Why Does This Chip Designer Have a New CEO?

What a long, strange week it's been for InvenSense (NYSE: INVN  ) . And I'm not so sure the weirdness will subside anytime soon.

First, the company reported second-quarter results on Tuesday. Earnings of $0.16 per share and revenue of $55.3 million were right in line with analyst targets, but third-quarter revenue guidance fell short of Street targets by roughly 2%.

InvenSense's motion sensor sales largely ebb and flow in a seasonal pattern, because most of them go into gaming systems that sell like hotcakes over the holidays. More specifically, InvenSense is a pretty good proxy for sales of the Nintendo (NASDAQOTH: NTDOY  ) Wii console, which is fading out as its successor launches next month. The company hopes to show up in smartphones and tablets one of these days, but that's not a significant market yet.

So that small guidance gap is most certainly not why InvenSense shares plunged as much as 20% that night, though. Steven Nasiri, the company's founder and longtime CEO, also announced his immediate resignation from his posts as CEO and chairman of the board.

That's a bit of a bombshell.

Kaboom!
Nasiri will remain on InvenSense's payroll through the end of the year to help smooth out the transition to new CEO Behrooz Abdi. There's no word on why Nasiri is heading out, though he did say he's not planning to start another company at this time.

This sounds less like Nasiri's choosing to move on and more like the board of directors is forcing his hand. When analysts asked him directly on the earnings call, Nasiri seemed tongue-tied and handcuffed:

Well, the press release has already summarized what we can -- we would like to say publicly. Fundamentally [I've reached my goals here and] the board had felt that for the next stage of the company, it's perhaps time to transition to a new CEO. [Abdi is great.] That's all I can basically add.

Abdi comes with a solid pedigree of high-level positions at NetLogic until Broadcom (Nasdaq: BRCM  ) bought that company, Qualcomm (Nasdaq: QCOM  ) , and Motorola, but his CV doesn't quite scream "I'm your next CEO!" in my face.

So InvenSense shareholders are left guessing at what goes on behind the curtain, and investors generally hate uncertainty.

Where do we go from here?
The long-term story is still intact: InvenSense is a leader in the motion-sensor market ahead of much larger generalist STMicroelectronics (NYSE: STM  ) , and the technology seems like a natural fit for smartphones and several other markets that InvenSense really hasn't cracked yet. So buying shares now is an early bet on a top performer in a young growth market.

But we don't know what's up with Nasiri's exit. Is there a scandal to cover up? Did Nasiri lose his passion for the company? Any of these options would be terrible for InvenSense in the long run, because there'd be undiscovered cracks in the company's very foundation.

On the other hand, it could be a simple personality clash where Nasiri just held a losing hand. Tough luck, and everybody just moves on. Or perhaps Abdi convinced the rest of the board that he's a much better man for the CEO job right now. In that case, the final outcome depends on whether he's right or not.

My tea leaves and tarot cards failed to unwind this mystery so far, and the Magic 8-Ball keeps saying "Try again later." Like I said, the weirdness will continue until we know more about this boardroom drama. For now, InvenSense is a very interesting stock that certainly belongs on your Foolish watchlist -- but I would hesitate to either buy or sell shares based on this week's action.

In other words, hold your horses, dear Fool.

The mobile revolution is still in its infancy, but with so many different companies, it can be daunting to know how to profit in the space. Fortunately, The Motley Fool has just released a free report on mobile named "The Next Trillion-Dollar Revolution" that tells you how. Inside the report, we not only describe why this seismic shift will dwarf any other technology revolution seen before it, but we also name the company at the forefront of the trend. Hundreds of thousands have requested access to previous reports, and you can access this new report today by clicking here -- it's free.

Fool contributor Anders Bylund has no positions in the stocks mentioned above. The Motley Fool owns shares of InvenSense, Nintendo, and Qualcomm. Motley Fool newsletter services have recommended buying shares of Nintendo. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2081124, ~/Articles/ArticleHandler.aspx, 7/31/2014 6:11:02 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement