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One of the most interesting additions to the new iPhone 5s was the inclusion of a "motion co-processor" chip, the M7. This chip will run beside Apple's (NASDAQ:AAPL) A7 chip, and will deal with the processing of sensor data like Accelerometer, Proximity Sensor, GPS, and the Three- Axis gyro. The benefit for having the M7 chip perform these tasks instead of the A7 would be an improved battery life, and less work for the core processor. In essence, the M7 chip frees up the A7 chips for other tasks, or to just let it nap.

This is expected to be a positive for app developers, especially those in the fitness field, who will be able to receive motion data from the chip and use the information in their respective applications. During the September 10th iPhone 5s launch event, we got to see a short video demo of the new Nike + Move app, which ties the sensors with Apple's Game Center. After the event NikeFuel tweeted: "Get active, stay active with the Nike+ Move app, an introductory experience to NikeFuel made to move with the iPhone 5S. Coming soon."

As a diehard Nike + user, I am very excited at the idea of seeing it in action. Phil Schiller calls it "contextual awareness," as the sensors know if you're standing, walking, running or driving.

I fully expect to see this M7 chip in an anticipated iWatch release, as a key area of interest for smart watch manufacturers is the fitness/health market. Currently there are just under 30 million Americans who run at least 50 times per year, and some 45 million people have a gym membership, so the market to combine fitness with an iWatch certainly exists.

This brings me to InvenSense (NYSE:INVN), the maker of motion tracking devices like gyroscopes and single-chip MotionTracking solutions, for clients like Samsung (OTC:SSNLF), Sony (NYSE:SNE) and Sharp. Samsung alone is expected to account for 30% of sales this quarter, as its components can be found in Samsung Galaxy S4, just launched Galaxy note 3 and possibly in the upcoming Samsung Gear Watch. The elephant in the room here is Apple. At D11, AllthingsD tech's conference, Apple CEO Tim Cook stated during his appearance: "I think there are other things in this space that could be interesting. Sensors are exploding. It will become clearer over time."

Evercore Analyst's Mark McKechnie morning note for September 11, 2013 came to the same conclusion and stated: "Apple's new iPhone5s includes the M7 motion sensor co-processor which on its own Mark views as a positive for InvenSense as it shows the consumer importance of advanced motion sensing for world class smartphone players."

But the play in my view isn't Apple validating the use of sensor technology, I think the fitness market has done that already with products like the Nike Fuel band, Jawbone UP and the FitBit. The question here is will InvenSense start supplying 3-axis gyro or better yet Motion Interface chips to Apple? Currently, InvenSense does not have a relationship with Apple, but in the same morning note Evercore hypothesizes that if indeed InvenSense's 3-axis gyro is built in to the iPhone 5s, this could mean "$0.70 of InvenSense content for a 3-axis part" and a iPhone 5s win would bode very well for additional business in the Apple line, most notably the other iPhones, iPads and iWatch.

Analyst Toni Sacconaghi at Sanford C. Bernstein had the following to say regarding the smart watch market: "We see the potential to sell 9million-25 million watches in the first full year, which assumes that 10%-25% of the iPhone installed base purchases an iPhone over the first 3 years (i.e., 3 year steady-state replacement cycle)."

Clearly the market exists for InvenSense products, and a possible confirmation of such a relationship with Apple and the iPhone 5s could potentially send shares of InvenSense to $20 and higher. We will likely get an answer by September 20th, when the first report of teardowns of the iPhone 5s will be made available from sites like iFixit.com.

There are two ways to trade InvenSense's stock. The first being, either buy the stock outright or the second being purchasing call options. I expect around September 20th to get confirmation of any InvenSense product in the iPhone 5s, which coincidently, also happens to be the expiration date for September calls.

I plan to play the $19 (at $.30) and the $20 (at $0.10) calls as this is a "lotto ticket" play to maximize potential profit. I like these calls also because of the limited downside risk versus buying the stock outright. A strategy of this nature isn't for all investors, as we run the risk of seeing the news after the options expire, or the stock could see stronger follow through after the Street's analysts finish crunching the numbers. But like every trade I make, I like the risk/reward in this case. For less aggressive investors, with longer time frames, buying the stock with a half position now and waiting for confirmation to fill the other half of your position isn't a bad way to go either, as this story doesn't end on the 20th, it could be just the beginning.

If it is shown that InvenSense products are not featured in the iPhone 5s, I believe we will likely see a pullback in the stock given the fact that traders are speculating on a potential Apple order. This doesn't change the fact the company sells a line of products that is only going to see increased demand as the wearable smartwatch trend gains momentum. This is part of the reason why I advised buying only half of the position now, as this can give investors an opportunity to buy the other half if there is a share pullback.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INVN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I will be buying the Sept $19 and $20 calls options

Source: Will InvenSense's Sensor Be In The iPhone 5s? D-Day Is Sept. 20