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Based in Sunnyvale, California, InvenSense (NYSE:INVN) scheduled $78 million IPO with a market capitalization of $615 million at a price range mid-point of $7.75 for Wednesday, November 16, 2011. The full IPO calendar for the week of November 14 includes nine scheduled IPOs trying to raise over $1.5 billion.

SUMMARY

INVN is a fast-growing, profitable leader in a relatively new field, motion processing solutions.

Sales increased 74% to $78 million from $48 million for the six months ended September 2011 vs. September 2010, profit increased 876% to $20.5 million from $2.1 million.

Over time, INVN plans to provide motion processing solutions for a broad range of consumer markets.

VALUATION

At 13 times annualized earnings for the September quarter INVN appears undervalued, if it can maintain its current growth rate.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Stock

Annualizing Sept 6 mos

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

YTD

InvenSense (INVN)

$615

3.6

13

4.0

4.1

13%

In order for INVN’s stock to remain attractive, however, INVN’s December 2011 quarter must improve on the September 2011 quarter.

Quarterly results

June '10

Sept, '10

Dec, '10

March, '11

June '11

Sept '11

Revenues ($mm)

$22.0

$23.5

$27.2

$23.9

$35.6

$43.0

Gross profit % of rev

55%

52%

56%

55%

58%

55%

Net income (loss) %

-$1.1

$3.2

$4.7

$2.5

$9.0

$11.5

Net income (loss) %

-5%

14%

17%

10%

25%

27%

For more INVN metrics click here.

INVN expects future period gross margins to fluctuate due to changes in product mix, average unit selling prices and manufacturing costs.

Customer high concentration can reduce the INVN’s P/E multiple. For the three months ended October 2, 2011, three customers each accounted for 44%, 13% and 12% of total net revenue. Nintendo (OTCPK:NTDOY) was INVN’s largest customer in fiscal years (ended in March) 2009, 2010 and 2011, comprising 80%, 85% and 73% of net revenue, respectively.

BUSINESS

INVN is a pioneer and a global market leader in intelligent motion processing solutions. INVN defines motion processing as the ability to detect, measure, synthesize, analyze and digitize an object’s motion in three-dimensional space.

INVN’s products span increasing levels of integration, from single-axis gyroscopes to fully-integrated, intelligent dual- and three-axis, and the industry’s only six-axis, MotionProcessor units (MPUs)

INVN currently targets robust and growing markets including games, smart phones, smartTVs and tablets.

GROWTH PLAN

INVN intends to drive broader and faster adoption of its MotionProcessing solutions in the consumer electronics market.

To support and expand the customer base and promote broad adoption of motion processing, INVN intends to continue to develop easy-to-integrate, complete solutions, grow its direct sales and field application engineering teams, and work closely with customers to facilitate the development of new use cases.

INVN intends to identify new and emerging markets for its MotionProcessing solutions. INVN plans to leverage the growing interest in motion processing into markets such as power tools, sports equipment, wearable computing and industrial applications.

SHIFT TO DIGITAL FROM ANALOG

2010

In 2010, INVN began volume shipments of its MPU-3000 family of motion processors with digital output, three-axis gyroscopes, and software development kits, designed to enable faster motion processing application development.

In addition, INVN started shipping its ITG- and IMU-3000 family of products, which address a broader array of consumer applications than our analog products.

2011

In 2011, INVN’s ITG/IMU/MPU-3000 family of products started high volume shipments for the portable gaming, smart TVs, smart phone and tablet markets.

INVN also started sampling its MPU-6000 family of integrated six-axis MotionProcessors that integrate a three-axis gyroscope and three-axis accelerometer on one chip with its MotionApps platform.

RISK

According to third-party reports, sales of the Nintendo Wii, which continue to account for a significant portion of INVN’s sales, have declined in each of Nintendo’s last three fiscal years and are expected to continue to decline. The loss of, or a substantial reduction in, orders from Nintendo would materially reduce INVN’s net revenue and adversely impact operating results.

INTELLECTUAL PROPERTY

INVN has 15 issued U.S. patents and 2 issued foreign patents, which will expire between October 2023 and December 2031, and 40 patent applications pending for examination in the United States Patent and Trademark Office and 25 international patent applications pending for examination in Europe, the Republic of Korea, Taiwan, China and Japan which will expire between October 2024 and July 2031.

All of the foreign issued patents and patent applications are related to U.S. issued patents and patent applications.

COMPETITION

INVN currently competes with the following: Analog Devices (NASDAQ:ADI), Epson Toyocom, Freescale Semiconductor (NYSE:FSL), Kionix, Inc. [a wholly owned subsidiary of Rohm Co., Ltd, (OTC:ROHCF)], MEMSIC (NASDAQ:MEMS), Murata Manufacturing (OTCPK:MRAAY), Panasonic (PC), Robert Bosch GmbH, Sensor Dynamics [division of (NASDAQ:MXIM)], Sony (NYSE:SNE), STMicroelectronics (NYSE:STM)) and VTI Technologies, Inc.

Currently, STMicro is the primary competitor in the consumer motion sensing market. Over time, INVN expects continued competition from motion sensor competitors as well as competition from new entrants into the motion processing market.

USE OF PROCEEDS

INVN expects to net $69 million, which is allocated for working capital, capital expenditures and other general corporate purposes.

Source: IPO Preview: InvenSense