InvenSense (NYSE: INVN) is a company I have invested in and I'll tell you why. The company is a world leader in intelligent sensor systems on chip (SoC) for motion and sound in consumer electronic devices. More precisely, they manufactures and sells micro-electro-mechanical systems (MEMS) sensors (such as gyroscopes, accelerometers, compasses and pressure sensors) for motion tracking devices and also microphones. This is something that is needed in a variety of things such as smartphones, tablets, drones, robots and wearables. To give you a better idea of what the technology does, when you are playing a game on your smartphone sensors are used to keep track of the devices movement so that the app can work correctly.
The company is a world leader in intelligent sensor systems on chip...
Their largest customers are probably not surprisingly Samsung (Korea: 005930.KS) and Apple (NASDAQ: AAPL) who is the world's largest producers of smartphones. The companies account for about 50% of InvenSense's sales, this is something that many see as troubling. The fact that they depend on these large smartphone manufacturers, they may need to give them favorable prices that would lead to smaller margins. You need to be aware that the market is highly competitive and it would not be surprising if a supplier takes a margin hit to retain revenues from a large customers. Although this risk, there are great opportunities for expansion in Asia, they have already established business with several Chinese smartphone vendors such as Xiaomi, Lenovo (Hong Kong: 0992.HK), Oppo Electronics and ZTE (Hong Kong: 0763.HK).
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InvenSense has strong sales of its 6-axis motion tracking solutions and its 2-axis optical image stabilization products to, for instance, Xiaomi and Oppo. They are not just selling the sensors, they sell the software and key solutions. You will find InvenSense sensors in a variety of popular products which shows how cutting-edge their technology is. You can find their sensors in devices such as Samsung's Galaxy Note 3, Google's (NASDAQ: GOOG) Nexus 5 and Amazon's (NASDAQ: AMZN) Kindle Fire. These smartphones use InvenSense's 6-axis motion tracking devices and 2-axis gyroscopes. Do not think that I forgot the iPhone 6, which also has a 6-axis combination gyroscope accelerometer. You have probably read about Apple's Q4 report, they sold an incredible 74.5 million iPhones and had the most profitable quarter of any company in history. You can read about it here: Apple Just Had The Most Profitable Quarter of Any Company In History
You will find InvenSense sensors in a variety of popular products which shows how cutting-edge their technology is.
Growth prospects look very good in the Chinese region and InvenSense's technology have been very well received from the low-cost smartphone manufacturers. This will bring diversification of revenue and reduce the high risk that exists today. It's important to know, as I said earlier that the market is highly competitive and that InvenSense stock have a high risk. But there are significant growth opportunities in the future and that's why I own shares. First of all is InvenSense making good progress in wearable devices with health and fitness tracking, smartwatches, wearable computing and immersive gaming. This is something that analysts believe will give InvenSense good growth in the future. And It's possible that Apple Watch will use some of InvenSense's chips. If you are more interested in Apple, I have written a post where I explain why you should buy shares for a long-term investment: My First Stock: Apple
What about the drones? The drone growth will be huge over the next 5-10 years and InvenSense is a company that is likely to have a component or two in many drones. Amazon and Alibaba (NYSE: BABA) are only a few of many companies that right now are testing drone deliveries. The FAA (Federal Aviation Administration) who is a regulator in the US is now working under a deadline of September 2015 to develop regulations for drones. Although regulations take a long time it will go very quickly once it takes off. InvenSense is one of several companies that I have invested in that are well-positioned for the commercial drone market that soon will occur. I think it's a good strategy to invest in companies that supply the drone producers with necessary things. I highly recommend that you read this post to find out everything that is happening around drones right now: Want To Invest In The Drone Revolution?
The drone growth will be huge over the next 5-10 years and InvenSense is a company that is likely to have a component or two in many drones.
Another thing you should know is that InvenSense are getting sued but don't freak out. In short, it's about investors claiming that the company has cheated them by not revealing what kind of favorable terms that they give to Apple and Samsung. Most articles I've read says that this lawsuit is baseless, but you should keep an eye on this. Finally, I thought we'd check on the stock that you can see below. As you can see shares fell sharply recently after the company's earnings release. The market expected earnings per share would be $0.16, but it wasn't close and found to be $0.05. The earnings per share had failed mainly by the large decline in gross margin (it probably had with Apple and Samsung to do) and a large write-down of some older inventory. Even though there is some commotion around the company, I think it will be a good long-term investment due to the substantial growth opportunities that I have mentioned. (I refer to the future growth of wearables and drones.)
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