gyroscope, accelerometer and electronic compass) and that's key to stabilizing reselling prices," said Kumar.

"Additional markets they are targeting include Optical Image Stabilization for digital cameras," he added." If you look historically, what we've seen is a 3% to 5% sequential price decline for like-to-like products. How a company gets ahead of that price decline is offering higher functionality."

InvenSense's largest competitor isSTMicroelectronics (STM), with whom the company is involved in a lawsuit.

"The ongoing litigation with STMicro represents a long-run risk," said Kumar.

InvenSense went public in 2011, and in October 2012 it brought on board new CEO Abdi, replacing the founder, Steven Nasiri.

Analysts believe the management is stellar and the transition to the new CEO was a natural progression in the evolution of a late-stage start-up going to a full-fledged public company.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: BRCM , GOOG , INVN , MSFT , TXN

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