InvenSense Remains A Solid Long-Term Investment

| About: InvenSense (INVN)

Summary

The growth prospects from the Chinese region are extremely attractive for the company.

InvenSense's technology is getting very good reception from Chinese low-cost smartphone manufacturers, which will be key in bringing diversification to its revenues.

The growth potential for InvenSense's technology also is solid in the wearables segment.

The global consumer motion sensor market has developed substantially over the last few years. The companies operating in this sector have benefited a lot from this uptrend and recorded remarkable growth. InvenSense (NYSE:INVN) is one of the leading companies in the motion interface market that develops and markets micro-electro-mechanical systems (MEMS) for various consumer electronic devices. The latest innovations and increased research and development enabled the company to gain a leading market share in the industry. Further, the partnership with Apple (NASDAQ:AAPL) is very advantageous for the company - as our fellow SA authors have discussed in detail this partnership, we will focus on other key growth areas of the company.

We conducted a detailed analysis of the company revenues and business performance in our last article. This article will focus on core geographic growth regions as well as key segments.

Strong Growth Ahead From China

China is the second largest economy in the world and the economic boom has resulted in increasing the urbanization. The urban share of the population stood at 45% at the end of 2010 and it is expected to reach to 60% of the total population by 2030. This increased urbanization has enabled the country to become one of the fastest growing markets for advanced and latest technologies in the world, especially in the smartphone industry. According to the analysts at Consumer Market Research Reports, the smartphone market in China will grow at a CAGR of 5% between the period of 2013-2018. This increase is due to the successful presence of international as well as local smartphone vendors such as Apple, Samsung, Huawei, Xiaomi, Lenovo, ZTE and several others.

The growing competition of global and local vendors has enabled the region to become a lucrative emerging market led by the latest innovative features introduced by these companies. One of the key features includes motion sensing technology, and the demand for this feature is going to rise at a CAGR of 21.78% from 2011-2016, according to Markets and Markets Research. InvenSense is one of the market leaders in motion sensing technology and has integrated its business alliances with several Chinese Smartphone vendors such as Xiaomi, Oppo Electronics, ZTE and Lenovo. As discussed in our previous article, Asia will remain the main region for the company as its major customers are placed in this region.

However, the rise of local vendors in the region is mainly due to low-cost smartphones, which has allowed these manufacturers to capture a substantial portion of the Chinese market over the last few years. Further, InvenSense has targeted Chinese Original Equipment Manufacturers (OEMs) to compete with world-class smartphones by providing them with its latest MEMS technology. The company has provided these vendors with the most adequate motion sensing engine, MPU-6515 - this engine has the right mix of features and cost structure for low-cost Chinese smartphone vendors. The motion sensing feature has enabled the low-cost Chinese manufacturers to get a larger market share in the region - Samsung's market share dropped to 25% from 32% in the last year, while Apple's share fell slightly to 12% from 13%.

Emerging Wearable Market Ensures Growth

Besides the unmatchable growth in the smartphones industry during the past few years, the smartphones vendors are also focused toward specialized wearable products with their smartphones and tablet devices. The total addressable market (TAM) for the motion sensor industry has observed strong emergence of the fitness and wearable consumer electronics during the past five years, which is expected to grow at a CAGR of 71% from 2012-2016 and 170 million units by 2016, according to IMS Research.

Source: Investor Presentation, InvenSense, August 2014.

InvenSense has identified the growth potential in this industry and developed the advanced accelerometer and 6-axis gyroscope technology in order to fulfill the complex activity recognition and contextual awareness needs of the wearable technology. The company has provided this latest technology, MP67b, for the iPhone 6, and it is also rumored that the company's sensors are also present in the upcoming iWatch. According to the production estimates of iPhone 6 given by Apple (around 70 - 80 million), InvenSense will have a substantial increase in its revenues from the smartphones and wearables market. Apple has already reported a very strong pre-order activity for its new handsets, which bodes well for InvenSense.

Conclusion

Although the contract with Apple is a major growth driver for the company, we should not ignore its potential from emerging markets and other vendors. The growth prospects of the company are extremely attractive and China will continue to play a vital role in the future growth of InvenSense. We maintain that InvenSense is an attractive long-term investment, and it should reward its shareholders handsomely.

Additional Disclosure: This article is for informational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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