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Invest in This Chipmaker to Benefit From Emerging Technologies

August 05, 2014 | About:
rusticnomad

rusticnomad

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Sensor maker InvenSense (INVN) ended fiscal 2014 with mixed results. The company saw a slight improvement in revenue, but failed to impress investors with its earnings. It seems that InvenSense’s extended efforts in R&D are hurting its financials. However, the CEO of the company is optimistic about a better performance going forward. With the future looking bright and a continued focus on the wearable device segment, InvenSense might prove to be a solid growth pick.

Innovation is driving results

InvenSense’s quarterly revenue clocked $59 million, which is more than $55.2 million last year. The sensor maker also managed to reduce its net loss to $5.6 million from $13.6 million last year. However, the company’s results were not good enough to impress investors, as they were expecting more. This can be seen by a 2.4% drop in the stock price as soon as the company released its results. On the earnings front, the company posted EPS of $0.07, missing analysts’ estimates.

Despite the competitive pricing environment, InvenSense still managed to perform better than before. This was the result of strong share gains that it saw in its served markets. It is focusing on various aspects to improve profitability. InvenSense is on the front foot to gain from the growing markets for OIS, wearable devices and fitness devices. It is making aggressive investments in R&D to make its products more competitive.

Growth drivers worth noting

InvenSense is undergoing a transition phase. It is transitioning from a MEMS motion sensor company to a motion tracking solution company. It has a wide range of product offerings, including a full suite of motion and audio system on chips, and embedded software that are in good demand in the market.

With the growing LTE platform in China and the transition of customers from traditional feature phones to smartphones, mobile companies such as Xiaomi and OPPO are adopting OIS in their high-end phones. This brings a bright opportunity for the sensor maker to capture additional content.

InvenSense is seeing good traction for its 6-axis product family, including MPU-6500 and 6515, with volume shipments in several flagship customer products, including Samsung's Galaxy S5 and the Samsung Gear 2 and Gear Fit wearable devices. Also, the company managed to narrow its loss on the back of good traction and shipments of its MPU-6515 product.

Also, InvenSense has seen an acceleration in customer design wins with its MotionTracking SoCs, which utilize its Digital Motion Processing with motion algorithms and MotionApps. InvenSense is confident of gaining significant market share in mobile devices with these products.

New products are catalysts

The company is focusing on new product development, along with the expansion of its software and algorithm capabilities. With such impressive moves, InvenSense is laying a roadmap for fiscal 2015. It is also introducing some new sensors in the market to provide a better offering. Its 7-axis device, launched in the last quarter of fiscal 2014, is a good example as it has an accelerometer and pressure sensor all integrated into one silicon die.

This product delivers a significantly improved navigation and contextual experience. InvenSense has also entered into a collaboration with Sonion, which is a hearing aid technology and solutions company. This multi-year collaboration to offer MEMS microphone technology is expected to deliver higher growth for InvenSense in the long run.

InvenSense is also optimistic about its performance going forward, driven by the mass shipments of its 6-axis Motion tracking chips. This will lead to more customer additions, ultimately leading to growth in its top line.

Conclusion

Looking at the ratios, InvenSense looks highly overvalued. However, with a forward P/E of 26.40, there is an impressive room for InvenSense to improve its earnings in the future. Also, it is impressive to see InvenSense’s earnings growing at a good CAGR of 22.40%. So, considering its strong outlook for the future, InvenSense is a good bet as of now.


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