The rise in demand for mobile devices and wearables embedded with motion tracking sensors has resulted in the growth of various chipmakers. InvenSense (INVN, Financial) is one such company which has been riding high on this demand. The company has been steadily performing beyond expectations, mainly due to the fact that various mobile customers are its clients.
The company provides its customers plug and play tracking solutions with MotionApps software. Recently, the share price of the company rocketed on rumors that InvenSense could be a probable vendor to Apple (AAPL) for the upcoming iPhone series.
Looking into the future growth of the wearable market, the company is also diversifying from its core mobile market into wearables. The company is investing in R&D to expand its product line with new innovations of products.
The company recently released its Q4 2014 results which were quite impressive. It recorded revenue of $59 million as against $55.2 million last year. The fiscal year also ended on a positive note with total revenue of $252 million as against $208 million for fiscal 2013.
The bottom line for the quarter displayed a loss of $5.6 million as against an income of $13.6 million recorded in Q4 2013. On an annual basis, fiscal 2014 saw total income of $6.6 million as against $51.7 million in fiscal 2013.
The loss in the Q4 was basically due to increased R&D expenditure and various inventory expenses. Looking into the future, the company is building inventory in order to meet rising demand. The investment made by the company in the previous quarter might have hit the bottom line, but this investment will certainly yield better returns in the future.
The expenditure in the future will also be lower and we can witness better earnings in fiscal 2015. The company is positioned to increase the capacity in a more linear fashion with optimum costs, and is also prepared for multiple significant customer ramps in the coming quarters.
CEO Behrooz Abdi said “During fiscal 2014, we increased investment in research and development in order to support an expanded roadmap, strategic product development initiatives, and extensive new product and customer qualification activities.”
The Chinese smartphone market is also witnessing constant growth and this will be a catalyst to boost InvenSense’s top and bottom lines. Chinese smartphone manufacturers like Xiaomi and Oppo are the manufacturers of low cost smartphones embedded with motion tracking and optical image stabilization. This leads to higher demand for InvenSense.
Furthermore, smartphone manufacturers like Samsung are also using transducers manufactured by InvenSense. Various devices like the Galaxy Note 3, Google’s Nexus 5, and Amazon's (AMZN) Kindle Fire are powered by InvenSense’s 6-axis MotionTracking and 2-axis gyros. These facts exemplifies that the company’s sensors are renowned for its quality, a reason for it being adopted by leading manufacturers of devices.
InvenSense is also establishing its foothold in the fast growing wearable device market. It is targeting health and fitness tracking applications, smartwatches, wearable computing, and gaming. ABI Research estimates that the global market for wearables in health and fitness could reach 170 million devices by 2017.
InvenSense, to add on to its multi segment product portfolio, acquired Analog Devices’ MEMS business to have a stronger grip on the audio market. This acquisition enables the company for a better prospect in MEMS microphone business.
Conclusion
Driven by all such positives, analysts are quite optimistic about InvenSense’s performance in the future. The company’s earnings are expected to grow at a solid 21.67% annual rate over the next five years, which makes it a good buy at under 29 times forward earnings.
