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Buy Ambarella and InvenSense For Long-Term Growth

May 05, 2014 | About:
kcpl

kcpl

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Ambarella (AMBA) and InvenSense (INVN) are two companies that have been in the news for the fact that both of them are well-positioned to benefit from growth in wearable devices. This market is expected to be worth $12 billion in the coming years, according to Business Insider. Hence, investors must keep an eye on the performance of both companies and see how they are positioned for long-term growth.

A Look at Ambarella

Ambarella is witnessing sharp growth in revenue. Its top line for the last reported quarter increased 26.8% and the company is keen on developing different strategies to gain market share in the future. Ambarella looks well-positioned for growth in the long haul driven by strong demand for its IP cameras,

Ambarella’s IP cameras are in healthy demand with the shift of analog CCTV cameras to high definition IP cameras. Several attractive features of its IP cameras, such as high-quality, high-definition capabilities with excellent low-light capabilities, highly efficient encoding, and very low power consumption are pulling the customers. Moreover, key customers such as Hikvision and Dahua in China are driving strong demand for its cameras.

Further, Ambarella’s Wi-Fi IP cameras for home security are also seeing strong demand driven by the introduction of new cameras with high definition capabilities by traditional home security companies.

There’s also strong sales of sports cameras for Ambarella. Further, Ambarella looks well-positioned for growth with many new products in the pipeline, along with GoPro’s HERO3+ Silver and Black camera editions. In addition, Ambarella is working on wearable camera solutions for social and vertical market applications. The Google Helpout app is now having Ambarella’s wearable camera solution.

The automotive markets in regions such as Russia, China, Taiwan, and South Korea are also placing huge demand for Ambarella's products. China is one of the Ambarella’s prime markets. The transition of Chinese market from low-cost products to high definition makes Ambarella prospects in China strong even though the Chinese market is still driven by demand for low-cost products.

Ambarella is also keen on making its chips more efficient and low-cost in nature by working on the 14 nm and 16 nm process nodes.

So, Ambarella has several catalysts to drive its business higher in the future. The analysts also expect the company to post solid earnings growth in the future. Ambarella’s earnings are expected to grow a whopping 26.5% next year.

What About InvenSense

Chipmaker InvenSense is in huge demand due to exploding smartphone and tablet sales, driven by sales of its motion tracking sensors. Moreover, InvenSense shares picked up due to rumors that it could be a supplier to Apple for the coming iPhone.

InvenSense is performing well on account of top mobile customers on its client list. It has grabbed several customer design wins due to its strategy of providing customers with a true plug-and-play motion tracking solution, including value added MotionApps software.

The strong growth in Chinese smartphones such as Xiaomi and Oppo, has enabled InvenSense to witness strong sales of its 6-axis MotionTracking solutions and its 2-axis optical image stabilization (OIS) products. Also, InvenSense’s strong hold over the market is demonstrated by the fact that its sensors are present in popular phones such as Samsung's Galaxy Note 3, Google's Nexus 5, and Amazon's Kindle Fire carrying InvenSense’s 6-axis MotionTracking devices and 2-axis gyros, establishing the fact that the company’s sensors are cutting-edge.

The chipmaker’s 6-axis MotionTracking product, the MPU-6500 is also gaining market share. Also, it should gain further ground as more manufacturers roll out the latest Android devices given the fact that the product is optimized for Android Kit-Kat OS. In addition, the second-generation Digital Motion Processor hardware accelerator of InvenSense, which is equipped with algorithms for low-power system operations provides the first AlwaysOn motion tracking experience in the market. These additional features are expected to bring in more customers for the company.

The wearable devices market containing devices like health and fitness tracking, smartwatches, wearable computing, and immersive gaming is being well captured by InvenSense. Analysts expect the wearable device industry to grow at a good pace in the future driving growth for InvenSense as well. Moreover, there’s a rumor that Apple’s iWatch will come with many health-related features, which is why there might be a healthy demand for the InvenSense chips to be used in Apple devices.

InvenSense is expected to get good exposure in the audio market with the acquisition of Analog Devices' MEMS microphones business. Therefore, analysts are quite hopeful of a solid performance by InvenSense in the future driven by all such positives. The company’s earnings are expected to grow at a solid 21.67% annual rate for the next five years, which makes it a good buy at under 29 times forward earnings.

Conclusion

Both Ambarella and InvenSense are witnessing excellent demand in their end markets. Both companies are coming up with new and innovative products, so the big opportunity in the market for wearables make them solid stocks for the long run.


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