iPhone and Wii Fans Should Check Out this Tech Company
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the most interesting design features on the Apple (NASDAQ: AAPL) iPhone shows up when you put the phone down. Hold the screen sideways and it adjusts to fit the new perspective. Like other iPhone features, the perspective shift feels natural, a major difference from adjusting the perspective on a traditional laptop. Gyroscopes and other motion-sensing systems inside the iPhone make this automatic adjustment possible, but Apple isn't the only company that knows about the capabilities of these devices.
InvenSense (NYSE: INVN) actually doesn't make the gyroscopes inside the iPhones, but the company's gyroscopes do show up in the phones of several Apple rivals. InvenSense's 2011 10-K lists several major mobile device manufacturers as customers, including HTC, Samsung, and Motorola. This customer diversity seems like a good sign for InvenSense, especially because most of its revenue doesn't come from smartphones and tablets. InvenSense's original market actually wasn't smartphones and tablets at all, as its gyroscopes first became prominent because of the video game company Nintendo (NASDAQOTH: NTDOY.PK).
In the 2000s, cheap and powerful PCs were widely available, which limited the attraction of Nintendo's home gaming systems. Nintendo needed a way to get gamers back, but it didn't want to settle for upgraded versions of its older games with better graphics. With the Nintendo Wii, Nintendo introduced a control system that created a new type of gaming experience with InvenSense's gyroscopes. Instead of pushing buttons or using a joystick to swing a golf club or a tennis racket, a gamer could use the Wii controller to perform the full range of motion behind the swing.
After the Wii's sales took off, InvenSense started preparing for an IPO, eventually going public in late 2011. Unfortunately for InvenSense, the original Wii only racked up high sales for a short period, and by late 2011 Wii sales had dropped off. Although InvenSense shares did reach $22 in April, they have now fallen to just under $10 in early July. Even though InvenSense shares have fallen, it doesn't seem like the original reasons to buy this gyroscope maker have changed.
Nintendo doesn't seem like it plans to stop with the original Wii, as the company has already been talking about a potential successor to the Wii, the Wii U. Anthony John Agnello reported that players who buy Wii U games will also be able to play these games on the Nintendo 3DS. Traditional video game companies, as well as movie and music companies, resisted selling a single license that allowed a consumer to use content on several devices in the past. Apple showed Nintendo and other media companies that this type of licensing system could still provide lots of revenue, and now Wii U buyers don't have to worry about not being able to play 3DS games. Features that make the Wii U more appealing are definitely good signs for InvenSense, as InvenSense still depends on Nintendo at this point.
InvenSense's current research could make upcoming versions of the Wii even better. InvenSense now offers a motion-tracking device that operates on 9 axes, which can capture a greater range of motion than its earlier products. According to InvenSense, this is the first 9-axis motion-tracking device that any manufacturer has produced. InvenSense also developed a compact 6-axis motion tracker, which could also be useful for smaller mobile devices.
The Swiss firm STMicroelectronics NV (NYSE: STM), which makes the motion sensors for Apple devices, holds its own patents on motion-sensing technology and is currently fighting InvenSense in court. The lawsuits are still ongoing, and on July 9, InvenSense announced that it had filed several counterclaims against STMicroelectronics NV. The winner of this legal battle is still up in the air, although InvenSense's filing shows that InvenSense thinks that it can win this fight.
InvenSense demonstrated strong growth in its latest financial report, as its earnings for the quarter improved by 131 percent and its revenue improved by 38.7 percent, according to Yahoo Finance. Even with these strong growth figures, InvenSense has a forward P/E of 12.25 right now. The upcoming Wii U launch could also boost InvenSense's future sales. Dependence on Nintendo and the legal battle with STMicroelectronics NV are significant risk factors, but InvenSense's 0.74 PEG and sales to multiple mobile device makers provide some strong reasons to invest in this company anyway.
enovinson has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and InvenSense. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
