NXP recently announced it has taken a stake in haptic feedback tech developer Senseg through a Series B funding round.
Most headlines described Senseg as an “Immersion competitor” in the haptic field - however, we believe that Immersion can only benefit from the success of Senseg’s solution.
NXP investment will “allow Senseg to develop a next-generation solution that will be small enough and inexpensive enough to penetrate the high-volume smartphone market”.
Senseg’s technology, usually referred to as electrostatic friction, or ESF, is an unproven technology that has attracted several headlines but must still overcome key engineering issues.
Immersion’s actuator agnostic IP, existing OEMs agreements, established developer support, and strong leadership in the space makes the company the best choice for investors willing to benefit from haptics growth.
NXP (NASDAQ:NXPI) recently announced its participation in a $6 million Series B funding round that will allow Senseg to keep developing its next generation haptic solution, and hopefully to "deliver the first truly engaging smartphone haptic solution within the coming years".
NXP Semiconductors, a former semiconductor unit of Philips, is one of the largest chip makers in the world. NXP's customers include most smartphone and tablets OEMs, like Apple (NASDAQ:AAPL), Ericsson, Nokia (NYSE:NOK), Panasonic, Samsung, and Sony.
NXP achieved revenues of about $4.8 billion in 2013 - its investment in Senseg can be probably described as "pocket money" for the company, but carries a strategic importance for the Dutch firm as it represents a validation of the growing importance of the haptic market for chip producers and may be interesting for the potential customers' synergies that could be realized between the companies.
Senseg has been promising a "game changing" tactile technology since its inception, and has been quite sensationalistic in its market approach, having associated its name on a few occasions with an Apple partnership that never materialized.
Senseg's technology: still far from industry adoption
Senseg's technology is usually referred to as electrostatic friction, or ESF.
Without getting too technical, we may describe it as a way to allow static electricity to cause an increase to the friction that is felt when you slide your finger on a touch screen.
A similar technology (ultrasonic friction, or USF) has also been presented by Fujitsu at the recent 2014 Mobile World Congress:
So, when you touch an image in Fujitsu's haptic sensory tablet, the touchscreen conveys a sense of slipperiness or roughness depending on the image that's displayed.
Even though there are technologies that currently enable texture by vibrating the touchscreen display itself, Fujitsu Labs has developed the first technology to use ultrasonic vibrations to convey tactile sensations simply by varying the friction between the touchscreen display and your finger.
Fujitsu, by the way, is an Immersion Corporation (NASDAQ:IMMR) licensee that is currently shipping handsets with Immersion's TouchSense 5000 embedded control software combined with a high-fidelity piezo actuator to create HD Haptic effects.
Senseg's ESF technology (and presumably Fujitsu's USF one) still present some challenges that have prevented these solutions to become mainstream. The most important one, probably, being the fact that some people are apparently much better at conducting electricity than others, meaning that some feel too strong an effect while others say they can't almost feel anything:
There is a downside, though. While some of us could feel the effect quite distinctly, others - presumably because of having thicker/tougher/manlier skin - were much less able to make out the nuances. Using the sensitive skin on the back of the hand proved much more effective, though this clearly isn't a practical way to interact with a touch device.
Other problems with ESF technology include the use of a relatively large electrical charge or, in alternative, the need of an extremely thin layer between your finger and the conductive layer - much thinner than the Gorilla Glass used in most smartphones, and the fact that the user needs to be electrically grounded.
As a closing remark, ESF technology is very effective when the finger is moving on a touchscreen, but is not necessarily the best solution to reproduce, for example, the feeling of a button confirmation and release (perception of pressing mechanical switches).
Bottom line: Senseg's solution is extremely interesting, but while it may represent in the future a "game changer" for haptic implementation, it is to be considered today nothing more than an unproven technology that still needs some time before becoming mainstream, if ever.
The recent Series B founding was probably essential for the company to keep it alive and give it the much needed resources to cross the bridge between start up status and being able to commercialize an actual product. Getting NXP involved in the funding was a great move probably for both parties, but is no guarantee of success.
Where does Immersion stand relating to ESF technology?
Immersion is agnostic when it comes to how haptic effects are generated, and works with several different technology partners to deliver product solutions that can meet the diverse needs of its customers.
Immersion has also developed specific ESF IP, but, more importantly, has amassed some key patents in the space that will make it necessary for any OEM using ESF in the future to require a license from the company, or even ask its assistance to develop effective solutions.
While Senseg may be willing to be described by the press as "an Immersion competitor", to benefit from being associated with the clear leader in the space, investors should get the facts straight: Senseg's success may only be beneficial to Immersion, in a similar fashion to what might happen with Artifical Muscle's (a Bayer Material Science Company) ViviTouch Electro-Active Polymer technology.
Any new technical solution improving the haptics filed should not be seen by investors as a "substitute" to Immersion technology, in spite of the headline, but most probably as positive news as it potentially widens the market for the company's IP.
Immersion is the clear leader in haptic technology, with a proven and extensive IP (over 1200 issued or pending patents). Whatever contributes to haptic adoption and/or represents an improvement for this technology may be seen as beneficial to the company over the long term.
The implementation of haptics in the base Android operating system, which the company has just started monetizing, combined with the expected growth in smartphone and tablet adoption worldwide will both act as great catalysts to its story in the next few years.
In mobility, China remains a key focus. Lenovo's recent acquisition of IMMR licensee Motorola, and the fact that some local OEMs are already using haptics through Immersion's chip partners could signal that the company may be close to landing additional direct customers like Lenovo, Coolpad, or Huawei/ZTE, which could be joining Xiaomi, whose ambitions (100 million smartphone sales in 2015) may also turn into a very good revenue contributor for the company.
We also expect that the gaming segment will see a re-acceleration in growth in 2014, due to both the direct impact of Sony's royalties for the new PS4 and the indirect impact caused by an increase in sales of Sony's PS4 and Microsoft's (NASDAQ:MSFT) Xbox ONE peripherals distributed by Immersion's gaming partners.
In addition to mobility, the company is also investing in several other directions to create supplementary revenue streams, like media content. Over the long term, the automotive sector is also expected to start delivering substantial revenue growth.
There is definitely no lack of short and long term catalyst (which may also include the positive conclusion of the only remaining court case, against HTC), assuming the company can execute well on its very profitable, high margin business model.
Immersion's shares are now trading close to their 52 week low, in our opinion mainly because of the downside pressure created by one of its institutional owners, Dialectic Capital Management, that has liquidated most of its position due to rebalancing issues, and, we speculated, because of its 2013 poor performance and liquidity issues related to its short bet in a very strong stock market.
We remain positive over the long term prospects for Immersion and look forward to its Q1 2014 conference call, in a few weeks, to get some additional insight about the progress the company is making.
Disclosure: I am long IMMR. 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.