This Company Will Dominate the Next Generation of Wearables

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Samsung (NASDAQOTH: SSNLF  ) introduced the follow-up to last year's Galaxy Gear smartwatch on Monday at the Mobile World Congress in Barcelona. The Korean electronics maker is pushing the market forward as it leverages its smartphone presence to market its wrist-wearables.

While many investors speculate about the high-end wearable market, and whether a little company called Apple (NASDAQ: AAPL  ) will join the fray to compete with Samsung and Google (NASDAQ: GOOGL  ) , one little chipmaker is poised to capitalize on the wearable market -- both high-end and low-end -- by providing the key features that make these tiny computers worth the money -- InvenSense (NYSE: INVN  ) .

The company has announced several new chips at Mobile World Congress this week that will strengthen its foothold in the wearable market.

Key feature No. 1: Fitness tracking
A big focus of Samsung's presentation on Monday was on health and fitness. The Korean electronics maker integrated a heart rate monitor into both its flagship Galaxy S5 smartphone and the Galaxy Gear line and introduced a software suite for tracking and coaching budding athletes.

InvenSense is well on its way to providing similar capabilities for other wearables. On Monday, the company introduced a new 7-axis chip for wearables that incorporates a pressure sensor into the typical 6-axis (3-axis gyroscope, 3 axis accelerometer) chip. The pressure sensor can more accurately detect altitude for better tracking of runs, walks, and bike routes.

Additionally, it can incorporate its Automatic Activity Recognition software library, which enables the detection of numerous activities through the use of the accelerometer and gyroscope. As more OEMs with less time and money to invest in their own software look to enter the wearable market, InvenSense is poised to capitalize on this with its own software suite that's plug-and-play with its chips.

Key feature No. 2: Always on
For a smartwatch to be particularly useful it needs to be able to function instantly -- and sometimes before a user knows he needs it. Activity tracking and instant wake require a certain amount of battery to power the device while its in standby mode. Here, InvenSense is leading the competition in low-powered chips and instant wake capabilities.

InvenSense acquired the microphone business from ADI last year, and management is working to incorporate wake-on-voice capabilities for devices like in Google Glass ("Ok Glass"). The microphone will become a key aspect to most wearable devices, as tiny screens are much harder to manage via touch. InvenSense can win the socket by providing AlwaysOn capabilities with low-power requirements.

The same applies to InvenSense's other SoCs. The company's second generation Digital Motion Processor hardware accelerator allows the company's newest chips to operate efficiently enough to support AlwaysOn capabilities. InvenSense's leading technology in both hardware and software should enable it to win more sockets in the wearable market where power is at a premium.

Key feature No. 3: Plug-and-play
The most significant feature that will allow InvenSense to dominate the next generation of wearable devices is that its chips are deeply integrated with Google's Android. The company demonstrated how easy it is to integrate its products into wearables on Monday by unveiling a turnkey wearable platform.

InvenSense has used its relationship with Google to develop chips with Android in mind -- it won the socket in Google Glass. This will help the company win more share of the mid-to-low-end market that will emerge over the coming years. Smaller OEMs without the time to invest in their own solutions will likely tap InvenSense for its chips and firmware. This will shorten an OEM's time to market, and likely decrease R&D expenses.

Of course, on the flipside, if Apple were to enter the market, InvenSense's focus on Android could hurt it. Apple has long chosen InvenSense's competitors for motion sensors in the iPhone, but InvenSense has continued to compete for the valuable socket. If Apple does enter the market, it's an obvious threat to Android in the space -- and thus InvenSense.

A growing industry
The wearable device market is expected to grow from $1.4 billion in 2013 to $19 billion in 2018 according to Juniper Research. InvenSense is bound to capture a significant portion of the market, especially the Android market. Juniper's research assumes Apple will enter the market, and it's unclear whether InvenSense can win a design with the company. Nonetheless, InvenSense's position in Samsung's and Google's products is strong, and it's poised to capture the low-end as the market matures.

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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.

  • Report this Comment On February 27, 2014, at 6:37 PM, TheRealRacc wrote:

    Two concerns:

    Why isn't this companies potential baked into this stock? The stock has significant volume on not a whole lot of upward momentum. It is changing hands, but sometimes feels like a game of hot potato.

    P/E is 75. Approaching $2 billion. I'm just not sure.

  • Report this Comment On March 10, 2014, at 3:37 PM, TheTC wrote:

    On March 9 at SXSW, Google announced that they are releasing a Software Development Kit (SDK) and Application Programming Interface (API) for Android-based wearables:

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Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

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